oversight

The Evanston Housing Authority, Evanston, WY, Misspent HUD Funds and Mismanaged Its Program Income

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-09-13.

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

            Evanston Housing Authority,
                  Evanston, WY
                Public and Indian Housing Programs




Office of Audit, Region 8          Audit Report Number: 2016-DE-1002
Denver, CO                                         September 13, 2016
To:            Janice Rodriquez, Director, Office of Public and Indian Housing, 8APH


               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 8AGA
Subject:       The Evanston Housing Authority, Evanston, WY, Misspent HUD Funds and
               Mismanaged Its Program Income




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 Evanston Housing Authority’s public and
Indian housing program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
913-551-5870.
                    Audit Report Number: 2016-DE-1002
                    Date: September 13, 2016

                    The Evanston Housing Authority, Evanston, WY, Misspent HUD Funds and
                    Mismanaged Its Program Income



Highlights

What We Audited and Why
We audited the Evanston Housing Authority’s use of its public and Indian housing program
funds in response to a hotline complaint. The complaint alleged that the Authority used its
purchase cards and laundry machine program income to pay for personal expenses, such as
remodeling of staff members’ personal residences, gas for nonbusiness miles, and other personal
goods and services. Our objective was to determine whether the Authority spent its U.S.
Department of Housing and Urban Development (HUD) capital and operating funds in
accordance with Federal rules and regulations and properly accounted for its program income.

What We Found
The Authority misspent more than $16,000 of its HUD funds and could not support more than
$94,000 in additional funds. It paid for the remodeling of staff residences, fuel for personal
miles, meals at restaurants, and other personal costs. In addition, it did not deposit laundry
machine revenue into its bank account or keep records showing how much it earned or how it
spent the money.

What We Recommend
We recommend that the Director of HUD’s Denver Office of Public and Indian Housing require
the Authority to (1) obtain relevant training on HUD programs for all of its employees,
management, members of the board of commissioners, and the executive director; (2) develop
and implement detailed policies and procedures for its financial management, to include record
retention, handling of petty cash, and issuance of checks; (3) develop and implement detailed
policies and procedures for the use of its purchase and gas cards; (4) repay HUD for $16,078 in
ineligible purchases using non-Federal funds; (5) provide support for $94,685 in purchases,
showing that the funds were used for eligible HUD purposes or repay HUD using non-Federal
funds; (6) deposit remaining petty cash into the Authority’s bank account and take steps to
safeguard the missing Home Depot card; (7) Identify all sources of program income and develop
and implement detailed policies and procedures to address collections, tracking, and use of its
program income; and (8) determine or estimate how much program income was not deposited
into its accounts and reimburse its Federal accounts using non-Federal funds.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................5
         Finding 1: The Authority Misspent Some of Its HUD Funds ...................................... 5

         Finding 2: The Authority Mismanaged Its Program Income .................................... 11

Scope and Methodology .........................................................................................13

Internal Controls ....................................................................................................14

Appendixes ..............................................................................................................15
         A. Schedule of Questioned Costs .................................................................................. 15

         B. Auditee Comments and OIG’s Evaluation ............................................................. 16




                                                             2
Background and Objective
The Evanston Housing Authority administers low-rent public housing, a Public Housing Capital
Fund improvement program, and a Housing Choice Voucher program in Evanston, a rural town
in western Wyoming. The Authority is governed by a five-member board of commissioners
appointed by the mayor of Evanston. The board employed the executive director, who managed
the Authority’s operations; a deputy director; a maintenance supervisor; and four additional staff
members.




The Authority administers 80 public housing units and 86 housing choice vouchers. Public
housing funding is provided based on rents paid by the tenants and Public Housing Operating
Fund payments received from the U.S. Department of Housing and Urban Development (HUD).
Under the Capital Fund program, HUD provides funding for the modernization and improvement
of the low-rent program. These resources allow the Authority to provide capital improvements
for the dwelling structures and assist in their operations. Table 1 shows Authority funding for
our audit period.
                                             Table 1

             Purchase type           2013               2014                2015

               Operating                                                $164,986
                                 $155,984            $164,986
               subsidies
              Capital Fund                                             $   63,337
                                 $103,591            $104,796
                program
                 Totals          $259,575            $269,782           $228,323


HUD regulations allow full flexibility for small public housing agencies. Public housing
agencies that operate fewer than 250 units, are not designated as troubled, and operate and



                                                 3
maintain their public housing in a safe, clean, and healthy condition may use any amounts for
eligible activities, regardless of whether the funding was provided from Operating Fund or
Capital Fund payments.

We received a HUD Office of Inspector General (OIG) hotline complaint from a private citizen
in October 2015 regarding the Authority’s use of its HUD program funds. The complaint alleged
that the Authority used its employee purchase cards for personal goods and services, used its gas
charge cards for personal miles, and spent its laundry machine revenue on personal goods and
services.

Our objective was to determine whether the Authority spent its HUD capital and operating funds
in accordance with Federal rules and regulations and properly accounted for its program income.




                                                4
Results of Audit

Finding 1: The Authority Misspent Some HUD Funds and Could
not Support its Use of Additional funds
The Authority misspent some of its HUD funds and could not support the use of additional
funds. This condition occurred because the board of commissioners and the former executive
director did not provide effective oversight or management of the Authority’s operations. As a
result, more than $16,000 in ineligible expenditures were not available to benefit the Authority’s
residents and more than $94,000 in unsupported expenditures might not have been available to
benefit the Authority’s residents.
The Authority Misspent Its HUD Funds and Could not Support its Use of Additional funds
The Authority used its credit cards and business checks to pay for more than $16,000 in personal
goods and services and could not support more than $94,000 in additional expenses. Table 2
shows the amounts of ineligible and unsupported costs paid by payment type.

                                             Table 2

                       Purchase type         Ineligible       Unsupported

                       US Bank credit                          $76,389
                                            $10,787
                           card
                      Business checks         4,500             6,298
                        Home Depot                              9,740
                                              1,791
                         credit card
                        Cardwell gas                            2,258
                                                0
                        charge card
                            Total            16,078            94,685



The Authority Paid for Personal Goods and Services
The Authority paid more than $16,000 for personal goods, meals at restaurants, personal
clothing, and improper payments to employees.

According to Federal regulations, costs charged to a Federal program are allowable only if the
costs are necessary, reasonable, and allocable to the program. Regulations at 2 CFR (Code of
Federal Regulations) Part 200.445 state that the costs of goods or services for personal use of the
governmental unit’s employees are unallowable, regardless of whether the cost is reported as
taxable income to the employees.




                                                    5
Home Depot Card
Former Authority staff members used the Authority-provided Home Depot credit card to buy
patio furniture, patio stone, paver sand, a ski rack, a bike rack, and a Home Depot gift card.
Ineligible costs from these purchases totaled more than $1,000. Former staff members said these
items were not purchased for the tenants and the gift card was used for yearend employee
bonuses. However, other employees at the Authority stated that they did not recall receiving
Home Depot gift cards as a prior-year bonus.

Business Checking Account
The Authority used a business check to make an ineligible payment of $3,500 to a former
employee on November 20, 2014. The check was endorsed and deposited the following day.
The former director did not recall reviewing or signing the check and could not provide support
showing that the cost was necessary, reasonable, and allocable to a Federal program. The former
director said this check should not have been written or deposited.




The Authority used another business check to make a payment of $1,000 to cash on December
18, 2014. The former director signed the check, endorsed it on the back, and deposited it at a
local Wells Fargo bank. The former director believed the check was for employee Christmas
bonuses but could not recall and could not provide supporting documentation. In addition, other
Authority employees said they received no monetary bonuses at yearend.

US Bank Purchase Card
Former Authority employees used the Authority-provided US Bank credit card to purchase a
personal use bicycle, golf items, gas for personal miles, food for personal use, personal clothing,
arts and crafts goods, and meals at restaraunts. Ineligible costs from these purchases totaled
more than $10,000. The employees said these were personal purchases and they intended to
repay the Authority.

Former Authority employees said they also used their Authority-provided US Bank purchase
card to pay for staff meetings held at restaurants. The Authority held meetings to discuss
business and improve morale.

Regulations at 2 CFR Part 200.438 do not allow the costs of entertainment, including
amusement, diversion, and social activities and any associated costs without prior HUD
approval.




                                                 6
The Authority Could Not Support Its Use of Additional Funds
The Authority could not support more than $90,000 in expenses paid from its purchase cards and
business checks.

Home Depot Card Payments
A former Authority employee used the Authority-provided Home Depot credit card to buy
gardening items, outdoor lighting, bathroom remodel items, cleaning items, and other
miscellaneous goods. The Authority did not have documentation to show that it used these items
for eligible purposes. Unsupported costs from these purchases totaled more than $9,000.

Business Checking Account
The Authority used a business check to make an unsupported payment of more than $6,000 for
fencing supplies in 2010. The former director said he used Authority maintenance staff to install
fencing at his personal residence in 2010. Another senior staff person said Authority materials
were used for this job. However, the Authority did not have sufficient records to show whether
these fencing supplies were used for Authority projects or the fence at the former director’s
personal residence.

US Bank Credit Card Charges
The Authority could not support more than $76,000 in US Bank credit card charges. The
Authority did not maintain complete credit card statements, receipts, or invoices. As a result, the
Authority could not verify all purchases made with the US Bank credit card were eligible.

Cardwell Gas Card Payments
Former Authority employees used the Authority-provided Cardwell gas charge card to purchase
more than $2,000 in unsupported fuel costs. The Authority did not initially keep Cardwell gas
card statements or receipts on file. These documents were later obtained by the board of
commissioners. We found a number of fuel fill-ups made by the same individual on the same
day or charges made in cities where the Authority had no official business.
The Former Director and the Board of Commissioners Did Not Provide Effective Oversight
or Management
The former director and the board of commissioners did not provide effective oversight or
management of the Authority’s operations. The former director did not implement controls, was
not aware of HUD requirements for meal purchases, and did not inform the board of the
Authority’s unwritten policies. In addition, the board of commissioners did not effectively
oversee the former director.

The Former Director Did Not Implement Effective Controls
The former director did not implement effective written policies and did not implement controls
over the Authority’s record retention, purchase cards, petty cash, or vehicle use.

The Authority’s written policies were generic and unspecific regarding HUD programs and the
Authority’s operations. The former director stated that he found generic public housing agency
policies on the Internet and adopted them as the Authority’s policies after making minor



                                                 7
changes. These policies did not contain guidance for document retention, purchase card use,
purchase card member agreements, eligible purchase card expenditures, petty cash, Authority
vehicle use, or eligible gas card expenditures. In addition, a former Authority employee said
employees were not aware that the Authority had established written policies.

The former director did not implement controls over record retention. Authority staff
implemented an unwritten policy to shred records supporting expenditures made with the US
Bank credit card, Home Depot credit card,
and Cardwell gas charge card. The
Authority did not scan, copy, or share all    Authority staff implemented an
of these records with its fee accountant      unwritten policy to shred records.
before shredding them. The former
director said he had noticed Authority staff
shredding records about 2 years earlier. He said he did not like it but did not take action to stop
it. A senior Authority employee said the Authority shreded its records to save office space.

The former director did not implement controls over Authority purchase cards. Former
Authority employees implemented an unwritten policy of using the Authority-provided US Bank
and Home Depot credit cards to make personal purchases. Former employees said they
sometimes used the cards to take advantage of the Authority’s corporate discount.

The former director did not implement controls over petty cash. A former Authority employee
said employees would reimburse the Authority with cash after using the Authority purchase card
for personal use. The employee stored the cash in a bag in a locked file cabinet in her office.
The bag contained more than $2,000 in cash, coins, and receipts. The Authority could not
provide records showing a history of cash deposited back into the Authority’s operating accounts
or records showing when cash was added to the bag.




The former director said the Authority kept no petty cash, had no petty cash written policies, and
placed a sign in the front office to show tenants that cash was not accepted. The former director
said he was not aware that Authority staff used the Authority’s credit cards for personal
purchases. He also said he was not aware that staff reimbursed the Authority in cash or that
more than $2,000 in cash was stored in the Authority’s offices. Other employees at the


                                                  8
Authority said they were not aware of the unnoficial reimbursement policy or the existence of
the cash bag. Finally, the former director said Home Depot Credit Services issued the Authority
two Home Depot credit cards, but he was unable to locate the second card.


The former director did not implement controls over vehicle use. Employees did not sign a
vehicle use or gas card agreement before being issued vehicles and gas cards. Employees did not
maintain logs for vehicle condition, mileage, or fuel purchases. In addition, the former director
did not make written guidance or training available to employees for the proper use of Authority
vehicles or gas cards.

The Former Director Was Not Aware of HUD Requirments for Meals
The former director was not aware of Federal regulations for the use of HUD funds to pay for
staff meals at restaurants. The former director said meals at restaurants served a business
purpose as they allowed staff to discuss work issues and improved morale. He said he was not
aware of HUD’s regulations on staff meals and he relied on his staff to know the applicable rules
and regulations when they used their purchase cards at restaraunts. However, he did not
personally review their charges to ensure that they followed Federal regulations, and the
Authority did not maintain written guidance for the use of HUD funds for meals.

The Former Director Did Not Update the Board of Commissioners
The former director said the Authority tried to hold board meetings every quarter. However, the
minutes showed two meetings in 2013, two meetings in 2014, and no meetings in 2015. During
the meetings, the former director discussed financial issues and general Authority operations but
did not discuss Authority policy changes or efforts to maintain compliance with HUD
requirements.
The Board of Commissioners Did Not Effectively Oversee the Former Director
The board of commissioners did not provide effective oversight. The chairman of the board of
commissioners said he assumed that the former director adequately performed his duties at the
Authority. The chairman allowed other Authority employees to use his electronic signature to
authorize Authority business checks, but he did not personally review the checks and was not
aware that the Authority used the business checks to pay for unsupported and ineligible costs.
Further, the chairman was not aware of the Authority’s policy of shredding supporting
documentation or using purchase cards for personal purchases. Finally, the chairman was not
aware that the Authority used generic written policies.
HUD Funds were not Available To Benefit the Authority’s Residents
As a result of the conditions described above, more than $16,000 in ineligible expenditures were
not available to benefit the Authority’s residents and more than $94,000 in unsupported
expenditures might not have been available to benefit the Authority’s residents.
Conclusion
The Authority used HUD funds to pay for ineligible and unsupported costs because its board of
commissioners and former director did not provide effective oversight or management. Without
adequate policies, knowledge of HUD requirements, and effective board oversight, the Authority



                                                9
misspent some of its HUD funds and could not support the use of additional funds. In addition,
the Authority exposed itself to potential financial loss when it could not locate one of its credit cards, and
it kept more than $2,000 in cash at its offices without management’s knowledge.

Recommendations
We recommend that the Director of HUD’s Denver Office of Public and Indian Housing require
the Authority to
        1A.      Obtain relevant training on HUD programs for all of its employees, management,
                 members of the Board of Commissioners, and the executive director.
        1B.      Develop and implement detailed policies and procedures for its financial
                 management, to include record retention, handling of petty cash, and issuance of
                 checks.
        1C.      Develop and implement detailed policies and procedures for the use of its
                 purchase and gas cards.
        1D.      Repay HUD for the $16,078 in ineligible purchases using non-Federal funds.
        1E.      Provide support for the $94,685 in unsupported purchases, showing that the funds
                 were used for eligible HUD purposes. Repay HUD using non-Federal funds for
                 any portion not supported. .
        1F.      Deposit remaining petty cash into the Authority’s bank account and take steps to
                 safeguard the missing Home Depot card.




                                                       10
Finding 2: The Authority Mismanaged Its Program Income
The Authority did not deposit laundry machine revenue into its bank account or keep records
showing how much it earned or how it spent the money. This condition occurred because the
Authority did not have a policy regarding program income and the former director did not
oversee the collection and use of the funds. As a result, program funds were not available for
eligible purposes.
The Authority Did Not Deposit or Track Program Income
The Authority collected laundry machine revenue but did not deposit the funds into its bank
account. Additionally, it did not keep records showing how much it collected or how it spent the
money. The United States Housing Act of 1937, section 9(k), states that income from nonrental
sources must be used for low-income housing or to benefit the residents assisted by the housing
authority. Regulations at 2 CFR 200.307(e)(1) require the Authority to spend program income
on eligible program costs in the same manner as it would treat regular program funds.

The Authority collected laundry machine revenue from January 1, 2013, to October 21, 2015, but
did not deposit the funds into its bank account. Additionally, the Authority did not keep records
showing how much it collected. The Authority deposited more than $150 on October 22, 2015,
and more than $140 on November 17, 2015.

The Authority could not show how it spent the laundry machine revenue. An Authority
employee said the Authority used the funds to pay for washing the Authority’s vehicles.
However, the Authority did not maintain records to support these costs.




The Authority Lacked Policies and Oversight of Its Program Income
The former director did not implement written guidance for program income. Specifically, he did
not implement written guidance for identifying sources of program income or the collection,
tracking, and use of program income.
Additionally, the former director did not oversee the collection of program income. He said he
assumed that Authority staff properly collected, deposited, and tracked program income. The
former director was aware that one Authority employee went alone to collect laundry machine
revenue, but he did not require a second level of review. The former director said he assumed


                                                11
that Authority staff deposited laundry machine revenue but he did not review the bank statements
to confirm that the employees had deposited the funds.
Program Funds Were Not Available for Eligible Purposes
As a result of the conditions described above, program funds were not available for eligible
purposes. In addition, the Authority put its program funds at risk of loss or theft when it did not
deposit or track its laundry revenue.
Recommendations
We recommend that the Director of HUD’s Denver Office of Public and Indian Housing require
the Authority to
       2A.     Identify all sources of program income and develop and implement detailed
               policies and procedures to address collections, tracking, and use of its program
               income.
       2B.     Determine or estimate how much program income was not deposited into its
               accounts and reimburse its Federal accounts using non-Federal funds.




                                                  12
Scope and Methodology
Our audit period generally covered January 1, 2013, through October 31, 2015. We performed
our audit work from October 2015 through February 2016. We conducted onsite work at the
Authority’s administrative offices located at 155 Apache Drive, #A, Evanston, WY.

To accomplish our objective, we

      Reviewed applicable laws and regulations and HUD’s guidance;
      Reviewed the Authority’s policies and procedures;
      Interviewed Authority staff, City of Evanston officials, public housing tenants, and local
       vendors;
      Interviewed HUD staff responsible for overseeing the Authority;
      Reviewed board minutes and resolutions;
      Reviewed the Authority’s audited financial statements covering our review period;
      Reviewed physical and electronic records, including bank records, invoices, credit card
       statements, receipts, check vouchers, tenant files, and maintenance work orders;
      Conducted a cash count; and
      Observed the collection of program income.

We planned and performed our audit work considering our assessment of the Authority’s system
of internal controls. Based on our assessment of its controls, we relied only on firsthand
observations and third-party documents obtained from vendors, contractors, and financial
institutions to support our findings and conclusions. We did not rely on evidence taken from the
work of others or the auditee’s computerized or electronic media.

During our audit period, we reviewed bank statements and credit card statements to identify the
Authority’s expenditures. We did not use a statistical sample to select expenditures for review.
We reviewed all purchases made with the Authority’s business checks, credit cards, and gas
charge cards during the audit period to determine whether these charges were necessary,
reasonable, and allocable to the HUD program.

We were unable to completely audit program income because we could not determine the total
amount of program income collected by the Authority during the audit period. The Authority did
not deposit the funds into its bank accounts from January 2013 through August 2015 and there
were no third-party records for tracking these funds.

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.


                                                13
Internal Controls
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   Effectiveness and efficiency of operations,
   Reliability of financial reporting, and
   Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit objective:

   Policies and procedures that have been implemented to reasonably ensure that purchasing
    activities, record keeping, payments to vendors, and income reporting activities comply with
    applicable laws and regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:

   The Authority did not have adaquate controls to ensure that expenditures complied with
    applicable laws and regulations for eligible uses of funds(finding 1).
   The Authority did not have adaquate controls to ensure that its record-keeping activities
    complied with applicable laws and regulations (finding 1 and Finding 2).
   The Authority did not have adaquate controls to ensure that its collection, tracking, and use
    of program income complied with applicable laws and regulations (finding 2).




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Appendixes

Appendix A


                          Schedule of Questioned Costs
                  Recommendation
                                   Ineligible 1/ Unsupported 2/
                      number
                          1D             $16,078
                          1E                               $94,685

                        Totals            16,078            94,685



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.




                                              15
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation    Auditee Comments




Comment 1




                               16
                         OIG Evaluation of Auditee Comments


Comment 1   The Evanston Housing Authority stated it did not have objections to the contents
            of the report and in large do not dispute the findings. The Authority has taken
            proactive steps to strengthen its controls by providing training for its employees
            and board members and establish policies addressing record retention, handling of
            petty cash, check signing, laundry machine proceeds, and a new credit card
            policy. The Authority expressed a willingness to work with HUD to provide
            supporting documentation and has begun obtaining receipts to resolve the matter.
            We agree with the Authority’s recent steps to strengthen controls, work with
            HUD to address our recommendations, and provide supporting documentation.
            We believe these steps, once fully implemented, will assist the Authority in
            resolving issues identified in this report. We appreciate the professionalism and
            seriousness demonstrated by the Authority’s board of commissioners in this
            matter.




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