oversight

The Freeport Housing Authority, Freeport, NY, Did Not Administer Its Low-Rent Housing and Homeownership Programs in Accordance With HUD's Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2014-12-01.

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

            Freeport Housing Authority,
                   Freeport, NY
      Low-Rent Housing and Homeownership Programs




Office of Audit, Region 2    Audit Report Number: 2015-NY-1002
New York-New Jersey                            December 1, 2014
To:            Luigi D’Ancona
               Director, Office of Public Housing, New York Hub, 2APH

               Craig Clemmensen
               Director, Departmental Enforcement Center, CACB

               //SIGNED//
From:          Edgar Moore
               Regional Inspector General for Audit, New York-New Jersey Region, 2AGA

Subject:       The Freeport Housing Authority, Freeport, NY, Did Not Administer Its Low-Rent
               Housing and Homeownership Programs in Accordance With HUD’s Regulations

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 Freeport Housing Authority’s administration of
its low-rent housing and homeownership programs.

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
(212) 264-4174.
                    Audit Report Number: 2015-NY-1002
                    Date: December 1, 2014

                    The Freeport Housing Authority, Freeport, NY, Did Not Administer Its Low-
                    Rent Housing and Homeownership Programs in Accordance With HUD‘s
                    Regulations

Highlights

What We Audited and Why
We audited the Freeport Housing Authority’s administration of its low-rent housing and
homeownership programs. We selected the Authority due to a request from the U.S. Department
of Housing and Urban Development’s (HUD) New York Office of Public and Indian Housing
officials. The objective of the audit was to determine whether the Authority administered its
low-rent housing and homeownership programs in accordance with HUD’s regulations.

What We Found
The Authority did not administer its low-rent housing and homeownership programs in
accordance with HUD’s regulations. Specifically, former Authority officials did not (1) maintain
adequate records to support the proper procurement of services, including justifications for not
using customary procurement procedures; (2) administer its homeownership program in
compliance with the HUD-approved homeownership plan; (3) comply with admissions and
occupancy administrative requirements; and (4) implement financial and general administrative
practices that were consistent with requirements. These conditions occurred because former
Authority officials were either unfamiliar with or chose to disregard HUD’s regulations and the
Authority’s policies. As a result, officials could not provide documentation to show that they
expended more than $1 million in Federal funds for properly procured services.

Further, officials could not ensure the proper use of more than $1.25 million in homeownership
sale proceeds. As such, some proceeds may have been improperly spent, depriving the Authority
of funds that could have been used to complete the sale of all scattered-site properties under the
program. Former Authority officials also lacked records to support the integrity of the
Authority’s tenant selection process and financial controls to ensure the proper allocation and
disbursement of $270,849 in Federal funds.

What We Recommend
We recommend that HUD require Authority officials to (1) implement controls to ensure that the
emergency procurement procedures in the Authority’s procurement policy comply with Federal
regulations and are consistently followed, (2) provide supporting documents for the use of
approximately $1.25 million in homeownership program sale proceeds, (3) maintain records to
show the proper selection of applicants from the Authority’s waiting lists, and (4) develop and
implement financial controls to ensure the proper allocation and disbursement of funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: Former Authority Officials Did Not Maintain Adequate Records To
                    Support the Proper Procurement of Services .............................................. 5

         Finding 2: Former Authority Officials Administered the Homeownership Program
                    Contrary to the HUD-Approved Homeownership Plan .............................. 9

         Finding 3: Authority Officials Did Not Comply With Admissions and Occupancy
                    Administration Requirements and the Authority's Policies .................... 13

         Finding 4: The Authority's Financial and General Administrative Practices Were
                    Inconsistent With HUD's and Its Own Requirements ............................. 19

Scope and Methodology .........................................................................................25

Internal Controls ....................................................................................................27

Appendixes ..............................................................................................................29
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 29

         B. Auditee Comments and OIG’s Evaluation ............................................................. 30

         C. Schedule of Not-for-Profit Entity Bank Account Activity as of December 31,
            2013............................................................................................................................. 32

         D. Criteria ....................................................................................................................... 33




                                                                     2
Background and Objective
The Freeport Housing Authority was established in 1951 as a not-for-profit public corporation to
provide affordable housing for low-income families. The Authority is governed by a seven-
member board of commissioners, five of whom are appointed by the mayor and two of whom are
elected by the Authority’s residents. In February 2014, the mayor appointed four new
commissioners after three were removed from the board and one resigned.

The Authority operated without a permanent housing assistant from May 2010 through August
2013. The housing assistant, appointed in September 2013, is responsible for processing and
evaluating applications for public housing eligibility. From February 2011 through March 2013,
the Authority also operated without a permanent executive director. The Authority’s former
executive director was appointed in April 2013 but resigned a year later. The board then
appointed an interim executive director in April 2014. The executive director is responsible for
supervising the day-to-day operations of the Authority.

The Authority’s main office, located at 3 Buffalo Avenue, Freeport, NY, sustained damage
during Hurricane Sandy. As a result, in November 2012, Authority officials moved their
management operations to the community center in the Reverend John J. Madden senior citizen
development, located at 240 South Main Street, Freeport, NY.

The Authority owns and operates 352 low-rent housing units, which are located in two scattered-
site properties and three developments: (1) Moxey A. Rigby, a 100-unit family development; (2)
Reverend E. Mitchell Mallette, a 100-unit senior citizen development; and (3) Reverend John J.
Madden, a 150-unit senior citizen development. The Authority also administers 211 Section 8
housing choice vouchers. The U.S. Department of Housing and Urban Development (HUD)
authorized the Authority approximately $2.3 million in Public Housing Operating and Capital
Fund subsidies for fiscal years 2012 and 2013.

In 1999, the Authority created an affiliated, not-for-profit entity, Nautilus Development
Corporation. The not-for-profit had an affiliated entity relationship with the Authority because
its former governing board consisted of three members who were also on the board of the
Authority. Nautilus Development Corporation was created to rehabilitate the Authority’s 11
scattered-site properties for sale to first-time, low-income home buyers under the section 5(h)
homeownership program. The program offers public housing agencies a flexible way to sell to
low-income families public housing units that may no longer be efficient to operate. After all
necessary and reasonable costs for carrying out the homeownership plan have been paid; public
housing agencies may retain the net proceeds from the sale of the public housing units to meet
other low-income housing needs. The Authority sold 9 of 11 scattered-site properties.

On February 15, 2002, the Village of Freeport executed a HOME Investment Partnerships
Program contract with Nassau County to allocate $110,000 in HOME grant funds for costs
related to the rehabilitation and construction of single-family public housing units to be sold to
low-income residents. The HOME program provides formula grants to States and localities,


                                                  3
often in partnership with local nonprofit groups, to fund a wide range of activities, including
building, buying, and rehabilitating affordable housing for rent or homeownership or providing
direct rental assistance to low-income people. The HOME program is the largest Federal block
grant to State and local governments designed exclusively to create affordable housing for low-
income households. According to the homeownership plan, the not-for-profit entity applied for
HOME funds to ensure that adequate resources were available to rehabilitate the scattered-site
properties. Between October 2004 and September 2005, the not-for-profit entity disbursed
$78,530 of the $110,000 in Nassau County HOME funds awarded to the Village of Freeport.
The undisbursed balance of $31,470 is pending cancellation and reprogramming by the Village.

HUD designated the Authority “financially substandard” for the fiscal year ending December 31,
2011, because officials did not submit audited financial statements by the established deadline.
HUD officials have actively worked to improve the Authority’s overall performance and are
negotiating the terms of the proposed HUD recovery agreement and draft action plan to assist the
Authority in becoming a standard or high performer.

The objective of the audit was to determine whether the Authority administered its low-rent
housing and homeownership programs in accordance with HUD’s regulations.




                                                4
Results of Audit
Finding 1: Former Authority Officials Did Not Maintain Adequate
Records To Support the Proper Procurement of Services
Contrary to HUD’s procurement regulations and the Authority’s procurement policy,1 former
Authority officials did not maintain adequate records to support the proper procurement of
services. Specifically, officials lacked adequate documentation to support the history of the
procurements and a procurement planning process. This deficiency occurred because former
Authority officials were either unaware of or chose to disregard HUD’s procurement regulations
and the Authority’s procurement policy. As a result, there was no assurance that services were
procured in a manner that provided full and open competition, independent cost estimates were
obtained, and procurements were efficient and economical. Therefore, former Authority officials
could not provide documentation to show that they expended more than $1 million in Federal
funds for properly procured services.

Lack of Documentation To Support Proper Procurement of Services
HUD officials repeatedly cited the Authority for not providing documentation as evidence to
support that the contracts for services were procured in accordance with the requirements of 24
CFR (Code of Federal Regulations) 85.36. HUD officials informed the Authority that contracts
for landscaping, legal, security, and staffing services were improperly procured and requested
evidence of their proper procurement. However, former Authority officials issued a new
solicitation for only the legal services contract. Yet, HUD officials found that the request for
proposal violated HUD’s procurement regulations because it imposed a local geographical
preference, thereby limiting the competition. Since the Authority did not provide evidence that
these four contracts were properly procured, HUD officials would not authorize the use of
Federal funds to pay the related invoices.

Due to the Authority’s troubled designation and findings resulting from a HUD procurement
review, beginning in January 2012, Authority officials were required to request payment
authorization for all invoices under HUD’s zero-threshold drawdown policy.2 When HUD
officials rejected all payment requests for invoices related to the landscaping, legal, security, and
staffing services contracts, former Authority officials circumvented HUD’s drawdown policy by
paying several of these invoices using rental income deposited into the general fund, Federal
Emergency Management Agency (FEMA) funds, and the affiliated not-for-profit entity funds.




1
    See appendix D for HUD’s procurement regulations and the Authority’s procurement policy.
2
    Under HUD’s zero-threshold drawdown policy, Authority officials are required to submit documents supporting
    their requests for payments and obtain HUD’s approval before HUD funds can be drawn down.



                                                         5
During onsite reviews, HUD officials found evidence that improper payments were made under
these contracts and asked that we expand the scope of their discovery by determining the source
and the amounts paid. The table below shows the information gathered in response to HUD’s
request.

                                                 Source of funds
                                                                          Not-for-profit
     Contract                General fund           FEMA funds3            entity funds          Grand total
Landscaping
services                               $60,700                     $0                  $0               $60,700
Legal services                              $0                     $0                  $0                    $0
Security services                           $0                $60,690            $291,593              $352,283
Staffing services                      $15,130                $54,343                  $0               $69,473
              Total                    $75,830               $115,033            $291,593              $482,456

Although there was no evidence that the landscaping, security, and staffing services contracts
had been properly procured, between May 2011 and January 2014, former Authority officials
used $482,456 in Federal funds to pay the invoices related to these contracts despite HUD
officials’ instructions.

The proposed HUD recovery agreement and draft action plan under negotiation outline specific
remedies to ensure that the Authority conducts and documents procurement actions in
compliance with HUD’s requirements and its procurement policy and addresses all open
procurement deficiencies in a manner satisfactory to HUD officials.

Lack of Documentation To Support Procurement History
We expanded the scope of the work HUD officials performed by reviewing additional
procurements; namely, the fee accounting and the plumbing and heating services contracts.
However, former Authority officials did not provide adequate documentation to support the
history of these procurements. They did not provide records regarding the rationale for the
method of procurement, selection of contract type, contractor selection or rejection, and basis for
the contract price. As a result, there was no assurance that the services were procured in a
manner that provided full and open competition and that independent cost estimates were
obtained to ensure cost reasonableness.

For example, there was no corresponding contract file for the most recent fee accounting services
contract for the period March 1, 2013, through February 28, 2015. Further, according to the fee




3
    The New York State Office of Emergency Management coordinates the State’s response and recovery efforts in
    Federal emergency or disaster declarations. In June and July 2013, the Office disbursed $243,892 in FEMA funds
    to the Authority. According to HUD officials, FEMA payments to the Authority must be treated as Federal funds
    and used only for eligible public housing expenses.



                                                         6
accountant, the former board of commissioners had not approved this contract, which was
provided in response to the Authority’s request for proposals that was due February 7, 2013.

Regarding the plumbing and heating services contract, according to the contractor, a formal
contract had not been executed; therefore, a contract file documenting the history of the
procurement did not exist. While the contractor was reportedly used for emergencies, officials
did not provide documentation regarding the rationale for not using customary procurement
procedures and the basis for determining price reasonableness. Between January 2007 and
January 2014, former Authority officials paid the plumbing and heating services contractor more
than $1 million for the services received.

Inadequate Procurement Planning
There was no evidence that former Authority officials performed adequate procurement planning
to ensure that the Authority’s ongoing and future needs were met in an efficient and economical
manner. The previous fee accounting services contract for the period July 1, 2010, through June
30, 2011, included a 1-year renewal option. The contract renewal option expired on June 30,
2012. However, proposals for accounting services were due at the Authority on February 7,
2013, more than 7 months after the contract had expired. In the interim, the former board
extended the contract on a month-to-month basis until a new contract was procured. However,
since there was no evidence that the fee accountant’s current contract was properly planned and
procured, between May 2013 and January 2014, Authority officials made $22,000 in improper
payments under this contract.

Former Authority officials also did not properly plan for ongoing plumbing and heating service
needs. While former Authority officials used a plumbing and heating services contractor
continually and paid this contractor more than $1 million between January 2007 and January
2014, a formal contract had not been executed. Since officials did not properly plan and procure
ongoing plumbing and heating services, there was no assurance that they obtained the most
economical price for the services received.

Conclusion
Former Authority officials did not maintain adequate records to support the proper procurement
of services. Officials lacked documentation to support the history of the procurements. As a
result, there was no assurance that services were procured in a manner that provided full and
open competition and independent cost estimates were obtained to ensure that the most
economical prices were obtained. Also, there was no evidence that former Authority officials
performed adequate procurement planning to ensure that the Authority’s ongoing and future
needs would be met in an efficient and economical manner. These procurement deficiencies
occurred because officials were either unaware of or chose to disregard HUD’s procurement
regulations and the Authority’s procurement policy. As a result, former Authority officials could
not provide documentation to show that they expended more than $1 million in Federal funds for
properly procured services. The proposed HUD recovery agreement and draft action plan outline
specific remedies to address the Authority’s procurement deficiencies. Therefore, we included
only one audit recommendation, which the draft action plan did not specifically address.




                                                7
Recommendations
We recommend that the Director of HUD’s New York Office of Public and Indian Housing
require Authority officials to
      1A.    Implement controls to ensure that the emergency procurement procedures in the
             Authority’s procurement policy comply with Federal regulations and are
             consistently followed.




                                             8
Finding 2: Former Authority Officials Administered the
Homeownership Program Contrary to the HUD-Approved
Homeownership Plan

Former Authority officials administered the homeownership program contrary to the HUD-
approved homeownership plan. Specifically, officials did not maintain proper records for all
program-related activities, redirected homeownership program resources to purposes unrelated to
the administration of the program, and demolished a scattered-site property without HUD
approval. These deficiencies occurred because former Authority officials were unfamiliar with
the homeownership plan’s requirements or chose to ignore them to circumvent HUD’s zero-
threshold drawdown policy. Therefore, they could not ensure the proper use of more than $1.25
million in homeownership sale proceeds. Further, some proceeds may have been used
improperly, depriving the Authority of funds that could have been used to complete the sale of
all scattered-site properties under the program and repay HOME funds expended for the
unauthorized demolition of a scattered-site property.

Proper Records Not Maintained for All Homeownership Program Activities
Federal regulations 24 CFR 906.17 require the Authority to ensure that its not-for-profit entity
maintains proper records for all program-related activities. However, former Authority officials
did not provide evidence that they obtained executed partial releases of declarations of trust from
HUD for two scattered-site properties that were transferred to and then sold by the not-for-profit
entity. An executed partial release of declaration of trust is required for the Authority to transfer
the ownership of a property to a not-for-profit entity with clear title. In addition, former
Authority officials did not maintain all sale and financial records, including signed purchase
agreements, promissory notes, and records to identify the source and use of all homeownership
program funds, including $1.25 million in homeownership sale proceeds.

Officials did not maintain all homeownership program banking records, including bank
statements, deposit slips, and canceled checks, or source documents supporting all expenditures,
such as bills, receipts, and contracts. Therefore, we relied on the not-for-profit entity’s general
ledgers and journals and had to obtain banking records4 from the banks to identify the source and
use of the funds deposited into the entity’s four bank accounts (see appendix C). However, since
source documents were often not available, the accuracy of the identified source and use of all
homeownership program funds could not be assured.

Resources Redirected to Unrelated Program Purposes
Contrary to provisions of the HUD-approved homeownership plan, not-for-profit entity officials
redirected program resources to purposes unrelated to the administration of the program. Sale




4
    Due to the bank’s 7-year retention period, bank statements for the period before 2007 were not available.



                                                            9
proceeds from the scattered-site properties totaling more than $1.25 million5 were combined with
funds on deposit from other sources (see appendix C). Further, officials did not maintain a
separate accounting for the use of the sale proceeds. Therefore, we could not determine the
amount of proceeds used for purposes unrelated to the administration of the program. However,
based on the not-for-profit entity’s books of account, funds on deposit were used for unrelated
homeownership program purposes, such as (1) the operation of summer day camp and after-
school programs, (2) security services for public housing residents, (3) unauthorized loan
repayments and transfers to the Section 8 and low-rent housing programs, (4) the purchase of a
sports utility vehicle, and (5) Authority-related obligations. However, officials did not provide
source documents to support the accounting records.

For example, between March 2012 and April 2013, not-for-profit entity officials redirected
$291,593 in homeownership program resources to provide security services for public housing
residents. Resources were redirected because officials had found it difficult to carry out the
program’s objectives of acquiring, rehabilitating, and selling affordable housing during the
economic climate of the past 4 years. Since HUD officials had cited former Authority officials
for improperly procuring the security services contract and rejected all related invoices for
payment, officials should not have paid these invoices. However, they used homeownership
program resources to circumvent HUD’s zero-threshold drawdown policy. Further, in
accordance with section 13 of the section 5(h) implementing agreement, if not-for-profit entity
officials believed that it was not feasible to continue the program, they should have sought
HUD’s approval to terminate it and returned any unused funds to HUD. Officials should not
have redirected the $291,593 in homeownership program resources to finance the Authority’s
improperly procured security services.

Although the not-for-profit entity’s books of account showed more than $475,000 in
rehabilitation, consulting, accounting, and legal costs, which are considered reasonable
administrative costs for carrying out the approved homeownership plan, officials did not provide
source documents to support their accounting records. If these costs were eligible
homeownership program expenses, the former Authority officials may have improperly used
more than $750,0006 in homeownership sale proceeds. Since the homeownership program was
not complete because 27 of the Authority’s 11 scattered-site properties had not been rehabilitated
and sold, program resources should have been used to complete the program before they were
redirected to purposes unrelated to the administration of the program.




5
    Although 9 of the Authority’s 11 scattered-properties were sold, only 8 were transferred to and sold by the not-for-
    profit entity, and the sale proceeds were deposited into 1 of the not-for-profit entity’s accounts. The remaining
    property was not transferred to the not-for-profit entity because the court directed the Authority to sell the
    property and the related sale proceeds were deposited into the Authority’s general fund.
6
    We calculated the more than $750,000 by subtracting from the $1,250,417 in homeownership sale proceeds the
    sum of $477,519 in rehabilitation, consulting, accounting, and legal costs ($401,083 + $51,010 +$22,475 +
    $2,951), which are considered reasonable homeownership program administrative costs.
7
    One of the two properties was demolished without HUD’s approval.



                                                            10
As of December 2013, two of the not-for-profit entity’s four bank accounts were closed. On
December 27, 2013, the bank mailed a $3,919 check to the Authority for the remaining balance
to close out the first account. However, as of the end of our fieldwork, the check had not been
deposited. The second account was closed on August 14, 2008, after the former executive
director wrote a $1,051 check to himself. The remaining two bank accounts had a total balance
of $6,521 as of December 2013.

Scattered-Site Property Demolished Without HUD’s Approval
Despite a statement in the Authority’s homeownership plan that 11 scattered-site properties
would be rehabilitated and sold, former Authority officials demolished 1 property in 2004
without HUD’s prior approval as required. Further, officials did not provide evidence that they
planned to construct a replacement home for sale to a low-income home buyer. An audit of the
Nassau County HOME program8 found that former Authority officials improperly used $23,000
in HOME funds to demolish the property and recommended that these funds be repaid. Officials
had not repaid these funds.

In addition, while former Authority officials were informed that they should request retroactive
HUD approval, the former executive director explained that he was told that the Authority had to
file for a permit for the demolition before the Village of Freeport would provide the Authority
with a letter in favor of the demolition. However, he stated that the Authority had obtained a
permit before the demolition and did not plan to pursue the matter further. The new executive
director was unaware that retroactive HUD approval was required for the demolished property
and the Authority would need to seek HUD’s guidance on how to address the issue.

Conclusion
Former Authority officials did not administer the homeownership program in compliance with
the HUD-approved homeownership plan because they were unfamiliar with the plan’s
requirements or chose to ignore them. Therefore, they did not ensure that proper records were
maintained for all program-related activities, more than $1.25 million in homeownership sale
proceeds was properly used, and HUD’s approval was obtained before demolishing a property.
While the not-for-profit entity’s books of account reflected more than $475,000 in rehabilitation,
consulting, accounting, and legal costs, which are considered eligible homeownership program
expenses, these costs were not supported by source documents. Therefore, former Authority
officials provided no assurance that the costs were incurred for the administration of the
homeownership program. However, if these costs were eligible program expenses, potentially
more than $750,000 in homeownership program funds was redirected to purposes unrelated to
the administration of the program. Thus, the Authority was deprived of funds that could have
been used to complete the program and repay $23,000 in HOME funds.




8
    Audit report number 2013-NY-1006 was issued on May 13, 2013.



                                                       11
Recommendations
We recommend that the Director of HUD’s New York Office of Public and Indian Housing
require Authority officials to
      2A.    Implement controls to ensure that proper records are maintained for all
             homeownership program-related activities.

      2B.    Consolidate the not-for-profit entity bank accounts and deposit the $3,919 check
             received from the bank.

      2C.    Provide supporting documents for the proper use of $1,250,417 in sale proceeds
             from the scattered-site properties. Any amounts not supported or found to be
             improperly used should be repaid to the homeownership program from non-
             Federal funds.

      2D.    Obtain retroactive approval from HUD for the demolished scattered-site property
             or develop a plan to fulfill the Authority’s obligation under the homeownership
             plan.

      2E.    Seek technical assistance from HUD officials regarding how to complete the
             homeownership program and the proper use of the remaining $6,521 in program
             funds.

      We recommend that the Director of HUD’s Departmental Enforcement Center

      2F.    Pursue administrative action against any Authority officials found to have
             expended homeownership program funds for personal use.




                                              12
Finding 3: Authority Officials Did Not Comply With Admissions
and Occupancy Administration Requirements and the Authority’s
Policies

Authority officials did not comply with admissions and occupancy administration requirements
and the Authority’s policies.9 Specifically, officials did not (1) update the waiting lists at least
annually and maintain complete and accurate records demonstrating the proper selection of
applicants from these lists, (2) always use Enterprise Income Verification (EIV) system reports
in a timely manner to confirm the accuracy of the income tenants reported, (3) conduct reviews
of flat rents and reexaminations of income and family composition at least annually, (4) always
update the unit tenant status data in the Public and Indian Housing Information Center (PIC)
system, and (5) conduct annual unit inspections. These deficiencies occurred because during the
more than 3-year period when the Authority operated without a permanent housing assistant, the
former board of commissioners did not ensure that all admissions and occupancy functions were
properly carried out. Further, Authority officials were either unfamiliar with file documentation
requirements or chose to ignore them. As a result of these deficiencies, they did not ensure the
integrity of the Authority’s tenant selection process; maximize rental income; and ensure that
Public Housing Operating and Capital Fund subsidy calculations were based on accurate unit
data and that the public housing units were decent, safe, and sanitary.

Waiting List Records and Tenant Files Not Properly Maintained
Authority officials did not update the waiting lists at least annually as required. The housing
assistant stated that the waiting lists had not been updated since a former Authority official last
updated the lists in 2010. Updating the waiting lists at least annually would make it easier for
Authority officials to contact eligible applicants and match them with the available unit sizes for
which they qualify.

Contrary to 24 CFR 960.206(e)(2), Authority officials also did not maintain complete and
accurate records to leave a clear audit trail that could be used to demonstrate that applicants from
the waiting lists had been properly selected in accordance with the Authority’s preferences and
tenant selection policies. Officials did not maintain waiting list records to demonstrate that 16 of
22 applicants were at the top of the waiting lists when selected for public housing units. While
the Authority’s policy stated that applicants who qualified for preferences must be assisted first
according to date and time of application, officials skipped over three applicants to accommodate
an applicant with the least number of preference points and an application dated later than the
others. This applicant moved into a public housing unit within 18 days of the application date,
while, on average, the other three applicants moved into units within 1,606 days of their
application dates. Further, 11 applicants with the same number of preference points for the
bedroom size needed were skipped over to accommodate others with later application dates. In
addition, Authority officials did not always maintain records to justify applicant selections.



9
    See appendix D for HUD’s requirements and the Authority’s policies.



                                                         13
Officials should have maintained a record of all unit offers accepted and rejected and applicants
who asked to be removed from the waiting lists, withdrew their applications, or were rejected
because they were either ineligible or failed the screening process.

Our review of 22 tenant files of families selected for public housing units from the Authority’s
waiting lists between January 2013 and January 2014 revealed that in all cases, the files lacked
the required documentation, including evidence that all information provided was properly
verified. This information is detailed in the table below.

                             Missing documentation                   Number of files
       Application                                                        4
       Birth certificate                                                  1
       EIV system income report                                          18
       Medical expense deduction verification                             1
       Preference verification                                            4
       Unit offer record                                                 22

Further, copies of documentation Authority officials obtained from the tenants were not stamped
“Copied from Original” as required by the Authority’s policies. Also, contrary to HUD’s and the
Authority’s requirements, Authority officials inappropriately retained criminal background
checks in the tenant files. The background checks should have been maintained confidentially
and destroyed once the purpose for which they were obtained was accomplished. In addition,
officials did not conduct a criminal background check for one family.

EIV Reports Not Always Used Timely To Verify Reported Income
Although use of HUD’s EIV system is mandatory as a verification source to support income and
rent determinations, the newly hired housing assistant acknowledged that the system was not
always used timely. The housing assistant stated that she had been incorrectly informed that the
family’s income information would not be verifiable through the EIV system until the family had
participated in the low-rent housing program for at least 6 months. However, the Authority’s
policy required that officials generate an income report from the EIV system within 120 days of
the family’s program admission to confirm the accuracy of the income reported. In response to
our audit inquiry, the Authority generated EIV income reports for 1510 of the 18 families whose
reports were missing from the tenant files.

In one instance, an EIV income report generated as a result of our inquiry showed unemployment
compensation that the applicant had not disclosed. Although the applicant stated that he was
unemployed, Authority officials did not obtain and include the applicant’s unemployment
compensation in the calculation of total tenant payment. Thus, the total tenant payment was
understated by $131 per month, or $1,572 per year. Had Authority officials reviewed the




10
     EIV income reports were not available for three families.



                                                            14
applicant’s EIV income report as required, the unemployment compensation would have been
disclosed.

Annual Reviews of Flat Rents Not Always Conducted
Although HUD’s requirements and the Authority’s policies required officials to conduct reviews
of flat rents at least annually, Authority officials had not adjusted the flat rents since 2010.
Further, officials did not maintain records documenting the method used to determine the 5
percent annual increase passed by the former board of commissioners in February 2009. Since
the Authority’s flat rents were not based on market rents charged for comparable units in the
private rental market, officials potentially forfeited thousands of dollars in rental income.

The table below shows the Authority’s flat rents in comparison to the published fiscal years 2010
through 2014 fair market rents for all bedroom sizes within the Authority’s jurisdiction.

Comparison of Authority’s flat rents to fiscal years 2010 through 2014 fair market rents by
                                  number of bedrooms
   Number of        Authority’s                          Fair market rents
   bedrooms           flat rent          2010        2011      2012       2013       2014
   0 bedrooms           $835            $1,167      $1,218    $1,233     $1,014     $1,033
   1 bedroom           $1,005           $1,348      $1,407    $1,425     $1,285     $1,309
   2 bedrooms          $1,226           $1,592      $1,661    $1,682     $1,583     $1,613
   3 bedrooms          $1,706           $2,113      $2,204    $2,232     $2,058     $2,097
   4 bedrooms          $1,828           $2,302      $2,402    $2,432     $2,370     $2,415

An Authority official stated that the flat rents had not been adjusted because the Authority
operated without a permanent housing assistant for more than 3 years. In September 2013, the
Authority hired a housing assistant; however, the housing assistant stated that she was unfamiliar
with the requirements regarding the method used to determine and document flat rents and would
seek guidance from the Authority’s consultant.

Annual Reexaminations of Income and Family Composition Not Always Conducted
Authority officials also did not conduct all required examinations of family income and
composition at least annually. The PIC delinquency report as of March 31, 2014, showed that
only 71 of 336 required reexaminations were current, for a reporting rate of 21 percent. This
number was well below HUD’s minimum reporting rate of 95 percent and subjected the
Authority to sanctions, such as reduced operating subsidies. Further, with regard to the
delinquencies, the dates of the last annual reexaminations ranged from August 2011 through
March 2013. As a result of our inquiry, in March 2014, HUD officials notified the Authority
that, as of March 16, 2014, it had 247 households with overdue annual reexaminations and
instructed the Authority to take necessary actions to correct this deficiency.

An Authority official stated that annual reexaminations of family income and composition had
not been conducted during the more than 3-year period when the Authority operated without a




                                                15
permanent housing assistant. The newly hired housing assistant’s first priority was to decrease
the reexamination delinquency rate.

PIC Unit Status Data Was Not Always Updated
Authority officials did not always update the unit tenant status data in PIC as required. The
Authority is eligible to receive Operating or Capital Fund subsidies for only occupied units, units
with a HUD-approved vacancy, and a limited number of vacancies for each unit month during
which those units are under an annual contributions contract. However, Authority officials did
not update unit tenant status data in PIC within 60 calendar days from the effective date of the
status change, as required, to ensure that Operating and Capital Fund subsidies were accurately
calculated. Therefore, PIC did not always reflect the Authority’s vacancy and move-in records.
For example, the vacancy unit listing covering the period January 1 to November 26, 2013,
reported 16 vacancies while PIC reported 13 vacancies, and only two were identical in both
records. Further, the Authority’s reconciled movement listing report covering the period January
1 to December 16, 2013, reported 19 new move-ins, yet PIC reported only 4 during the same
period. Reporting inaccurate data in PIC could negatively affect Operating and Capital Fund
subsidy calculations.

Annual Unit Inspections Not Conducted
Annual inspections of the Authority’s public housing units were not conducted in calendar year
2013 as required. The former executive director explained that unit inspections were not
conducted because HUD officials disapproved using the inspector who had conducted the
inspections the previous year because former Authority officials could not provide evidence that
the inspector was properly procured and the amount charged was reasonable.

Conducting annual unit inspections is an important tool in determining needed maintenance and
repairs and assessing tenant damage. This issue is especially important since HUD designated
the Authority as physically substandard in January 2012. Further, the completion of needed
maintenance and repairs ensures that public housing residents live in decent, safe, and sanitary
units.

Conclusion
Authority officials did not comply with HUD’s requirements and the Authority’s policies in
administering the admissions and occupancy function. Officials did not update the waiting list at
least annually, maintain complete and accurate records to ensure the integrity of the Authority’s
tenant selection process, and always use EIV reports timely to confirm the accuracy of the
income tenants reported. In addition, officials did not ensure that flat rents were consistent with
market values and that rent calculations were based on annually reexamined income levels. As a
result, Authority officials did not maximize the Authority’s rental income. Further, officials did
not ensure that Operating and Capital Fund subsidy calculations were based on accurate unit
tenant status data and annual unit inspections were conducted to ensure that the public housing
units were decent, safe, and sanitary.

While these deficiencies began during the period when the Authority operated without a
permanent executive director and housing assistant, the former board of commissioners was



                                                 16
ultimately responsible for ensuring that the Authority’s operations complied with HUD’s
requirements. The Authority hired a housing assistant in September 2013, but the housing
assistant received no formal training. Therefore, many of the deficiencies persisted because the
housing assistant was unfamiliar with HUD’s requirements concerning documenting tenant
selections from the waiting lists, the method used to determine flat rents, and updating unit
tenant status data in PIC.

Recommendations
We recommend that the Director of HUD’s New York Office of Public and Indian Housing
require Authority officials to

       3A.     Establish controls to ensure that the waiting lists are updated at least annually to
               facilitate tenant selections for public housing units.

       3B.     Implement controls to ensure that complete and accurate records are maintained
               to leave a clear audit trail demonstrating the proper selection of future applicants
               for public housing units from the waiting lists.

       3C.     Establish controls to ensure that the tenant files contain all required information,
               including evidence that all tenant-provided information is properly verified.

       3D.     Implement controls to ensure that criminal background checks are maintained
               separately from the tenant files so that only authorized persons have access to the
               records and the records are destroyed once an admission decision has been made.

       3E.     Implement controls to ensure that an EIV income report is generated within 120
               days of each family’s admission into the low-rent housing program to confirm the
               accuracy of the income reported.

       3F.     Develop and document a method for determining flat rents and maintain records
               to show flat rent determinations using this method.

       3G.     Develop and implement controls to ensure that annual reviews of flat rents are
               conducted and properly documented.

       3H.     Implement controls to ensure that resident income and family composition are
               reexamined annually.

       3I.     Implement controls to update unit status data in PIC within 60 calendar days from
               the effective date of the status change to ensure accurate Operating and Capital
               Fund subsidy calculations.

       3J.     Properly procure an inspector to perform unit inspections in accordance with the
               Authority’s policies and Federal regulations to ensure that units are decent, safe,
               and sanitary.



                                                  17
3K.   Provide training to the housing assistant on HUD’s requirements regarding
      admissions and occupancy administration.




                                      18
Finding 4: The Authority’s Financial and General Administrative
Practices Were Inconsistent With HUD’s and Its Own
Requirements

The Authority’s financial and general administrative practices were inconsistent with
requirements.11 Specifically, former Authority officials did not (1) properly document the
allocation of $262,849 in salaries and other costs among various programs, (2) obtain HUD’s
approval to settle a lawsuit for $8,000, (3) accept only full rental payments, (4) deposit rents
from a scattered-site property into the Authority’s general fund, (5) change account signatories to
reflect current Authority officials, (6) use a petty cash journal to track disbursements, (7) obtain
full flood insurance coverage, (8) install all replacement windows purchased with Federal funds,
and (9) maintain inventory records and all board meeting minutes and resolutions. These
deficiencies occurred because former Authority officials did not establish adequate procedures to
ensure compliance with HUD’s and the Authority’s own requirements. As a result, officials
could not ensure that program funds were used in accordance with each specific program
requirement and for purposes specifically approved by HUD. Further, since the Authority lacked
adequate insurance coverage, it was not protected against the loss resulting from flood damage
caused by Hurricane Sandy. Former Authority officials also did not ensure that safeguards were
in place to detect loss of, damage to, and theft of the Authority’s assets and a record of all key
board decisions affecting the Authority’s operations was properly maintained.

Lack of Documentation Supporting the Allocation of Salaries and Other Costs to Various
Programs
During calendar years 2012 and 2013, the Authority did not document the basis for $262,849 in
salaries allocated among its various programs. Although the Authority’s operating budget
schedules of all positions and salaries included the method of salary allocation by program,
Authority officials did not allocate all salary costs in 2012 and 2013 based on the method
specified by the budgets. Further, there was no reasonable basis for the allocation method used
by Authority officials because it was neither based on nor developed from time distribution
records. The biweekly timesheets did not show the time distributed to the various programs.

This matter was also addressed in our 2006 audit report.12 At that time, an Authority official
acknowledged that the salary allocation was not based on a plan developed from time
distribution records and stated that the Authority would develop such a plan and implement new
payroll documentation procedures. Although the matter reportedly had been resolved, Authority
officials did not provide a cost allocation plan based on time distribution records to support the
salaries charged to the various programs.




11
     See appendix D for the requirements.
12
     Audit report number 2006-NY-1008 was issued on June 30, 2006.



                                                         19
In addition, contrary to the requirements, Authority officials expended low-rent program funds to
pay the Section 8 program’s administrative expenses and did not provide a cost allocation plan to
show how the cost of shared expenses was prorated among the programs. In September 2013,
Authority officials issued a $100,000 check from the Section 8 program account to reimburse the
low-rent program for administrative expenses paid on the Section 8 program’s behalf over an
undetermined period. However, officials could not provide documentation to show how the
reimbursed amount was determined. Further, an employee whose primary duties related to the
Section 8 program charged all of her time to and was paid from the low-rent program. An
official stated that because of decreases in Section 8 administrative fees, the program did not
have sufficient resources to pay its administrative expenses and relied on the low-rent program to
meet its obligations. However, Authority officials should have maintained complete and
accurate records of the expenses the low-rent program paid on the Section 8 program’s behalf, in
accordance with the cost allocation plan developed, and reimbursed the low-rent program
monthly from available Section 8 program funds.

HUD’s Approval Not Obtained for a Lawsuit Settlement
Authority officials settled a lawsuit with the former executive director for $8,000 in September
2012 without providing evidence that HUD’s approval was obtained. HUD’s written agreement
was required before Authority officials could accept the terms of any proposed settlement arising
out of litigation. A similar matter was addressed in our 2006 audit report.13

Partial Rental Payments Accepted and Rental and Other Payments Waived
Contrary to the Authority’s written rental policy, in 2012, former Authority officials adopted the
informal policy of accepting partial rents. In calendar year 2011, before partial rents were
accepted, the average monthly tenant accounts receivable balance was $22,195. However, as of
February 1, 2014, Authority officials reported a delinquent tenant accounts receivable balance of
$173,345.

The former executive director also adopted the informal policy of waiving rental and other
payments. Between May and October 2013, three new move-ins received a total of $392 in
prorated rent waivers to fill vacant units. In addition, a tenant received a full waiver of his $194
June 2013 rent for performing a service for the Authority. Rather than providing the tenant with
a full rent waiver, which was contrary to the Authority’s written policy, HUD’s requirements
allowed the Authority to provide the tenant with a resident service stipend of no more than $200
during the month when the service was performed. In another instance, a tenant had two pets,
one of which was a qualified service dog. However, the tenant received a monthly pet fee
waiver of $12.50, or $150 annually, for each pet. Since there was no evidence that the second
pet was also a qualified service animal, Authority officials should not have waived the second
pet fee. As a result of our audit inquiry, officials retroactively reinstated the pet fee.




13
     Audit report number 2006-NY-1008 was issued on June 30, 2006.



                                                         20
According to the new executive director, the Authority no longer accepted partial rents or waived
rental payments and had begun to take legal action against tenants with delinquent accounts.

Rents From a Scattered-Site Property Not Deposited Into the Authority’s General Fund
Former Authority officials did not deposit into the Authority’s general fund $11,685 in rents
collected from a scattered-site property. In addition, officials did not provide documentation
justifying why the rents collected in 2006 were deposited into one of the not-for-profit entity’s
bank accounts instead of the Authority’s general fund. In the absence of such documentation,
officials could not ensure that these rents were properly used.

Account Signatories Not Changed To Reflect Current Authority Officials
Former Authority officials did not change account signatories to reflect current Authority
officials. While the former executive director’s employment was terminated in February 2011,
his name was listed as the only signatory on one of the Authority’s bank accounts. Officials
should have changed the bank account’s signatory immediately after the former executive
director’s employment was terminated to protect the Authority’s funds from unauthorized use.
As of September 30, 2013, the account had a balance of $300,109. In addition, a former board
member, who had been deceased since May 2012, was listed as a signatory on the not-for-profit
entity’s bank account, which was closed by the bank on December 27, 2013.

Petty Cash Journal Not Used To Track Disbursements
Authority officials did not use a petty cash journal to track disbursements. While no shortages
were noted during a surprise petty cash count and Authority officials maintained receipts for all
disbursements, they should have recorded disbursements in a journal and maintained a running
account balance. To determine the petty cash balance and its accuracy, we counted the cash on
hand and then subtracted the maximum petty cash balance from the total disbursements
supported by receipts. The petty cash custodian stated that the Authority had not used a petty
cash journal. However, in response to our inquiry, the custodian planned to implement new petty
cash documentation procedures. By maintaining a petty cash journal to track disbursements and
the available petty cash balance, Authority officials could ensure that there would be sufficient
funds to cover future disbursements.

Flood Insurance Coverage Not Obtained
Section 305(D) of the Authority’s annual contributions contract states that the Authority must
obtain insurance coverage at the time it becomes subject to risk or hazard. Since former
Authority officials were aware that the Authority was located in a flood hazard area, they were
required to purchase flood insurance.

In 2011, HUD told the Authority to purchase flood insurance after Hurricane Irene damaged its
family development. However, at that time, the Authority did not have a permanent executive
director, and the former board of commissioners did not follow up to ensure that flood insurance
was purchased. While former Authority officials purchased flood insurance after Hurricane
Sandy occurred in October 2012, full insurance coverage could not be obtained until the officials
repaired the main office and family development damaged by Hurricane Sandy.




                                                 21
HUD officials estimated that the cost to repair and replace equipment damaged by Hurricane
Sandy was $625,000. The Authority had received $243,892 from the New York State Office of
Emergency Management. Therefore, we estimated the net loss as the difference between
$625,000 and $243,892 ($381,108), which may have been covered by insurance. Included in
HUD officials’ $625,000 cost estimate to repair and replace damaged equipment were
replacement windows valued at more than $200,000, which were stored in the basement of the
Authority’s family development for approximately 2 years before they were destroyed by
Hurricane Sandy.

All Replacement Windows Not Installed
Former Authority officials did not install all replacement windows purchased with $292,462 in
Federal funds.14 In 2010, a contractor installed new windows in 3 apartments in the Authority’s
100-unit family development before the Village of Freeport Department of Buildings issued a
work stoppage due to safety concerns that the installation of emergency escape windows
represented a falling hazard to children under the age of 10. To lift the work stoppage, Authority
officials proposed to install full window guards. However, since the proposal did not move
forward, the windows for the remaining 97 apartments, stored in the basement of the
development, were not installed and were later destroyed by Hurricane Sandy in October 2012.

Due to the work stoppage, the contractor filed a more than $40,000 breach of contract lawsuit
against the Authority. Authority officials stated that they planned to obtain HUD’s written
approval to settle the lawsuit. However, they should also seek advice from their legal counsel
regarding whether the Authority had a possible direct claim against another party for the loss
incurred on the window replacement project due to negligence, professional liability, and errors
or omissions.

Inventory Records and All Board Meeting Minutes and Resolutions Not Maintained
Former Authority officials did not maintain inventory records as required by 24 CFR 85.32(d)(1)
through (3). Officials stated that they were developing a spreadsheet to track inventory. By
implementing an inventory tracking system, officials would know what assets the Authority had
on hand and would be able to implement adequate safeguards to detect their loss, damage, and
theft.

Former Authority officials also did not maintain all board meeting minutes and resolutions.
Records of several months of board meeting minutes and resolutions were missing. For
example, in June 2010, there was a motion to approve the accounting services contract.
However, the corresponding board resolution was not available. Further, two board resolutions
were approved retroactively. The resolutions were approved 6 months after the former board



14
     Of the $292,462, $162,286 was paid from Capital Fund program funds and $130,176 from capital funds awarded
     under the American Recovery and Reinvestment Act of 2009. Capital funds are provided annually to public
     housing agencies for the development, financing, and modernization of public housing developments and for
     management improvements. The Recovery Act invested $4 billion in energy-efficient modernization and
     renovation of the Nation’s public housing inventory.



                                                         22
approved the contracts. As a result, former Authority officials did not ensure that a record of all
key board decisions affecting the Authority’s operations was maintained and that executed
contracts received prior board approval.

Conclusion
Former Authority officials did not properly allocate costs, obtain HUD’s approval to settle a
lawsuit, accept only full rental payments, deposit rents from a scattered-site property into the
Authority’s general fund, update account signatories to reflect current Authority officials, use a
journal to track petty cash disbursements, obtain flood insurance coverage, install all replacement
windows purchased with Federal funds, and maintain a record of inventory and all board meeting
minutes and resolutions. As a result, the Authority may have been deprived of funds that could
have been used to pay its operating expenses. Further, officials did not protect the Authority’s
funds from unauthorized use and properly record and track petty cash disbursements. Due to a
lack of flood insurance, the Authority was not protected against financial loss, and since
Authority officials did not install all replacement windows, officials sustained a more than
$200,000 loss on the project. Officials also did not track the Authority’s assets to prevent and
detect loss, damage, and theft; maintain a record of all key board decisions affecting the
Authority’s operations; and ensure that executed contracts received prior board approval. These
deficiencies occurred because former Authority officials did not establish adequate procedures to
ensure that financial and general administrative practices complied with HUD’s and the
Authority’s own requirements.

Recommendations
We recommend that the Director of HUD’s New York Office of Public and Indian Housing
require Authority officials to

       4A.     Develop a cost allocation plan, based on time, to support salaries and an equitable
               cost allocation of shared resources charged to various HUD programs in
               accordance 2 CFR 225.

       4B.     Develop and implement procedures to ensure that HUD’s approval is obtained
               before disbursing funds for future lawsuit settlements.

       4C.     Obtain retroactive approval from HUD for the $8,000 lawsuit settlement. If
               approval is not obtained, the Authority should repay the $8,000 from non-Federal
               funds.

       4D.     Establish controls to ensure that pet fee waivers are supported by documentation
               demonstrating that the tenants are disabled and require qualified service animals.

       4E.     Provide supporting documents for the proper use of $11,685 in rents collected
               from a scattered-site property. Any amounts not supported or found to be
               improperly used should be repaid to the Authority from non-Federal funds.

       4F.     Implement controls to ensure that rents are properly deposited and used.



                                                  23
4G.   Update bank account signatories to reflect current authorized Authority officials.

4H.   Use a petty cash journal to track disbursements from the petty cash fund.

4I.   Develop a written plan outlining HUD-approved project milestones and target
      dates to complete all needed repairs resulting from damage caused by Hurricane
      Sandy.

4J.   Procure full flood insurance coverage to protect the Authority and HUD’s
      investments from financial loss.

4K.   Consult their legal counsel regarding whether the Authority has a possible direct
      claim against another party for the loss incurred on the window replacement
      project.

4L.   Establish controls to ensure that inventory records and an inventory control
      system are maintained to ensure that the Authority’s assets are safeguarded to
      prevent and detect loss, damage, and theft.

4M.   Implement controls to ensure that complete and accurate records of all board
      meetings and resolutions are maintained.




                                        24
Scope and Methodology
The review generally covered the period January 1, 2012, through September 30, 2013, and was
expanded as necessary. Audit fieldwork was performed onsite from November 2013 through
July 2014 at the Authority’s temporary office located at 240 South Main Street, Freeport, NY.

To accomplish our audit objective, we

          Reviewed applicable laws and regulations; HUD handbooks, guidebooks, and notices; the
           Authority’s policies and procedures; and the consolidated annual contributions contract.

          Examined a prior Office of Inspector General (OIG) audit report, HUD monitoring
           reports and financial reviews, and independent public accountant audit reports.

          Interviewed HUD and Authority officials to obtain an understanding of the Authority’s
           operations and system of internal controls.

          Reviewed the Authority’s available board meeting minutes and resolutions.

          Reviewed bank statements and canceled checks pertaining to FEMA funds received by
           the Authority at the request of HUD officials.

          Tested 2 months of bank reconciliations and traced recorded transactions to the bank
           statements, canceled checks, check registers, invoices, payroll records, and general
           ledgers. We selected October 2012 because we noted the greatest bank balance increase
           during that month and September 2013 because it was the last month of the audit period.

          Traced the Authority’s record of 16 vacancies15 and 23 move-ins16 to HUD’s PIC system
           data to determine whether PIC had been properly updated. Based on the work performed,
           we concluded that neither the Authority’s records nor the data in PIC were sufficiently
           reliable.

          We selected and reviewed two procurement actions to determine regulatory compliance.
           We selected the fee accounting services contract for review because the contractor had
           provided services for the Authority for the past 15 years. We chose the plumbing and




15
     The Authority’s vacancy unit listing covered the period January 1 to November 26, 2013.
16 An    analysis of the Authority’s movement listing report, covering the period January 1 to December 16, 2013,
     showed that there had been 19 new move-ins since 2 residents were duplicated and 2 were mistakenly reflected on
     the report.



                                                           25
       heating services contract because an analysis of the check registers showed that the
       contractor was continually used and was paid the second largest amount during the audit
       period. The procurement universe could not be determined because the Authority did not
       maintain a procurement log.

      Reviewed all 22 tenant files of applicants selected for public housing units from the
       Authority’s waiting lists between January 2013 and January 2014 to determine program
       compliance.

      Analyzed available sale and financial records regarding 8 of the Authority’s 11 scattered-
       site properties sold under the homeownership program to determine whether sale
       proceeds had been appropriately used during the period August 2003 through December
       2013. However, there was a scope limitation because officials did not maintain all
       financial records, including the not-for-profit entity’s bank statements, deposit slips,
       canceled checks, or source documents supporting all expenditures, such as bills, receipts,
       and contracts. Therefore, we relied on the not-for-profit entity’s general ledgers and
       journals and had to obtain banking records from the banks to identify the source and use
       of the funds deposited into the not-for-profit entity’s four bank accounts. Due to the
       bank’s 7-year retention period, bank statements for the period before 2007 were not
       available. Further, since source documents were often not available, the accuracy of the
       identified source and use of all homeownership program funds could not be assured. To
       assist in the analysis of the source and use of funds deposited into the not-for-profit
       entity’s accounts, we used the Audit Command Language program.

While we selected several nonstatistical samples to accomplish our audit objective, the results
from these samples relate only to the items sampled and cannot be projected to the universe.

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.




                                                 26
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   Effectiveness and efficiency of operations,

   Reliability of financial reporting, and

   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.

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

   Program operations – Policies and procedures that management has implemented to
    reasonably ensure that programs meet their objectives.

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

   Safeguarding resources – Policies and procedures that management has implemented to
    reasonably ensure that funds are safeguarded against waste, loss, and misuse.

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

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.




                                                  27
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   Authority officials did not have adequate controls over compliance with laws and regulations
    when they did not (1) maintain sufficient records to support that services paid for with HUD
    funds were procured in accordance with HUD’s regulations and the Authority’s procurement
    policy; (2) ensure that the use of homeownership program funds and the demolition of a
    scattered-site property met HUD’s requirements; and (3) maintain complete and accurate
    records to demonstrate the proper selection of applicants from the waiting lists, review flat rents
    and reexamine income and family composition at least annually, update the waiting lists at least
    once a year, and accept only full rental payments (see findings 1, 2, 3, and 4).

   Authority officials did not have adequate controls over safeguarding resources when they did
    not ensure that expenses were properly allocated and approved, assets were accounted for and
    safeguarded against unauthorized use, and the Authority was protected from financial loss
    resulting from hazards (see finding 4).

   Authority officials did not have adequate controls over program operations to ensure that tenants
    resided in units that were decent, safe, and sanitary because annual unit inspections were not
    performed (see finding 3).

   Authority officials did not have adequate controls over the validity and reliability of data when
    they did not update the unit tenant status data in PIC to ensure that the data agreed with the
    Authority’s vacancy and move-in records (see finding 3).




                                                   28
Appendixes

Appendix A


              Schedule of Questioned Costs and Funds To Be Put to Better Use

     Recommendation number            Unsupported 1/          Funds to be put to better use 2/
             2B                                                                           $3,919
               2C                            $1,250,417
               4C                                  8,000
               4E                                 11,685

             Totals                          $1,270,102                                     $3,919



1/      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.

2/      Recommendations that funds be put to better use are estimates of amounts that could be
        used more efficiently if an OIG recommendation is implemented. These amounts include
        reductions in outlays, deobligation of funds, withdrawal of interest, costs not incurred by
        implementing recommended improvements, avoidance of unnecessary expenditures
        noted in preaward reviews, and any other savings that are specifically identified. In this
        instance, if the Authority implements our recommendation to deposit the check received
        from the closed bank account, $3,919 can be put to better use for the homeownership
        program’s completion.




                                                 29
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




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                         OIG Evaluation of Auditee Comments


Comment 1   Authority officials state that the recommendations will be used as a ‘road map’
            for the Authority’s continued recovery. However, the officials stressed that the
            Authority’s leadership has substantially changed and that they are not in the
            position to explain or justify past events. Nevertheless, Authority officials state
            that they will work with the HUD Office of Public Housing to resolve the issues
            related to past events. During the audit resolution process, officials will need to
            provide HUD with documentation supporting questioned costs and their proposed
            action plan to implement the internal control recommendations.




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Appendix C
       Schedule of Not-for-Profit Entity Bank Account Activity as of December 31, 2013
                                          Not-for-profit entity account ending in 0873
                               Deposits                                                       Withdrawals
Homeownership sale proceeds                                  $1,250,417   Funds to Authority’s low-rent      $500,966
                                                                          housing program
HOME grants                                                      78,530   Rehabilitation and other costs      401,083
Funds from Authority’s low-rent housing                          78,475   Transfers to accounts ending in     300,000
program                                                                   8256 and 8310
Nassau County after-school program grants                        54,523   Payroll costs                       159,489
Transfer from account ending in 8310                             50,000   Professional consulting fees         51,010
Advance from Authority’s Section 8                               40,000   Insurance                            33,211
program
Gross rental revenue from a scattered-site                       11,685   Vehicle purchase                     32,428
property
Miscellaneous                                                    41,557 Security services                       31,628
                                                                        After-school program                    25,819
                                                                        Accounting fees                         22,475
                                                                        Summer day camp                          5,148
                                                                        Legal fees                               2,951
                                                                        Miscellaneous                           38,979
                            Total deposits                 $1,605,187               Total disbursements     $1,605,187
                                                   Remaining balance = $0

                                          Not-for-profit entity account ending in 4882
                               Deposits                                                      Withdrawals
Camp tuition                                                     $3,550   Payroll costs                        $3,760
Loan from account ending in 0873 to open                          2,500   Travel                                1,239
bank account for summer day camp
                                                                        Payment to former executive             1,051
                                                                        director
                            Total deposits                     $6,050              Total disbursements         $6,050
                                                   Remaining balance = $0

                                       Not-for-profit entity account ending in 8256
                             Deposits                                                    Withdrawals
Transfer from account ending in 0873                     $100,000 Transfer to account ending in 8310          $45,000
Local government grants                                     10,000 Security services                           59,785
Interest                                                       116 Wire fees and bank charges                     500
Miscellaneous                                                    1
                               Total deposits            $110,117                 Total disbursements        $105,285
                                               Remaining balance = $4,832

                                       Not-for-profit entity account ending in 8310
                             Deposits                                                    Withdrawals
Transfer from account ending in 0873                     $200,000 Transfer to account ending in 0873          $50,000
Transfer from account ending in 8256                        45,000 Security services                          200,179
Interest                                                     7,492 Wire fees and bank charges                     625
                               Total deposits            $252,492                 Total disbursements        $250,804
                                               Remaining balance = $1,688




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Appendix D
                                 Criteria
                               Finding 1
Procurement   Regulations at 24 CFR 85.36(b)9 state, “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.”

              HUD Handbook 7460.8, REV-2, appendix 3, states that the contract
              file for each small purchase procurement should generally include an
              independent cost estimate; the source of the solicitation, such as a
              mailing list, advertisement, or other; a solicitation notice and
              amendment; a record of bids requested or requests for proposals or
              the quotes, bids, or proposals received; technical and price
              evaluations; an evaluation report; a preaward survey and
              responsibility determinations; contract and award documents;
              notification to unsuccessful bidders; all correspondence related to
              appeals; and contract modifications and supporting documentation (if
              applicable).

              HUD Handbook 7460.8, REV-2, paragraphs 8.5(A) and (B), state,
              “Procurement by noncompetitive proposals shall be conducted only if
              a written justification is made as to the necessity of using this method
              in accordance with the procedures described in PHA’s [Public
              Housing Agency] procurement policy….The justification should
              include the following information: 1. Description of the requirement;
              2. History of prior purchases and their nature (competitive vs.
              noncompetitive); 3. The specific exception in 24 CFR
              85.36(d)(4)(i)(A) through (D) which applies; 4. Statement as to the
              unique circumstances that require award by noncompetitive
              proposals; 5. Description of the efforts made to find competitive
              sources, e.g., advertisement in trade journals or local publications,
              phone calls to local suppliers, issuance of a written solicitation, etc.;
              6. Statement as to efforts that will be taken in the future to promote
              competition for the requirement; and 7. Signature of the Contracting
              Officer and any higher approving official as required by the PHA’s
              policy.” Further, “the Contracting Officer shall include the written
              justification and approval in the contract file.”

              Section 1.4 A of the Authority’s procurement policy states, “The
              Contracting Officer shall ensure that…procurement requirements are
              subject to a planning process to assure efficient and economical


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                       purchasing.”

                       Section 2.4, A4 and B, of the Authority’s procurement policy
                       states that “…procurement by noncompetitive proposals may be used
                       only when a contract is not feasible using small purchase procedures,
                       sealed bids, or competitive proposals, and…An emergency exists that
                       seriously threatens the public health, welfare, or safety; endangers
                       property; or would otherwise cause serious injury to the Authority, as
                       may arise by reason of a flood, earthquake, epidemic, riot, equipment
                       failure, or similar event. In such cases, there must be an immediate
                       and serious need for supplies, services, or construction such that the
                       need cannot be met through any other procurement methods and the
                       emergency procurement shall be limited to those supplies, services, or
                       construction necessary to meet the emergency.” Further, “each
                       procurement based on noncompetitive proposals shall be supported
                       by a written justification for using such procedures.”
                                         Finding 2
Record keeping         Regulations at 24 CFR 906.17 state that “…the PHA shall be
                       responsible for the maintenance of records (including sale and
                       financial records…for all activities incident to implementation of the
                       HUD-approved homeownership plan. Until all planned sales of
                       individual dwellings have been completed…Where another entity is
                       responsible for sale of individual units…the PHA must ensure that
                       the entity’s responsibilities include proper recordkeeping and
                       accountability to the PHA, sufficient to enable the PHA to monitor
                       compliance with the approved homeownership plan, to prepare its
                       reports to HUD, and to meet its audit responsibilities. All books and
                       records shall be subject to inspection and audit by HUD and the
                       General Accounting Office (GAO).”

                       Paragraph 13 of the homeownership plan states, “NDC [Nautilus
                       Development Corporation] and FHA [Federal Housing
                       Administration] will keep copies of all signed purchase agreements,
                       closing documents, and promissory notes on file.”
Use of sale proceeds   Regulations at 24 CFR 906.15(a) state, “Sale proceeds may, after
                       provision for sale and administrative costs that are necessary and
                       reasonable for carrying out the homeownership plan, be retained by
                       the PHA and used for housing assistance to low-income families (as
                       such families are defined under the Act). The term ‘sale proceeds’
                       includes all payments made by purchasers for credit to the purchase
                       price (e.g., earnest money, downpayments, payments out of the
                       proceeds of mortgage loans, and principal and interest payments
                       under purchase-money mortgages), along with any amounts payable
                       upon resale under 906.14, and interest earned on all such receipts.”
Transfer of title      Section 4 of the HOME section 5(h) program plan states that the


                                            34
                         Authority will transfer title to the not-for-profit entity, which in turn
                         will directly transfer title to eligible purchasers.

                         Section 2.2 of the section 5(h) implementing agreement states,
                         “Upon conveyance of title to any property by the HA [housing
                         authority] in accordance with the Plan, HUD shall release the title
                         restrictions thereon prescribed by the ACC [annual contributions
                         contract]. Thereafter, the property shall no longer be subject to the
                         ACC and shall cease to be eligible for further HUD funding for
                         operating subsidies or modernization.”
Termination of           Section 13 of the section 5(h) implementing agreement states,
homeownership plan       “This Agreement may be terminated if both HUD and the HA agree
                         that continuation of the Agreement is infeasible. In such an event, the
                         HA agrees that any funds not expended in carrying out this
                         Agreement shall be returned to HUD.”
Demolition               Regulations at 24 CFR 970.12 state that “…a PHA may not take any
                         action to demolish or dispose of a public housing project or a portion
                         of a public housing project without obtaining HUD approval under
                         this part.”
                                            Finding 3
Updating the waiting     Section 4, paragraph C1, of the admissions and continued
list                     occupancy policy states, “The PHA may update (purge) its waiting
                         list at least every twelve (12) months in order to remove the names of
                         applicants who are no longer interested in being admitted, no longer
                         qualify for admission or who cannot be located.”
Applicant selection      Regulations at 24 CFR 960.206(e)(2) state, “The method for
method                   selecting applicants must leave a clear audit trail that can be used to
                         verify that each applicant has been selected in accordance with the
                         method specified in the PHA plan.”
Preferences              Section 6, subsection 4, of the admissions and continued
                         occupancy policy states, “Applicants who meet all the eligibility
                         requirements and who qualify for a preference will be assisted first
                         according to the date and time of application. After all applicants
                         with verified preferences are assisted, the PHA will then contact
                         applicant families who are next on the waiting list, according to date
                         and time of application, and bedroom size needed.”
Record of applications   Section 4, paragraph A, of the admissions and continued
and waiting list         occupancy policy states, “The PHA will indicate on the Record of
                         Application/Waiting List the applicant’s name; date and time of
                         application; race/ethnicity of the head of household; unit size required
                         based on PHA occupancy standards; whether the applicant is eligible
                         or ineligible; the applicant’s preferences; the date and time the
                         applicant was offered a unit; the unit number and location; the date
                         the applicant was assigned a unit, or the date the applicant rejected
                         the assignment; and any circumstances pertaining to assignment of a


                                               35
                      unit, such as removing the applicant’s name because the applicant
                      requested it be done.”

Applicant file        Section 2 of the admissions and continued occupancy policy
                      requires the PHA to obtain and copy original documents provided by
                      the applicant, stamp each copy “Copied from Original,” and return
                      the originals to the family. The documents include Social Security
                      cards, State-issued photo identification, birth certificates, adoption
                      documents or divorce decrees, copies of the most recent income tax
                      return or Internal Revenue Service Forms W-2 (if required), evidence
                      of eligible immigration status, and asset information. Further, section
                      4, subsection 4, states that the file must contain the original
                      application, the form HUD-50058, and signed verification and
                      consent forms.

Operation records     The annual contributions contract, section 309(1), states, “The
                      Local Authority shall maintain complete and accurate books of
                      account and records, as may be prescribed from time to time by the
                      Government, in connection with the development and operation of
                      the Projects, including records which permit a speedy and effective
                      audit… Such records shall include, among others as may be required,
                      operation records which shall include application for admission to,
                      and continued occupancy in, the Projects and the evidence (or
                      notations thereof) used by the Local Authority to verify such
                      applications.”


Criminal records      Regulations at 24 CFR 5.903(g) require a PHA to “…establish and
management            implement a system of records management that ensures that any
                      criminal record received by the PHA from a law enforcement agency
                      is: (1) Maintained confidentially; (2) Not misused or improperly
                      disseminated; and (3) Destroyed, once the purpose(s) for which the
                      record was requested has been accomplished, including expiration of
                      the period for filing a challenge to the PHA action without institution
                      of a challenge or final disposition of any such litigation.”

                      Section 4, subsection E, of the admissions and continued
                      occupancy policy states that “…material secured under a criminal
                      background check or drug treatment center check will not be retained
                      in the applicant file but will be segregated in a secure location under
                      lock and key. Following a decision on acceptability of an applicant,
                      the criminal background check and drug treatment program
                      information will be removed and destroyed (shredded).”
Mandated use of EIV   Section 3 of the admissions and continued occupancy policy states,
system                “Use of HUD’s EIV system in its entirety is mandatory…Within four


                                           36
                         months (120 days) of admission of each family or submission of a
                         Code 14 Historical Adjustment, you must generate an income report
                         to confirm that income reported is accurate.”
Annual reviews of flat   Section 14, paragraph B, subparagraph 5, of the admissions and
rents                    continued occupancy policy states, “The PHA will review the flat
                         rents levels at least annually, to ensure that the established levels
                         continue to mirror market rent values. This periodic review may
                         result in the flat rents being either increased or decreased. Residents
                         paying flat rents would not have their rent adjusted (up or down) until
                         their annual reexamination or annual update.”

                         Regulations at 24 CFR 960.253(b)(5) state, “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.”
Reexamination            Regulations at 24 CFR 960.257(a)(1) and (2) state, “When PHA is
requirements             required to conduct reexamination for families who pay an income-
                         based rent, the PHA must conduct a reexamination of family income
                         and composition at least annually and must make appropriate
                         adjustments in the rent after consultation with the family and upon
                         verification of the information. For families who choose flat rents,
                         the PHA must conduct a reexamination of family composition at least
                         annually, and must conduct a reexamination of family income at least
                         once every three years.”
Minimum reporting        Notice PIH (Public and Indian Housing) 2008-11(HA) states,
rate for HUD-50058       “PHAs must have a minimum 95 percent reporting rate (or 94.5
                         percent before rounding) for public housing families at the time of
                         their quarterly Form HUD-50058 reporting rate assessment or be
                         subject to sanctions.”
PIC unit status data     Paragraph 5 of Notice PIH-2011-7 (HA) states, “PHAs must update
updates                  their IMS [Inventory Management System]/PIC Development Sub-
                         Module data when the status of a unit changes. It is the PHA’s
                         responsibility to submit data no later than 60 calendar days from the
                         effective date of unit tenant status change to ensure accurate
                         calculation of the Operating Fund and Capital Fund formulas.”
Eligible units for       Regulations at 24 CFR 990.125 state, “A PHA is eligible to receive
operating subsidy        operating subsidy for public housing units under an ACC for: (a)
                         Occupied dwelling units as defined in § 990.140; (b) A dwelling unit
                         with an approved vacancy (as defined in § 990.145); and (c) A
                         limited number of vacancies (as defined in § 990.150).”
Annual unit              Section 21, paragraph B, of the admissions and continued
inspections              occupancy policy states that the public housing agency must inspect
                         the dwelling unit and premises at least annually.



                                              37
                        Regulations at 24 CFR Part 5, subpart G - 5.705, states, “Any
                        entity responsible for conducting a physical inspection of HUD
                        housing, to determine compliance with this subpart, must inspect such
                        HUD housing annually in accordance with HUD-prescribed physical
                        inspection procedures.”
                                          Finding 4
Support for salaries    Regulations at 2 CFR Part 225, appendix B, section 8, subsection
                        h(4), states that in support of salaries and wages, the standards
                        regarding time distribution apply in addition to the standards for
                        payroll documentation. “Where employees work on multiple
                        activities or cost objectives, a distribution of their salaries or wages
                        will be supported by personnel activity reports or equivalent
                        documentation.”
Documentation of cost   Regulations at 2 CFR Part 225, appendix A, section C 1j, state,
and allowability        “…to be allowable under Federal awards, costs must…be adequately
                        documented.” Further, Section C 3c states, “Any cost allocable to a
                        particular Federal award or cost objective under the principles
                        provided for in 2 CFR part 225 may not be charged to other Federal
                        awards to overcome fund deficiencies, to avoid restrictions imposed
                        by law or terms of the Federal awards, or for other reasons.”

                        The annual contributions contract, section 402(E), states, “In no
                        event shall the Local Authority withdraw from any of the funds or
                        accounts authorized under this Sec. 402 amounts for the Projects or
                        for any other project or enterprise in excess of the amount then on
                        deposit in respect thereto.”
Lawsuit settlement      HUD Handbook1530.1, REV-5, paragraph 5-3C, states, “No
                        settlement arising out of litigation shall be accepted by a PHA
                        without the prior written concurrence of HUD.”
Rental fee policy       Section 14, paragraph A, of the admissions and continued
                        occupancy policy states, “Tenant rent is the amount of rent payable
                        by the resident to the PHA. Tenant rent is the Total Tenant Payment
                        (TTP) minus any applicable utility allowance or tenant paid utilities.
                        Rent is due and payable on the 1st of the month and is delinquent if
                        not paid by the close of business on the 10th of the month.”
Resident service        Regulations at 24 CFR 5.609(c)(8)(iv) state, “A resident service
stipend                 stipend is a modest amount (not to exceed $200 per month) received
                        by a resident for performing a service for the PHA or owner, on a
                        part-time basis, that enhances the quality of life in the development.”




                                             38
Service animals        Regulations at 24 CFR 960.705(a) state that “…this subpart G (Pet
                       Ownership in Public Housing) does not apply to animals that are used
                       to assist, support or provide service to persons with disabilities.
                       Project owners and PHAs may not apply or enforce any policies
                       established under this subpart against animals that are necessary as a
                       reasonable accommodation to assist, support, or provide service to
                       persons with disabilities. This exclusion applies to animals that
                       reside in projects for the elderly or persons with disabilities.”

                       Section IX, paragraph Z, of the Authority’s low-rent dwelling
                       lease states, “Tenants who are disabled and have a qualified ‘service
                       animal’ shall be exempt from the Pet Deposit.”

                       Section II of the Authority’s pet policy states, “If a tenant has more
                       than one pet he or she must pay the applicable annual fee and deposit
                       for each pet.”
General Fund           The annual contributions contract, section 401(B) and (C), states,
                       “All monies and investment securities received by or held for account
                       of the Local Authority in connection with the Projects, except such
                       monies as are deposited with the Fiscal Agent, or with paying agents
                       for the payment of Temporary Notes pursuant to this Contract, shall
                       constitute the ‘General Fund.’ The Local Authority shall, except as
                       otherwise provided in this Contract, deposit promptly with such bank
                       or banks, under the terms of the General Depositary Agreement, all
                       monies and investments securities constituting the General Fund.”
Accounting records     Regulations at 24 CFR 85.20(b)(2) state, “Grantees and subgrantees
                       must maintain records which adequately identify the source and
                       application of funds provided for financially-assisted activities.
                       These records must contain information pertaining to grant or
                       subgrant awards and authorizations, obligations, unobligated
                       balances, assets, liabilities, outlays or expenditures, and income.”

Books of account and   The annual contributions contract, section 309, states, “The Local
records                Authority shall maintain complete and accurate books of account and
                       records, as may be prescribed from time to time by the Government,
                       in connection with the development and operation of the Projects,
                       including records which permit a speedy and effective audit…. Such
                       records shall include, among others as may be required, books of
                       account and other fiscal records in accordance with a classification of
                       accounts prescribed by the Government.”
Insurance coverage     The annual contributions contract, section 305(D), states, “Each
                       insurance policy or bond shall be written to become effective at the
                       time the Local Authority becomes subject to the risk or hazard
                       covered thereby, and shall be continued in full force and effect for
                       such period as the Local Authority is subject to such risk or hazard.”


                                            39
Inventory records   Regulations at 24 CFR 85.32(d)(1) through (3) state, “(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.”

                    The annual contributions contract, section 309, states, “The Local
                    Authority shall maintain complete and accurate books of account and
                    records, as may be prescribed from time to time by the Government,
                    in connection with the development and operation of the Projects,
                    including records which permit a speedy and effective audit…. Such
                    records shall include, among others as may be required, personal
                    property records which shall include an annual inventory of all
                    equipment.”




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