oversight

The Administration of Accounting, Inventory, and Procurement of the Bridgeport Housing Authority in Bridgeport, CT, Did Not Always Comply With HUD Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-06-27.

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

        Housing Authority of the City of
                Bridgeport, CT
                   Capital Fund, Low-Rent, and
                 Housing Choice Voucher Programs




Office of Audit, Region 1        Audit Report Number: 2016-BO-1002
Boston, MA                                            June 27, 2016
To:           Jennifer Gottlieb Elazhari
              Program Center Coordinator, Office of Public and Indian Housing, Hartford Field
              Office, 1EPHP

              //SIGNED//

From:         Edward Jeye
              Regional Inspector General for Audit, Boston Region, 1AGA

Subject:      The Administration of Accounting, Inventory, and Procurement of the Bridgeport
              Housing Authority in Bridgeport, CT, Did Not Always Comply With HUD
              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 Bridgeport Housing Authority officials’
administration of the Authority’s accounting, inventory, and procurement functions.

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 John
Harrison, Acting Assistant Regional Inspector General for Audit, at 212-264-4174, or me at 617-
994-8380.
                   Audit Report Number: 2016-BO-1002
                   Date: June 27, 2016

                   The Administration of Accounting, Inventory, and Procurement of the
                   Bridgeport Housing Authority in Bridgeport, CT, Did Not Always Comply
                   With HUD Regulations



Highlights

What We Audited and Why
We audited the Housing Authority of the City of Bridgeport, CT, in response to complaints about
improper use of funds, procurement irregularities, and inadequate safeguarding of equipment.
The audit objective was to determine whether Federal funds were used for eligible and
adequately supported costs, procurements were executed in compliance with U.S. Department of
Housing and Urban Development (HUD) regulations, and the Authority had established adequate
controls to safeguard equipment.

What We Found
Authority officials had not always spent funds for eligible and adequately supported costs,
procurement actions did not always comply with HUD regulations, and controls over inventory
were not adequate. Specifically, Authority officials (1) spent more than $542,000 for ineligible
costs and more than $6.2 million for inadequately supported costs; (2) failed to properly maintain
and reconcile accounting records, resulting in the unsupported allocation of $1.75 million; (3)
charged $216,142 and $272,008 for legal and public relations services, respectively, that were
not procured in compliance with Federal regulations; and (4) did not ensure that $61,804 in
inventory was put to its intended use. As a result, HUD lacked assurance that funds were always
spent for eligible and properly supported costs, procurements were made at a reasonable cost,
and inventory was accurately accounted for.

What We Recommend
We recommend that the Hartford Office of Public Housing’s program center coordinator require
Authority officials to (1) repay more than $542,000 spent for ineligible costs; (2) provide
documentation to support that more than $6.2 million in inadequately supported disbursements
was for eligible costs; (3) reconcile Authority accounting records to ensure that $1.75 million
was properly allocated; (4) show that $488,150 spent for legal and public relations services
complied with Federal procurement regulations; (5) properly account for inventory valued at
$61,804; and (6) strengthen controls over disbursement of funds, maintenance of accounting and
inventory records, and procurement.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Had Weaknesses in Its Administration of
         Accounting, Inventory, and Procurement Functions .................................................... 4

Scope and Methodology .........................................................................................10

Internal Controls ....................................................................................................12

Appendixes ..............................................................................................................14
         A. Schedule of Questioned Costs ................................................................................. 14
         B. Auditee Comments and OIG’s Evaluation ............................................................. 15




                                                             2
Background and Objective
The Housing Authority of the City of Bridgeport, CT, was created under section 8-40 of the State
of Connecticut General Statutes to provide low-income public housing for qualified individuals.
The Authority is governed by a five-member board of commissioners, which appoints an
executive director to manage the Authority’s day-to-day operations. In 2014, the U.S.
Department of Housing and Urban Development (HUD) provided the Authority more than $3.6
million in Public Housing Capital Fund program funds and $14 million in low-rent program
funds to operate 2,698 low-rent units and $22.6 million in Housing Choice Voucher program
funds to administer 3,063 vouchers.

On December 20, 2014, HUD classified the Authority as “troubled” for its fiscal year ending
September 30, 2013. In May 2015, HUD’s Public Housing Authority Recovery and
Sustainability Team performed an onsite independent assessment to determine the causes of the
Authority’s unacceptable performance outcomes and develop plans for sustained improvement.
The assessment concluded that Authority officials (1) had an insufficient organizational
structure, (2) had inadequate oversight of critical management functions and the Authority’s
capital planning and improvements process, (3) lacked a viable cost allocation plan, and (4) had
not reconciled the Authority’s financial accounts.

In fiscal year 2015, the Authority hired a new executive director and replaced many key program
director positions. In addition, in November 2015, HUD and the Authority agreed to a recovery
plan, which established desired outcomes to be achieved and a timetable to achieve those
outcomes. As of the date of this report, Authority officials were actively working with the HUD
field office to address corrective action strategies to ensure that policies and procedures are
enforced and Authority staff is trained.

The audit objective was to determine whether Federal funds were used for eligible and
adequately supported costs and procurements were executed in compliance with HUD
regulations and the Authority had established adequate controls to safeguard equipment. This is
the third audit of the Authority. 1




1
    Previously issued reports were 2014-BO-1001, January 24, 2014, and 2014-BO-1003, July 31, 2014.


                                                         3
Results of Audit

Finding: The Authority Had Weaknesses in Its Administration of
Accounting, Inventory, and Procurement Functions
The Authority’s administration of its accounting, procurement and inventory functions did not
always comply with HUD regulations. We attributed this noncompliance to the Authority’s
board of commissioners’ and officials’ failure to establish an effective internal control
environment to ensure adequate accounting for costs and inventory, proper implementation of
HUD’s asset management model, and compliance with Federal procurement regulations. As a
result,

    •   $542,206 in ineligible costs and more than $6.2 million in unsupported costs were charged
        to Federal programs;

    •   Interfund accounts were not properly maintained and reconciled to adequately account for
        the expenditure of $1.75 million in Federal funds, some of which was used for central
        office cost center (COCC) costs;

    •   Professional services contracts, for which $488,150 in Federal funds was spent, were not
        properly procured,

    •   $61,804 in inventory items could not be located.


Funds Spent for Ineligible and Unsupported Costs
Authority officials charged $542,206 for ineligible costs and $6.2 million for unsupported costs
as follows:

        • Security patrol costs of $444,876 were overcharged to the Capital Fund program because
          the costs were misclassified as management improvement costs rather than operating
          costs. While regulations at 24 CFR (Code of Federal Regulations) 905.314(1) permit
          charging certain operating costs, such as security patrol costs, to the Capital Fund
          program, operating costs are limited to 20 percent of the annual Capital Fund grant.
          Authority officials had already charged up to this limit; therefore, the $444,876 was an
          ineligible Capital Fund program cost.

        •   General administrative costs of $97,330 2 were improperly charged to the asset
            management projects and the Housing Choice Voucher and Capital Fund programs.

2
 Of those charges, $68,372 was charged to the low-rent program, $10,216 to the Housing Choice Voucher program,
and $18,742 to the Capital Fund program.


                                                      4
           Officials charged ineligible costs of $78,588 to scan and store records to the asset
           management projects and Housing Choice Voucher program, $11,000 for financial
           accounting software licenses to the Capital Fund program, and $7,742 to purchase iPads
           for commissioners and COCC staff. Regulations at 24 CFR Part 990 and HUD Notice
           2007-9 3 require that these costs be paid from COCC funds.

       •   More than $5.5 million of the $25 million in Capital Fund program and American
           Recovery and Reinvestment Act costs reviewed lacked invoices or similar supporting
           documents to show that they were disbursed for eligible purposes. Regulations at 2 CFR
           Part 225, appendix A, C.1.j and C.3.a, require that costs be adequately documented.

       •   More than $650,000 in information technology costs was improperly charged to the
           Capital Fund program and was considered unsupported. Federal regulations at 24 CFR
           905.202(g) require that Capital Fund program funds be used for asset management
           projects, and a reasonable allocation of the costs to the benefiting entities is required
           when goods and services benefit multiple programs. While these costs benefited the
           asset management projects, the Housing Choice Voucher program, and the COCC,
           officials charged all of the costs to the Capital Fund program.

We attributed these conditions to the Authority officials’ failure to establish an effective internal
control environment and properly implement HUD’s asset management model.

Authority Accounts Not Properly Maintained and Reconciled
Authority officials failed to adequately maintain and reconcile the Authority’s financial records.
Regulations at 24 CFR 990.280(b)(4) and (c) prohibit using low-rent program and Housing
Choice Voucher program funds for costs attributable to the COCC. In addition, regulations at 24
CFR 982.158 require the Authority to maintain complete and accurate accounts and other records
for the program in accordance with HUD requirements, including maintaining interfund accounts
when program funds are used on a short-term basis for other purposes, in a manner that permits a
speedy and effective audit. However, Authority records for the COCC from October 2014
through January 2015 showed that the COCC incurred monthly deficits between $45,000 and
$65,000. Additionally, on May 22, 2014, Authority officials withdrew $1 million in low-rent
program funds and $750,000 in Housing Choice Voucher program reserve funds to pay past due
bills, some of which Authority officials said were expenses that should have been paid by COCC
funds. However, the Authority’s records did not allow us to determine the amount of Federal
funds used to pay COCC expenses.

Authority officials said that they did not always know the amount of each program’s funds used
for COCC expenses because interfund transactions were not reconciled or closed regularly. In
addition, HUD’s 2015 independent assessment concluded that Authority officials had neither
reconciled bank accounts nor established a viable cost allocation system. We attributed these
conditions to the Authority officials’ failure to properly implement HUD’s asset management


3
    Supplement to HUD Handbook 7475.1, REV, CHG-1, Financial Management Handbook, page 44, table 7.1


                                                      5
model and establish adequate monitoring controls to ensure that COCC expenses did not exceed
income. As a result, Authority officials could not document how much of the $1.75 million was
used for allowable costs.

Professional Services Contracts Not Properly Procured and Administered
Authority officials did not comply with Federal procurement regulations when they spent
$488,150 in Federal funds for general legal and public relations services.

While Authority officials properly used the competitive procurement method to procure legal
services in October 2012, for which $216,142 4 in Federal funds was disbursed, the procurement
files lacked evidence that they performed the required independent cost estimate, cost analysis,
and narrative explaining the merits of each qualified proposal as required. 5 Rather, the files
documented that the incumbent and two other firms that bid on the contract were all qualified.
However, the proposed billing rates were different, and although the contract was awarded to the
incumbent firm, an evaluation report was not prepared as required 6 to document the rationale for
the award.

The file for a public relations contract, for which $243,008 was paid with Federal funds, also
lacked evidence that the required cost estimate, cost analysis, and narrative evaluation report
were prepared as required. Officials also later awarded this firm a contract modification for
$29,000 to conduct additional work to develop a new Web site, which was outside the scope of
the initial contract and should have been bid separately. The contractor delivered an incomplete
and improperly functioning Web site, requiring Authority officials to contract another vendor to
repair it.

We attributed these conditions to a lack of controls over procurement. As a result of the
deficiencies described above, officials lacked assurance that $488,150 charged to Federal
programs for public relations and legal services was paid to the best firm, with price and other
factors considered as required. Thus, we considered these costs unsupported.
Inventory Records Were Not Accurate
HUD Handbook 7510.1G requires that Authority officials maintain complete and accurate
records for all financial management functions in a manner that provides an effective system of
internal control to safeguard cash and other assets. However, Authority inventory records were
not accurate. For example,

4
  A total of $949,248 was spent for legal services, of which $216,142 was charged to Federal programs and
$733,106 was charged to the COCC, thus contributing to the COCC’s deficit spending.
5
  Regulations at 24 CFR 85.36(f)(1) require that a cost or price analysis be performed for all procurement actions
and a cost analysis be performed for all competitive procurements requiring professional services and all sole-source
contracts. Regulations at 24 CFR 85.36(d)(3)(iv) also require that awards be given to the responsible firm having
the proposal that is best for the program, with price and other factors considered. Further, regulations at 24 CFR
85.36(b)(9) require that records be maintained sufficient to detail the history of a procurement, which should include
but not necessarily be limited to the rationale for the method of procurement, selection of contract type, contractor
selection or rejection, and basis for the price.
6
  In addition, regulations at 24 CFR 85.36(b)(9) and (d)(3)(i-iv) require that an evaluation report be prepared with a
narrative to describe each firm’s significant strengths, weaknesses, and deficiencies.


                                                          6
       •   $61,804, or 44 percent, of $140,580 in inventory items sampled could not be located.

       •   Kitchen cabinets, which were obsolete and removed from inventory records, were
           maintained in the warehouse without being properly disposed of.

We attributed these deficiencies to Authority officials’ failure to implement procedures to
properly account for and safeguard inventory and dispose of inventory that was no longer in use.
As a result, they could not provide assurance that items purchased for $61,804 were used for
their intended purpose.

Authority officials agreed that accountability for inventory needed to be strengthened and started
doing so during our audit. For instance, they conducted an inventory of fixed assets and began
establishing controls to ensure that purchased items were entered into inventory when received.
Further, HUD’s independent assessment identified this issue, and the Authority’s recovery plan
provided for corrective action, including completing an inventory of all assets.

Actions Being Taken To Address Deficiencies
On November 20, 2015, the Authority and HUD executed an action plan, describing the results
of HUD’s review and assessment of the Authority’s performance, the measures that need to be
implemented to improve the performance, and the desired outcomes to be achieved and
establishing a timetable to achieve those outcomes. Some of the actions to be taken included

       •   Review all sections of its procurement policy and ensure that it complies with 24 CFR
           85.36; Procurement Handbook for Public Housing Authorities, HUD Handbook
           7460.8, REV-2, dated February 2007; and relevant State and local requirements.

       •   Train all board members and appropriate staff members in Federal and local
           procurement procedures.

       •   Establish local operating protocols to ensure that quality control reviews of
           procurement actions are conducted. These quality control reviews will include
           maintaining a completeness checklist in each procurement file.

       •   Establish and adopt an internal control policy that (1) maintains effective cost
           controls and accountability for grant funds received and an inventory of assets,
           equipment, and supplies; (2) requires receipts, invoices, or other adequate
           documentation before funds are disbursed; and (3) includes contracting protocols to
           comply with Federal regulations and maintain cost controls.

       •   Develop and implement a budget based upon actual costs that is within allocated
           funding for each program.

       •   Implement HUD’s asset management model.



                                                 7
As of the date of this report, Authority officials were actively working with the HUD field office
to address corrective action strategies to ensure that policies and procedures are enforced and
Authority staff is trained.

Conclusion
Authority officials lacked assurance that funds were always spent for eligible and properly
supported costs, procurements were made at a reasonable cost, and inventory was accurately
accounted for. We attributed this condition to weaknesses in the maintenance of accounting and
inventory records and Authority officials’ unfamiliarity with HUD’s asset management and
Federal procurement regulations.
Recommendations
We recommend that the Hartford Office of Public Housing’s program center coordinator require
Authority officials to

       1A.     Repay the program from non-Federal funds the $444,876 disbursed for Capital
               Fund program operating costs that exceeded the allowable amount.

       1B.     Strengthen controls over Capital Fund program funds to ensure that operating
               costs do not exceed allowable limits.

       1C.     Repay the programs from non-Federal funds the $97,330 spent for the
               unallowable costs of scanning and storing records, accounting and financial
               software licenses, and iPads.

       1D.     Strengthen controls over disbursements to ensure that costs are charged in
               accordance with HUD’s asset management model.

       1E.     Provide adequate support that $5,573,214 ($866,235 in Capital Fund program and
               $4,706,979 in American Recovery and Reinvestment Act funds) was spent for
               eligible costs. Any amounts that cannot be supported should be repaid to the
               program from non-Federal funds.

       1F.     Provide support for the proper allocation of the $650,990 in information
               technology costs charged to the Capital Fund program. Any amounts that cannot
               be supported should be repaid from non-Federal funds.

       1G.     Provide documentation to support that $750,000 in Housing Choice Voucher and
               $1,000,000 in low-rent program reserve funds were used for eligible Housing
               Choice Voucher and low-rent program costs. Any amount determined to be
               unsupported should be repaid from non-Federal funds.

       1H.     Establish controls to ensure that Federal funds are not used to make loans to pay
               COCC costs.




                                                 8
1I.   Establish and implement procedures to properly account for interfund
      transactions, including regularly reconciling and repaying any amounts that are
      improperly accounted for.

1J.   Provide documentation for the $61,804 in unaccounted for inventory. If the items
      cannot be accounted for, repayment should be made to the Authority’s low-rent
      program from non-Federal funds.
.
1K.   Provide support showing that the contracts for which $488,150 ($216,142 and
      $272,008 for legal services and public relations services, respectively) was paid
      were procured at the most competitive and best price and the costs paid were
      necessary and reasonable. Any unnecessary or unreasonable costs should be
      repaid from non-Federal funds to the program(s) that paid the costs.

1L.   Ensure that controls over inventory and procurement are strengthened according
      to the corrective action plan, particularly to ensure that items are added to
      inventory when purchased and removed from inventory when obsolete or no
      longer in use, cost estimates and analyses are performed for procurements,
      evaluation reports are completed to support the rationale for contract awards, and
      the history of procurements is maintained.




                                        9
Scope and Methodology
We performed our onsite audit work at the Authority’s administrative office located at 150
Highland Avenue, Bridgeport, CT, from April 2014 through June 2015. Our audit generally
covered the period October 1, 2010, through September 30, 2013, and was extended as
necessary. 7 We used computer-processed data and verified the data by reviewing hardcopy
supporting documentation or other data sources. We found the data to be adequate for our
purposes.
To accomplish our objective, we
    •   Reviewed regulations at 24 CFR Part 990, Changes in Financial Management and
        Reporting Requirements for Public Housing Agencies Under the New Operating Fund
        Rule; 24 CFR 85.36, Federal Procurement Standards; and 2 CFR Part 225, appendix A.

    •   Obtained an understanding of the Authority’s financial, procurement, and inventory
        management processes and evaluated controls to identify potential weaknesses related to
        our audit objective.

    •   Interviewed key Authority personnel and employee complainants to assess the validity of
        complaints made about Authority operations related to our objective during the course of
        our work.

     • Reviewed 100 percent of the Authority’s Capital Fund program expenditures of more
       than $15.2 million in fiscal years 2008 through 2012 and 100 percent of American
       Recovery and Reinvestment Act grant expenditures of more than $9.7 million recorded in
       the Authority’s books and records as of May 9, 2014, to determine whether the funds
       were used for eligible purposes and were adequately supported.

    •   Selected a sample of 50 of 627 invoices, representing $130,389 of the $624,000 in
        purchases during fiscal years 2012 through 2014, and 10 boilers valued at $10,647 to
        determine whether the items were in inventory and could be physically located. Items
        were selected due to reports of missing inventory items. We chose a nonrepresentative
        sample instead of a 100 percent selection because we knew enough about our population
        to allow us to select a relatively small number of items of interest. The 627 invoices
        totaling $624,115 were from 5 vendors. The results cannot be projected.

    •   Selected a sample of 11 items valued at $6,327 from a total population valued at more


7
 October 15, 2008, was the first expenditure for the Authority’s 2008 Capital Fund grant so the audit period was
expanded accordingly for the review of the Authority’s Capital Fund program, and August 20, 2014, was that last
date payables for legal services were entered on the general ledger during our fieldwork. Also, we expanded the
audit period for the review of legal services to include the 2010 procurement.


                                                         10
    than $355,000 purchased between December 1, 2013, and September 30, 2014, to
    determine whether they could be physically located. Items were selected because they
    were considered to not be necessary to maintain public housing units and could be easily
    stolen. We selected a nonrepresentative sample instead of a 100 percent selection or
    representative selection because we were alerted to the possibility that these types of
    items might be missing and wanted to select a small number of high-risk items that were
    not consistent with maintaining public housing. The universe was 4,485 purchases for a
    total dollar value of $355,005. We selected 11 purchases with a total dollar value of
    $6,327. The results cannot be projected.

•   Reviewed procurement files for legal services contracts procured in 2010, 2012, and 2014
    and a public relations services contract procured in 2011 to determine whether contracts
    were procured properly and the cost was reasonable.

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.




                                            11
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 a program meets its objectives.

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

•   Laws and regulations – Policies and procedures that management has implemented to
    reasonably ensure that resource use is consistent with laws and regulations.

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

We assessed the relevant controls identified above.

A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

•   Authority officials did not have adequate controls to ensure the reliability of financial


                                                    12
    information when they lacked adequate support for disbursements and did not accurately
    allocate costs among programs (finding).
•   Authority officials did not have adequate controls over compliance with laws and regulations
    when they did not maintain adequate accounting, inventory, and procurement records (finding).
•   Authority officials did not have adequate controls over safeguarding of resources when they did
    not maintain adequate inventory records (finding).




                                                 13
Appendixes

Appendix A
                                Schedule of Questioned Costs
                  Recommendation                            Unsupported
                                            Ineligible 1/
                      number                                    2/
                          1A            $     444,876
                          1C                   97,330
                          1E                                $5,573,214
                          1F                                  650,990
                          1G                                 1,750,000
                           1J                                  61,804

                          1K                                  488,150

                         Total               542,206        8,524,158


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local
     policies or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                                14
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




Comment 2




Comment 3




                               15
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 2




Comment 2


Comment 2




Comment 4




                               16
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 5




Comment 6




Comment 2




                               17
             Auditee Comments and OIG’s Evaluation




Ref to OIG    Auditee Comments
Evaluation




Comment 7


Comment 2


Comment 2




Comment 8




                               18
                         OIG Evaluation of Auditee Comments


Comment 1   Authority officials maintain that before the 2013 Capital Fund program rule,
            security (patrol) costs were an eligible Capital Fund program expense under the
            “Management Improvement” line item. However, 24 CFR 905.10(k)(ix) in 2010
            permitted “Capital expenditures to improve the security and safety of residents,”
            and regulations at 24 CFR 905.314(1) allow certain operating costs to be charged
            to the Capital Fund program, but these costs are limited to 20 percent of the grant.
            We maintain that security patrols are not a capital expense but, rather, an
            operating expense and Authority officials had already charged 20 percent of the
            grant for operating costs. Therefore, the costs of the security (patrol) costs are not
            eligible expenses.

Comment 2   Authority officials’ reported actions are responsive to the recommendation and
            will need to be verified by HUD during the audit resolution process.

Comment 3   Authority officials stated that the $78,588 was for scanning documents and was
            paid from COCC and Housing Choice Voucher program funds. However,
            information provided during the audit showed that these expenses were allocated
            using the “701” account, which automatically allocated the costs to the asset
            management projects and the Housing Choice Voucher program based on a
            formula entered into Accountmate, the Authority’s automated accounting system.
            We agree that capital funds were not used for this item and clarified the report
            accordingly. However, since Authority officials did not provide additional
            documentation to show that these costs were charged to the COCC, the costs will
            remain as ineligible.

Comment 4   Authority officials stated that documentation to support all questioned
            expenditures can be produced. However, such documentation was not made
            available during the audit; therefore, supporting documentation will have to be
            provided to HUD during the audit resolution process.

Comment 5   The report has been corrected to note that the $1,750,000 was withdrawn in May
            2014, not after October 2014. Authority records showed that the amount was
            transferred from the reserve investment account via a wire transfer on May 22,
            2014, and was reported in the COCC general ledger as an interfund due from the
            COCC to the Housing Choice Voucher program and various asset management
            projects. Authority officials stated that a single audit that was conducted
            disclosed that an improper cost allocation was used, which overstated expenses
            charged to the COCC. During the audit resolution process, Authority officials
            will need to show that these funds were properly used for asset management
            project and Housing Choice Voucher program expenses and not COCC expenses.

Comment 6   Authority officials stated that Federal funds were not used to make loans to the



                                               19
            COCC. To support this statement, supporting documentation will have to be
            provided to HUD during the audit resolution process.

Comment 7   We provided the details for the items that make up the $61,804 to Authority
            officials during the audit and will provide them again and to HUD for use during
            the audit resolution process.

Comment 8   We acknowledge the efforts and corrective actions made by Authority officials
            during the last 18 months and have added information concerning these efforts
            and corrective actions in the report.




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