oversight

Central City Housing Development Corporation, New Orleans, LA, Did Not Always Operate Satchmo Plaza in Accordance With Its Regulatory Agreement and HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2016-07-27.

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

     Central City Housing Development
       Corporation - Satchmo Plaza
              New Orleans, LA
                  Section 202 Direct Loan Program




Office of Audit, Region 6          Audit Report Number: 2016-FW-1004
Fort Worth, TX                                           July 27, 2016
To:            Thomas Goade, Acting Director, Southwest Region Office of Multifamily
               Housing Programs, 6AH


               //signed//
From:          William W. Nixon, Acting Regional Inspector General for Audit, 6AGA
Subject:       Central City Housing Development Corporation, New Orleans, LA, Did Not
               Always Operate Satchmo Plaza in Accordance With Its Regulatory Agreement
               and HUD Requirements




Attached is the U.S. Department of Housing and Urban Development (HUD), Office of Inspector
General’s (OIG) final results of our review of Central City Housing Development Corporation’s
Sections 202 and 8-funded project, Satchmo Plaza.
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
817-978-9664.
                    Audit Report Number: 2016-FW-1004
                    Date: July 27, 2016

                    Central City Housing Development Corporation, New Orleans, LA, Did Not
                    Operate Satchmo Plaza in Accordance With Its Regulatory Agreement and
                    HUD Requirements



Highlights

What We Audited and Why
We audited Central City Housing Development Corporation’s U.S. Department of Housing and
Urban Development (HUD) Sections 202 and 8-funded project, Satchmo Plaza, as part of our
annual audit plan to review multifamily projects. Our audit objective was to determine whether
the Corporation met the requirements of its regulatory agreement and followed HUD
requirements when operating the project.

What We Found
The Corporation did not always meet the requirements of its regulatory agreement and follow
HUD requirements when operating its project. Specifically, it did not (1) maintain the project in
good repair and condition, (2) make monthly deposits to its reserve fund for replacements, (3)
spend funds for supported and reasonable costs, and (4) satisfy the HUD judgment against it.
These conditions occurred because the project lacked financial stability and adequate oversight
and controls. As a result, it subjected elderly and disabled tenants to dangerous health and safety
risks and is at risk of losing its housing assistance payments contract. In addition, it underfunded
its reserve fund for replacements by at least $8,600, paid $2,810 in questioned costs, and
remained in violation of the regulatory agreement with the outstanding judgment. Further, it
could not provide HUD reasonable assurance that it properly managed its project and funds,
putting at least $314,184 at risk for mismanagement.

What We Recommend
We recommend that HUD require the Corporation to develop and implement a HUD-approved
written plan and checklists to correct the project’s physical condition and other deficiencies
identified and prevent a recurrence of such issues to better ensure that it spends and manages at
least $314,184 in accordance with requirements. We also recommend that HUD require the
Corporation to (1) obtain a waiver or make retroactive deposits of $8,600 to its reserve fund for
replacements, (2) repay $879 and support or repay $1,931, and (3) satisfy the judgment. Finally,
we recommend that HUD evaluate the viability of the project and monitor the project’s
performance-based contract administrator.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding : The Corporation Did Not Always Meet HUD Requirements When
         Operating Its Project ........................................................................................................ 4

Scope and Methodology .........................................................................................11

Internal Controls ....................................................................................................13

Appendixes ..................................................................................................................
         A. Schedule of Questioned Costs and Funds To Be Put to Better Use ...................... 14

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




                                                                  2
Background and Objective
The U.S. Department of Housing and Urban Development (HUD) Section 202 Direct Loan
program provided direct Federal loans for a maximum term of 40 years under Section 202 of the
Housing Act of 1959. The program was established to assist private, nonprofit corporations and
consumer cooperatives in developing new or substantially rehabilitated housing and related
facilities to serve the elderly, physically handicapped, developmentally disabled, or chronically
mentally ill adults. The program also combined properties with HUD Section 8 program
assistance to make rents affordable to low-income families and is known as the Section 202 and
8-funded program.
In 1980, HUD executed a $929,400 mortgage and note with the Central City Housing
Development Corporation for a Section 202 direct loan to develop its project, Satchmo Plaza,
located in New Orleans, LA. HUD regulates the Corporation’s loan through a regulatory
agreement that it executed at the time of the mortgage. The project must also comply with its
Section 8 housing assistance payments contract with HUD since it receives its project rental
income from HUD. Based upon its current contract, the Corporation is set to receive as much as
$314,184 in subsidies and tenant rent payments over the next year.

The Corporation is a nonprofit organization and owner of the project, which is a 34-unit
multifamily housing project for elderly and disabled persons. In 2014, the Corporation
demolished 4 units due to damages sustained during Hurricane Katrina, leaving 30 units. The
Corporation has been self-managed since 2006, and executed a contract with a housing
consultant to oversee the operations of the project beginning in 2012.

Our objective was to determine whether the Corporation met the requirements of its regulatory
agreement and followed HUD requirements when operating the project.




                                                3
Results of Audit

Finding: The Corporation Did Not Always Meet HUD
Requirements When Operating Its Project
The Corporation did not always meet the requirements of its regulatory agreement and follow
HUD requirements when operating its project. Specifically, it did not (1) maintain the project in
good repair and condition, (2) make monthly deposits to its reserve fund for replacements, (3)
spend funds for supported and reasonable costs, and (4) satisfy the HUD judgment against it.
These conditions occurred because the project lacked financial stability and adequate oversight
and controls. As a result, it subjected elderly and disabled tenants to dangerous health and safety
risks and is at risk of losing its housing assistance payments contract. In addition, the
Corporation underfunded its reserve fund for replacements by at least $8,600, paid $2,810 in
questioned costs, and remained in violation of the regulatory agreement with the outstanding
judgment. Further, it could not provide HUD reasonable assurance that it properly managed its
project and funds, putting at least $314,184 1 at risk for mismanagement.

The Project Was Not Maintained in Good Repair and Condition
The Corporation did not maintain the project’s property buildings and tenant units in good repair
and condition as required by 24 CFR (Code of Federal Regulations) 5.703 and the HUD
regulatory agreement, paragraph 8. The project received overall failing scores for two
consecutive physical inspections conducted in December 2014 and February 2016 by HUD’s
Real Estate Assessment Center (REAC). 2 Of the 72 deficiencies identified in the February 2016
inspection, 22 included health and safety violations, including tripping or sharp edge hazards,
damaged doors, broken stairs, infestation, and eight dangerous health and safety deficiencies
related to electrical hazards. Our January 2016 observation of units and the exterior of tenant
unit buildings and general property grounds identified some of the same hazards reflected in the
2014 REAC inspection report, including broken steps, mold and mildew buildup, exposed wires,
and exterior damage. (See illustrations 1 and 2.)




1
    We derived this estimate by multiplying the number of available units by the amount of the HUD-approved rent
    per unit times 12 months. See the Scope and Methodology section.
2
    HUD’s Real Estate Assessment Center improves the quality of HUD housing through physical inspections of all
    HUD housing to assess the condition and help ensure safe and sanitary conditions. The project received a score
    of 50c on December 3, 2014, and a score of 55c on February 8, 2016. A score of less than 60 is failing and ‘c’
    means at least one life threatening health and safety deficiency was identified.




                                                         4
Illustration 1: Rusted staircase with broken step and mold and mildew buildup on walls




Illustration 2: Exposed wires, damaged gutters, and rotted exterior soffit boards
Due to the last inspection results, HUD issued a formal notice of default of the housing
assistance payments contract and a compliance, disposition, and enforcement plan. HUD placed
the Corporation on a 60-day corrective action plan in March 2016, which required the
Corporation to correct all physical deficiencies or request a time extension based upon a repair
plan. According to the Corporation, it completed the repairs for the health and safety
deficiencies required to be completed within 24 hours on February 8, 2016 and planned to
complete the repairs for the remaining REAC deficiencies using operating funds no later than
May 13, 2016.
The housing consultant explained that the property needed major renovations and without capital
improvement funds, the repeated issues would continue to exist and be cited in every inspection
report. The Corporation proposed a redevelopment plan to HUD to address the physical
deficiencies of the project, which included completing the more expensive major building
exterior repairs. However, although HUD believed the project needed redevelopment, it had not
agreed to the Corporation’s plan as of May 2016 because it had concerns with the existing plan.




                                                 5
The Reserve Fund for Replacements Was Underfunded
The Corporation did not ensure that it fully funded its reserve fund for replacements.
Regulations at 24 CFR 891.605 and the HUD regulatory agreement, paragraph 5, required the
Corporation to maintain and make monthly deposits to this account in an amount determined by
HUD. The Corporation could use these funds for extraordinary maintenance and repair and
replacement of capital items, such as replacement of major appliances, central air conditioning
and heating systems, or major repairs of roofs or plumbing. HUD required the Corporation to
make a monthly deposit of $1,550. However, the Corporation either missed deposits or did not
deposit the full amount between November 2014 and September 2015, resulting in the account
being underfunded by $8,600. The housing consultant stated that the project did not make the
deposits because it did not have sufficient operating funds.

Project Funds Were Disbursed for Questionable Costs
The Corporation made disbursements for questionable costs. Regulations at 2 CFR Part 230,
appendix B, paragraph 16; 2 CFR Part 230, appendix A, paragraph 3; and the HUD regulatory
agreement, paragraph 11(c), prohibited the Corporation from making payments for fines and
penalties and required it to ensure that costs were reasonable and necessary for the project’s
operation. A review of supporting documentation for 14 disbursements determined that the
Corporation generally ensured that it maintained adequate documentation for its disbursements.
However, one disbursement included $1,931 paid from the project’s funds to the State of
Louisiana Department of Revenue for penalties and fees associated with unpaid payroll taxes for
2006, 2007, and 2011. The Department of Revenue invoice had some credits but did not specify
whether those credits reduced the tax or the penalties and interest. To avoid action by the State,
the housing consultant quickly paid the debt and believed that the funds spent were not HUD
funds, thereby not subject to HUD requirements. Specifically, the housing consultant stated that
the project’s income consisted of 70 percent from HUD and 30 percent from its tenant portion of
rent and all of the funds were deposited into the same checking account. 3 However, HUD
considers tenant rent payments as project funds, subject to HUD requirements. A review of the
bank statements showed that the Corporation also paid $879 in unreasonable bank overdraft,
nonsufficient funds, and returned item fees from 2007 to 2010 due to negative balances held in
its operating bank account.
A Judgment Against the Corporation Was Not Satisfied
The Corporation did not satisfy a judgment issued against it by HUD. In January 2010, HUD
cited the Corporation and issued a judgment totaling $75,000 for failing to submit audited annual
financial statement reports for fiscal years ending June 30, 2007, and June 30, 2008. HUD
executed a repayment agreement with the Corporation in September 2011, which must be paid
from nonproject funds. Because the Corporation is a non-profit organization and did not have a
sufficient source of nonproject funds, the Corporation defaulted on the agreement terms after
making one payment of $700, leaving a balance of $74,300. It did not make any additional



3
    During the exit conference, the housing consultant stated that this statement was hypothetical and she was not
    trying to use it to justify the reason that the funds were spent.




                                                          6
payments. By not satisfying or releasing the judgment, the Corporation violated the regulatory
agreement terms. 4
The Corporation obtained a court-ordered deferment of the judgment in June 2015 for $74,650
with an outstanding balance of $74,590. The court order did not have an expiration date;
however, the Corporation will remain in violation of its regulatory agreement until it satisfies the
judgment. The Corporation planned to request that HUD waive the judgment and allow it to
reinvest the funds in the project or repay the judgment during the refinancing portion of the
proposed redevelopment plan.

The Corporation Lacked Financial Stability and Adequate Oversight and Controls
The Corporation had the violations cited above because of the lack of financial stability and
adequate oversight and controls.

The Corporation Lacked Financial Stability
The project did not have sufficient income to meet its monthly obligations. The 2014 through
2016 operating budgets showed that the project did not have enough income to cover its
expenses. In the fiscal year 2014 budget, the project showed a deficit. In the fiscal years 2015
and 2016 budgets, the project showed a surplus; however, the budget is based on potential
income at full occupancy that the project could not achieve because of the four units it
demolished in 2014. By subtracting the vacancy income from the potential income, the budgets
showed an operating deficit. (See table 1.) The housing consultant stated that the contract
administrator 5 instructed her to include this vacancy amount, although the project would not
receive this income.

         Table 1: Fiscal years 2014 through 2016 project operating budget summary

                                                                         Years

                                                        2014      2015                 2016
           Total Income                               $300,663 $349,320             $363,294
           Minus total expenses                        320,995 338,074               344,450
           Total cash surplus-(deficit) reported       (20,332)       11,246           18,844
           Minus vacancy income                                     (40,272)         (40,272)

           Total operating surplus-(deficit)           (20,332)     (29,026)         (21,428)

Because of these financial constraints, the Corporation could not make necessary repairs to the
project, and make required contributions to the reserve fund for replacements.



4
    This was required by the HUD regulatory agreement, paragraph 10.
5
    The Louisiana Housing Corporation, located in Baton Rouge, LA, is the Corporation’s HUD-appointed
    performance-based contract administrator.




                                                       7
The Corporation Did Not Have Adequate Oversight and Controls
The Corporation had been self-managed since 2006. From 2006 to 2012, an executive director,
who was also a board member, managed the project. Under this executive director, staff did not
renew the housing assistance payments contract on time, which resulted in late reimbursements
from HUD. This condition created financial hardships for the project, causing late payments to
vendors, and led to negative balances in its operating bank account at times. This executive
director also did not establish adequate written policies and procedures. Further, a letter from
HUD, dated December 15, 2011, stated that the Corporation had not complied with HUD
regulations and despite meeting with the executive director on many occasions, the property
continued to remain noncompliant. Some of the compliance issues included (1) failure to file
annual financial statements for 2007 through 2010, (2) delinquent mortgage payment, (3) below
average management and occupancy reviews, and (4) failure to rehabilitate units. HUD also
required the Corporation to obtain a new management agent, but attempts by the Corporation
failed because of its small size and the issues that existed at the project. Therefore, in 2012, the
Corporation dismissed the executive director and executed a contract with a housing consultant
to oversee the operations of the project. The housing consultant’s contract expires in November
2016. Other than the housing consultant, the project had only two other contracted positions,
which included a part-time administrative assistant and an accountant.

In addition, the Corporation’s board was not active, as it did not hold regular board meetings,
and as of March 2016 had met only once or twice since August 2005. The Corporation also
could not provide records to show who served as past board members. As of March 2016, the
Corporation had three board members, two of whom had been members for 1 year. The board
chairman stated that attempts to recruit additional board members had been unsuccessful due to a
lack of community interest. Without regular board meetings and an adequate number of board
members, the Corporation could not have (1) presentation of and voting on issues for project-
related matters; (2) issuance and adoption of board resolutions, (3) review and approval of
policies and procedures established and used for the operation of the project; and (4) reviews of
contracts, budgets, audit and monitoring reports, and other financial and operational matters
affecting the project. The board chairman stated that he met one on one with the previous
executive director and met with the current housing consultant quarterly but did not have records
showing the time, date, or a summary of the discussions or decisions made. The board chairman
was also not familiar with the bylaws and articles of incorporation for the Corporation, and the
board, including the chairman, had not received training or written guidance explaining their
roles and responsibilities.

The housing consultant established written policies and procedures for controlling the project’s
accounting, operations, tenant selection, fair housing, and maintenance functions in January and
April 2013. However, these policies did not have board approval and did not include procedures
to ensure that the Corporation complied with its agreements and HUD requirements. For
example, the policies did not include details or procedures for functions required by the
regulatory agreement, including (1) operating fund establishment and uses, (2) reserve fund for
replacements and residual receipts account establishment and uses, (3) segregation of project
funds, and (4) submission of annual audited financial reports.



                                                  8
Without adequate funding, oversight, and controls, the redevelopment plan would not be
effective, and the project could be exposed to mismanagement and experience further financial
difficulties.

The Corporation Had Corrected Some Issues
The Corporation had corrected some of its past issues, including clearing a past due mortgage
balance, submitting its annual audited financial statements and fully funding its security deposit
account. For several months in 2005 following hurricane Katrina, the Corporation could not
make mortgage payments, resulting in a past due amount of more than $17,000. With HUD’s
approval, the Corporation used its reserve funds to bring the mortgage loan current in June 2014.
In addition, for fiscal years 2007 through 2013, the Corporation did not submit its annual audited
financial statement to HUD within 90 days of its fiscal yearend as required by 24 CFR
5.801(c)(2). It submitted these reports between 6 years and 3 months late. However, for fiscal
years 2014 and 2015, it submitted its annual audited financial statement reports on time. Further,
from June 2010 through December 2012, the Corporation did not maintain a separate security
deposit account, and from December 2012 to June 2015, it did not fully fund the security deposit
account as required by 2 CFR 891.435(b) and the regulatory agreement, paragraph 7(f). It
established a new security deposit account in December 2012 and fully funded it by June 2015.
Lastly, it had demolished two properties with four units damaged during Hurricane Katrina,
repaired two fire-damaged units, and renewed its expired housing assistance payments contract.
While the Corporation had corrected these issues, it continued to struggle financially, and the
project was in disrepair.
Conclusion
Because the Corporation lacked financial stability and adequate oversight and controls, it did not
maintain units in good repair and condition, did not make required deposits to its reserve fund for
replacements, paid ineligible penalties and interest and unreasonable fees, and had an
outstanding judgment against it. As a result, it subjected its elderly and disabled residents to
dangerous health and safety risks, putting it at risk for losing its housing assistance payments
contract and other potential financial and legal actions, underfunded its reserve fund for
replacements account by at least $8,600, incurred $2,810 in questioned costs, and remained in
violation of the regulatory agreement with the outstanding judgment. In addition, it could not
provide HUD reasonable assurance that it properly managed its project and funds, and $314,184
was at risk for mismanagement.

Recommendations
We recommend that the Acting Director of the HUD Southwest Region Office of Multifamily
Housing Programs require the Corporation to
       1A.     Develop and implement a HUD-approved written plan and checklists that will
               correct the project’s physical condition and other deficiencies outlined in the
               finding and prevent a recurrence of such issues to ensure compliance with HUD
               requirements. The written plan should include actions to (1) obtain a fully
               functioning board and operate in compliance with the Corporation’s bylaws and
               any HUD requirements, (2) correct all hazardous and unsafe physical deficiencies,
               including those cited in the February 2016 REAC inspection; (3) revise its



                                                 9
            operating budget to ensure the most economical use of funds and that the project
            income covers operating expenses; (4) establish written board-approved policies
            and procedures; and (5) obtain HUD-approved training for management and the
            Corporation’s board regarding their roles and responsibilities. The checklists
            should include systems and procedures to ensure that the Corporation meets all
            requirements, including but not limited to fully funding its reserve fund for
            replacements, spending funds for eligible costs, and submitting all required forms
            and documents. Implementing this recommendation should better ensure that the
            Corporation spends and better manages at least $314,184 in housing subsidies that
            it is set to receive in the next 12 months in accordance with requirements.
      1B.   Obtain a waiver or HUD approval to make retroactive deposits totaling $8,600 to
            the reserve fund.
      1C.   Request a HUD evaluation of the current required monthly reserve fund for
            replacements contribution amounts to ensure that the required contribution
            amount is feasible.
      1D.   Support that the credits reflected in the invoice from the Louisiana Department of
            Revenue offset the penalties and interest or repay $1,931 from nonproject funds.
      1E.   Repay $879 from nonproject funds paid for unreasonable overdraft, nonsufficient
            funds, and returned item fees.
      1F.   Repay the remaining balance of the judgment totaling $74,590 from nonproject
            funds.
We also recommend that HUD
      1G.   Evaluate the project’s viability to determine whether further action is needed to
            secure HUD’s and the tenants’ interests. Should HUD determine that the project
            is viable, we recommend that HUD review the budget and subsidy numbers, and
            monitor the project’s contract administrator performance to ensure that the project
            complies with all requirements.




                                             10
Scope and Methodology
We conducted the audit at the Corporation’s office in New Orleans, LA, and our offices in Baton
Rouge and New Orleans, LA, from December 2015 through May 2016. The audit scope
generally covered July 1, 2013, through September 30, 2015. We expanded the scope as
necessary to accomplish our audit objective.
To accomplish our objective, we reviewed

   •   Relevant regulations and program guidance.
   •   The Corporation’s articles of incorporation, bylaws, and mortgage and note.
   •   The project’s written policies and procedures.
   •   Audited financial statements, operating budgets, disbursements, and check registers. We
       also reviewed bank statements covering January 2006 through December 2010.
   •   Tenant data and rent information and tenant file records.
   •   The project’s (1) mortgage payments, (2) reserve fund for replacements, (3) residual
       receipts, (4) disbursements, (5) security deposit account, (6) tenant rent payments, (7)
       tenant eligibility, and the (8) physical condition of tenant units and property.
   •   REAC inspection reports and observed the physical condition of the property.
   •   HUD’s monitoring reports.

We also interviewed HUD officials and persons associated with the Corporation and the project.

For the disbursement review, we selected 41 disbursements totaling $39,534 of the 828
disbursements totaling $565,999 reflected in the Corporation’s check register reports made
between July 1, 2013, and September 30, 2015. We selected a nonstatistical sample by focusing
on disbursements of $1,000 or more and the highest payment amount of the payees because we
wanted to select a small number of items of interest. We reviewed 14 of the 41 sampled
disbursements totaling $23,507 to determine whether the Corporation maintained adequate
supporting documentation and complied with the regulatory agreement and HUD requirements.
Because we identified no major issues, we did not review the additional 27 disbursements.
Through file reviews, we determined that the computer-processed data related to disbursements
were generally reliable. Based on our method of selection, the results of our review apply only
to the selected items and must not be projected to the portion of the population that was not
tested.

To determine the physical condition of the project, we reviewed the inspection reports prepared
by REAC. On January 11, 2016, we performed an onsite visit to the project to observe the
deficiencies cited by the December 2014 REAC inspection report and determine whether those
and other deficiencies existed.




                                                11
     To determine the estimated amount of funds to be put to better use, we multiplied the number of
     available units by the amount of the HUD-approved rent per unit times 12 months (See table 2.) 6

      Table 2: HUD-approved rent amounts for the project
Unit size         Number Contract        Monthly contract rent      Annual contract rent potential
                  of units rent per unit potential (number of       (monthly contract rent
                                         units times contract rent  potential times 12)
                                         per unit)
1 bedroom               26         $857                    $22,282                       $267,384
1 bedroom (large)         2         886                       1,772                         21,264
2 bedroom                 2       1,064                       2,128                         25,536
Totals                  30                                   26,182                        314,184

     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.




     6
         In October 2016, the rent amount per unit may go up at the time of the housing assistance payments contract
         renewal.




                                                              12
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:

•   Effectiveness and efficiency of policies and procedures used to ensure compliance with the
    Section 202 regulatory agreement and HUD requirements;
•   Relevance and reliability of information used for making decisions and ensuring that
    information in external reports, such as audited financial statements, is relevant, reliable, and
    timely; and
•   Compliance with applicable Federal laws and regulations.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, the
reasonable opportunity to prevent, detect, or correct (1) impairments to effectiveness or
efficiency of operations, (2) misstatements in financial or performance information, or (3)
violations of laws and regulations on a timely basis.
Significant Deficiency
Based on our review, we believe that the following item is a significant deficiency:

•   The Corporation did not have adequate controls over the efficiency and effectiveness of
    program operations when it did not establish administrative controls to ensure compliance
    with the regulatory agreement and other HUD requirements (finding).




                                                  13
Appendixes

Appendix A
               Schedule of Questioned Costs and Funds To Be Put to Better Use
           Recommendation Unsupported         Unreasonable or     Funds to be put
               number              1/          unnecessary 2/     to better use 3/
                    1A                                                               $314,184
                    1B                                                                   8,600
                    1C                $1,931
                    1D                                        $879

                  Totals               1,931                   879                    322,784



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/        Unreasonable or unnecessary costs are those costs not generally recognized as ordinary,
          prudent, relevant, or necessary within established practices. Unreasonable costs exceed
          the costs that would be incurred by a prudent person in conducting a competitive
          business.
3/        Recommendations that funds be put to better use are estimates of amounts that could be
          used more efficiently if an Office of Inspector General (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, requiring the Corporation to develop and
          implement a HUD-approved written plan and checklists that will correct the deficiencies
          outlined in the finding and prevent a recurrence of such issues, as well as ensuring
          compliance with HUD requirements, will better ensure that the Corporation spends and
          manages at least $314,184 7 in housing subsidies in accordance with requirements.


7
     We derived this estimated amount by multiplying the number of available units by the amount of the HUD-
     approved rent per unit times 12 months. See the Scope and Methodology section.




                                                         14
Further, putting $8,600 of required funds into the reserve fund for replacements would
guarantee that funds will be available for future major repairs.




                                        15
Appendix B
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




                               16
17
18
Comment 1




            19
Comment 2




Comment 3




Comment 2




            20
Comment 2




Comment 2




            21
Comment 2




Comment 2




Comment 2




Comment 2




Comment 2




            22
Comment 2




            23
Comment 2




            24
                 OIG Evaluation of Auditee Comments
Comment 1   The Corporation stated that it addressed, corrected, and repaired all of the
            items listed in this report and the health and safety hazards identified in
            the two previous REAC inspections. However, the Corporation did not
            provide supporting documentation; thus its claims could not be verified
            before we issued the final report. The Corporation will need to provide
            supporting documentation to HUD that it made the repairs and work with
            HUD to satisfy the recommendations.
Comment 2   We appreciate the Corporation’s efforts to make improvements by taking
            actions and making recommendations to address the issues at the project
            that are identified in the report. The Corporation will need to provide
            evidence to HUD of actions taken toward correcting the identified issues,
            and work with HUD to continue to resolve the remaining issues and
            satisfy the recommendations in the report.
Comment 3   The Corporation stated that it made the $1,931 payment to the Louisiana
            Department of Revenue during an amnesty period, where it did not have to
            pay penalties and interest; however, it had not received the supporting
            documentation. The Corporation will need to provide the supporting
            documentation to HUD once it is received, and work with HUD to satisfy
            the recommendation.




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