oversight

The Cuyahoga Metropolitan Housing Authority, Cleveland, OH, Generally Administered Its Public Housing Program in Accordance With HUD's and Its Own Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-08-28.

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

        Cuyahoga Metropolitan Housing
          Authority, Cleveland, OH
                            Public Housing Program




Office of Audit, Region 5                Audit Report Number: 2018-CH-1004
Chicago, IL                                                  August 28, 2018
To:            Marguerite Irby, Acting Director of Public Housing Hub, 5DPH


               //signed//
From:          Kelly Anderson, Regional Inspector General for Audit, 5AGA
Subject:       The Cuyahoga Metropolitan Housing Authority, Cleveland, OH, Generally
               Administered Its Public Housing Program in Accordance With HUD’s and Its
               Own 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 the Cuyahoga Metropolitan Housing Authority’s
public housing program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8M, requires that OIG post its
publicly available reports on the OIG website. 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
(312) 913-8499.
                    Audit Report Number: 2018-CH-1004
                    Date: August 28, 2018

                    The Cuyahoga Metropolitan Housing Authority, Cleveland, OH, Generally
                    Administered Its Public Housing Program in Accordance With HUD’s and
                    Its Own Requirements



Highlights

What We Audited and Why
We audited the Cuyahoga Metropolitan Housing Authority’s public housing program based on
an anonymous complaint to our hotline. Our objective was specific to the allegations in the
complaint and was to determine whether the Authority (1) engaged in nepotism when hiring
staff, (2) used program funds for inappropriate or unreasonable travel expenses, (3) failed to
comply with the U.S. Department of Housing and Urban Development’s (HUD) and its own
requirements regarding conflicts of interest, and (4) misappropriated fixed assets.

What We Found
The Authority generally administered its program in accordance with HUD’s and its own
requirements. Specifically, we determined that the complainant’s allegations regarding the
Authority’s (1) use of nepotism when hiring staff, (2) misuse of program funds for travel expenses,
(3) noncompliance with HUD’s and its own conflict-of-interest requirements when selecting
vendors, and (4) misappropriation of fixed assets were unsubstantiated.

What We Recommend
This report contains no recommendations.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding: The Authority Generally Administered Its Program in Accordance With
         HUD’s and Its Own Requirements.................................................................................. 4

Scope and Methodology ...........................................................................................6

Internal Controls ......................................................................................................8

Appendixes ................................................................................................................9
         A. Auditee Comments and OIG’s Evaluation ............................................................... 9




                                                             2
Background and Objective
The Cleveland Metropolitan Housing Authority was established in 1933 by the State of Ohio Board
of Housing. Its name was changed to the Cuyahoga Metropolitan Housing Authority in 1971. The
Authority is governed by a five-member board of commissioners appointed in accordance with
division C of section 3735.27 of the Ohio Revised Code. The Authority’s mission is to create safe,
quality, affordable housing opportunities and improve the quality of life for the communities it
serves.

The public housing program was established to provide decent and safe rental housing for eligible
low-income families, the elderly, and persons with disabilities. The Quality Housing and Work
Responsibility Act of 1998 established the Public Housing Capital Fund and Public Housing
Operating Fund programs under sections 9(d) and 9(e) of the United States Housing Act of 1937,
respectively. Annually, the U.S. Department of Housing and Urban Development (HUD) allocates
capital funds to public housing agencies to provide assistance for capital and management activities,
including the development, financing, and modernization of public housing; addressing deferred
maintenance needs; and management improvements. The Operating Fund program provides
assistance to public housing agencies for the operation and management of public housing,
including procedures and systems to maintain and ensure efficient management, routine preventive
maintenance, energy costs associated with public housing, and the costs of repaying debt incurred to
finance the rehabilitation and development of public housing units.

We received an anonymous hotline complaint and conducted an audit to determine whether there
was sufficient information to substantiate the complaint. The complainant alleged that the
Authority engaged in nepotism, misused HUD program funds for travel expenses, had conflicts of
interest between the Authority’s staff and its vendors, and misappropriated its fixed assets.

Our objective was specific to the allegations in the complaint and was to determine whether the
Authority (1) engaged in nepotism when hiring staff, (2) used the program funds for
inappropriate or unreasonable travel expenses, (3) failed to comply with HUD’s and its own
requirements for conflicts of interest, and (4) misappropriated fixed assets.




                                                  3
Results of Audit

Finding: The Authority Generally Administered Its Program in
Accordance With HUD’s and Its Own Requirements
The Authority generally administered its program in accordance with HUD’s and its own
requirements. Specifically, we determined that the complainant’s allegations regarding the
Authority’s (1) use of nepotism when hiring staff, (2) misuse of program funds for travel expenses,
(3) noncompliance with HUD’s and its own conflict-of-interest requirements when selecting
vendors, and (4) misappropriation of fixed assets were unsubstantiated.

The Authority Did Not Engage in Nepotism
We identified six potential conflict-of-interest relationships with the Authority’s executive and
management staff and board of commissioners. However, we determined that the potential
conflicts of interest were properly disclosed in accordance with the Authority’s conflict-of-
interest requirements.

Program Funds Were Used for Reasonable Travel Expenses
We reviewed travel expenses incurred by the Authority’s chief executive officer, board
members, executive, and management staff for the period January 1, 2016, through November
30, 2017. The Authority provided agendas for the trainings and conferences attended by its
board members and executive and management staff, along with receipts for the related travel
expenses. Based on our review of the information, we determined that the travel destinations
and related expenses, paid using program funds, appeared reasonable.1

The Authority Did Not Have Apparent Conflicts of Interest With Its Vendors
We obtained a list of vendors, which the Authority awarded contracts for goods or services in
2016 and 2017 and a list of companies included in the Authority’s internal audit reports that
obtained assets the Authority disposed of through auction, to identify potential conflict-of-
interest relationships with its management and staff. We determined that the Authority did not
purchase or enter into purchase agreements with vendors with which the Authority’s
management or staff had apparent conflicts of interest.

The Authority Appropriately Accounted for Its Fixed Assets
We selected 20 of the Authority’s 376 fixed assets2 to review how the Authority tracked its assets
and to conduct a physical observation. Of the 20 fixed assets, we were able to verify the
existence of 11. For the remaining nine, the Authority provided documentation showing that (1)

1
    Federal regulations at 2 CFR (Code of Federal Regulations) 200.403 state: “Except where otherwise authorized
    by statute, costs must meet the following general criteria in order to be allowable under Federal awards: (a) be
    necessary and reasonable for the performance of the Federal award and be allocable thereto under these
    principles and (g) be adequately documented.”
2
    See the Scope and Methodology section.



                                                          4
one of its fixed assets was offsite for repairs and (2) eight fixed assets had been disposed of and
its tracking system had been updated to reflect the changes. Therefore, the Authority was able to
account for the 20 assets.

Conclusion
The Authority generally administered its program in accordance with HUD’s and its own
requirements. Specifically, we determined that the complainant’s allegations regarding the
Authority’s (1) use of nepotism when hiring staff, (2) misuse of program funds for travel expenses,
(3) noncompliance with HUD’s and its own conflict-of-interest requirements when selecting
vendors, and (4) misappropriation of fixed assets were unsubstantiated.

Recommendations
The report contains no recommendations.




                                                  5
Scope and Methodology
We performed our onsite work between January and April 2018 at the Authority’s office located
at 8120 Kinsman Road, Cleveland, OH, and our offices in Columbus, OH, and Chicago, IL. Our
review covered the period January 1, 2016, through November 30, 2017.
To accomplish our objective, we interviewed HUD program staff and the Authority’s employees.
In addition, we obtained and reviewed the following:

        Applicable laws; the Federal Register; Federal regulations at 2 CFR (Code of Federal
         Regulations) Part 200; HUD’s regulations at 24 CFR Parts 905 and 990; HUD Handbook
         7460.8, REV-2; the Capital Fund Guidebook; the Ohio Revised Code; and the 2017 Ohio
         Sunshine Laws manual.

        The Authority’s accounting records, annual audited financial statements, internal audit
         department reports, bank statements, contract and procurement files, policies and
         procedures, board meeting minutes, program annual contributions contract and
         amendments with HUD, credit card statements and supporting invoices, training and
         meeting agendas, travel expense reports, payroll reports, lists of employees, conflict-of-
         interest disclosure forms, 5-year and annual plans, budgets, and lists of fixed assets.

        HUD’s files for the Authority.

We reviewed the agendas for trainings and conferences attended by the Authority’s board
members and executive and management staff. We also reviewed all 476 travel expense
transactions for the period January 1, 2016, through November 30, 2017. The expenses were
reviewed to determine whether they were supportable and reasonable. In addition, we reviewed
the destinations for the incurred travel to ensure that they were also reasonable. The total
purchases represent 100 percent of the purchase transactions that occurred during the period;
therefore, no projection to the universe was warranted.

We used Lexis Nexis® Accurint®3 to search for possible relatives of the Authority’s 65
commissioners and executive and management staff. We compared the possible relatives
identified in the Accurint reports to a list of the Authority’s employees and associated payroll
reports to determine whether there were any potential conflicts of interest. We also reviewed the
Authority’s conflict-of-interest disclosure forms for staff members who had been identified as
possible relatives of the Authority’s board and executive and management staff.




3
    LexisNexis® Accurint® for Government enables government agencies to locate people, detect fraud, uncover
    assets, verify identity, perform due diligence, and visualize complex relationships. It helps enforce laws and
    regulations; fight fraud, waste, and abuse; and provide essential citizen services.



                                                          6
We used Lexis Nexis® Accurint® and searched the Ohio Secretary of State’s business search
website to obtain information on possible owners and people associated with vendors that do
business with the Authority. Due to the volume of vendors that do business with the Authority,
we limited our searches to the 115 vendors included in the Authority’s construction and
purchasing contract logs for 2016 and 2017 and companies included in the Authority’s internal
audit reports for the disposition of assets through auction. We compared the information
obtained to names of the Authority’s staff to determine whether there were any potential
conflicts of interest.

As of February 23, 2018, the Authority maintained a list of 29,043 fixed assets with acquisition
costs totaling more than $755 million. We focused our review on fixed assets that were readily
accessible to the Authority employees. After excluding appliances, buildings, and land, 376
fixed assets with acquisition costs totaling more than $8.2 million remained. We selected a
nonrepresentative sample of 20 of the 376 fixed assets with acquisition costs totaling $162,371 to
observe. We used a nonrepresentative sample because we knew enough about the population to
identify a relatively small number of items of interest, usually because they were likely to be
misstated or otherwise have a high risk; therefore, the results of our review only pertain to the
items we tested and were not projected to the universe. Of the 20 fixed assets, 10 were identified
as belonging to the Authority’s property maintenance department with acquisition costs totaling
$55,089, and the other 10 were identified as belonging to two asset management projects with
acquisition costs totaling $107,281. On March 1, 2018, we visited the Authority’s property
maintenance department and the two asset management projects to verify that the unique asset
tag number on the list for the fixed asset matched the actual fixed asset.

We relied in part on data maintained by the Authority in its accounting system. Although we did
not perform a detailed assessment of the reliability of the data, we performed a minimal level of
testing and found the data to be adequate for our purposes.

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.




                                                7
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 operations – Policies and procedures that management has
    implemented to reasonably ensure that a program meets its objectives.
   Compliance with laws and regulations – Policies and procedures that management has
    implemented to provide reasonable assurance that resource use is consistent with 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.

We evaluated internal controls related to the audit objective in accordance with generally
accepted government auditing standards. Our evaluation of internal controls was not designed to
provide assurance regarding the effectiveness of the internal control structure as a whole.
Accordingly, we do not express an opinion on the effectiveness of the Authority’s internal
control.




                                                 8
Appendixes

Appendix A
             Auditee Comments and OIG’s Evaluation



Ref to OIG    Auditee Comments
Evaluation




Comment 1




                               9
                        OIG Evaluation of Auditee Comments


Comment 1   The Authority requested that we include the word “potential” to the second
            sentence of the paragraph under the heading “The Authority Did Not Engage in
            Nepotism.” We considered the Authority’s request and updated the report to
            reflect this change.




                                            10