oversight

The Benkelman Housing Authority, Benkelman, NE, Did Not Follow HUD Rules and Regulations for Public Housing Programs Related to Procurement and Maintenance, Tenant Certifications, Laundry Machine Income, and Expenditures

Published by the Department of Housing and Urban Development, Office of Inspector General on 2018-09-27.

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

          Benkelman Housing Authority
                Benkelman, NE
                        Public Housing Programs




Office of Audit, Region 7            Audit Report Number: 2018-KC-1004
Kansas City, KS                                      September 27, 2018
To:            Denise Gipson, Director, Office of Public Housing, 7DPH

               //signed//
From:          Ronald J. Hosking, Regional Inspector General for Audit, 7AGA
Subject:       The Benkelman Housing Authority, Benkelman, NE, Did Not Follow HUD Rules
               and Regulations for Public Housing Programs Related to Procurement and
               Maintenance, Tenant Certifications, Laundry Machine Income, and Expenditures


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 Benkelman 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
913-551-5870.
                    Audit Report Number: 2018-KC-1004
                    Date: September 27, 2018

                    The Benkelman Housing Authority, Benkelman, NE, Did Not Follow HUD
                    Rules and Regulations for Public Housing Programs Related to Procurement
                    and Maintenance, Tenant Certifications, Laundry Machine Income, and
                    Expenditures



Highlights

What We Audited and Why
We audited the Benkelman Housing Authority’s public housing program in Benkelman, NE. We
initiated the audit based on a request from the U.S. Department of Housing and Urban
Development, Office of Inspector General (HUD OIG), Office of Investigation. Additionally,
HUD conducted an onsite assessment in May 2016 and identified concerns, including
procurement, income verification, travel policy, and significant control deficiencies. Our audit
objective was to determine whether the Authority followed HUD’s rules and regulations for
public housing programs related to procurement and maintenance, tenant certifications, laundry
machine income, and expenditures.

What We Found
The Authority did not always comply with procurement and maintenance policies, improperly
completed initial tenant certifications and annual recertifications, improperly certified tenants
with potential conflict-of-interest relationships, and mismanaged its laundry machine revenue.

What We Recommend
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing require the
Authority to provide adequate documentation to support that the $71,034 spent for improperly
procured goods and services was spent at the most competitive prices and provide adequate
documentation to support more than $15,000 spent for maintenance activities. Additionally, we
recommend that HUD (1) work with the Authority to develop a formalized process, such as a
checklist, when conducting initial certifications and annual recertifications, which would help to
ensure that it follows HUD requirements for its public housing program; (2) require the
Authority to conduct a 100 percent review of its tenant files to ensure that tenants’ rents are
accurate and the proper income, asset, and medical expenses are complete and documented in the
tenant files; and (3) require the Authority to address actual or potential conflict-of-interest
relationships in its Admissions and Continued Occupancy Policy. We also recommend that
HUD require the Authority to develop and implement detailed policies and procedures to address
collections, tracking, and use of its laundry machine revenue.
Table of Contents
Background and Objective......................................................................................3

Results of Audit ........................................................................................................4
         Finding 1: The Authority Did Not Always Comply With Procurement and
         Maintenance Policies ........................................................................................................ 4

         Finding 2: The Authority Improperly Completed Initial Tenant Certifications
         and Annual Recertifications............................................................................................. 9

         Finding 3: The Authority Improperly Certified Tenants With Potential
         Conflict-of-Interest Relationships ................................................................................. 12

         Finding 4: The Authority Mismanaged Its Laundry Machine Revenue .................. 14

Scope and Methodology .........................................................................................16

Internal Controls ....................................................................................................19

Appendixes ..............................................................................................................20
         A. Schedule of Questioned Costs .................................................................................. 20

         B. Auditee Comments and OIG’s Evaluation ............................................................. 21




                                                                  2
Background and Objective
The Benkelman Housing Authority is located in Benkelman, NE. The Authority is governed by
a five-member board that is appointed by the mayor to serve 5-year staggered terms. The board
employs the executive director, who manages Authority operations, and one employee. The
Authority also has a part-time maintenance assistant. The Authority is comprised of two
programs – public housing and a Public Housing Capital Fund program. The public housing was
built in 1964 and has 40 one-bedroom units. The Authority has two campuses. The main
campus is located at 100 Rainbow Fountain Park, Benkelman, NE, while the North Campus is
located at 131 – 143 Rainbow Fountain Park, Benkelman, NE.




HUD’s Office of Public and Indian Housing (PIH) oversees the Authority’s public housing
programs. HUD’s Public Housing Operating Fund program provides operating subsidies to public
housing agencies to assist in funding the operating and maintenance expenses of their own
dwellings. In 2016 and 2017, the Authority was awarded more than $72,000 and $71,000,
respectively, in operating subsidies.

HUD’s Capital Fund program provides funds annually to the Authority for the development,
financing, and modernization of public housing developments and for management improvements.
In 2016 and 2017, HUD provided the Authority more than $36,000 and $38,000, respectively, in
Capital Fund grants.

                          Benkelman Housing Authority funding
                                        2016                                   2017
      Operating subsidies              $72,781                                $71,469
     Capital Fund program               36,648                                 38,138
             Totals                          109,429                          109,607

Our audit objective was to determine whether the Authority followed HUD’s rules and regulations
for public housing programs related to procurement and maintenance, tenant certifications, laundry
machine income, and expenditures.



                                                 3
Results of Audit

Finding 1: The Authority Did Not Always Comply With
Procurement and Maintenance Policies
The Authority did not always comply with procurement and maintenance policies. Specifically,
the Authority did not (1) ensure that all purchases were supported with price quotes, (2) ensure
that revisions to contracts were duly signed before disbursing capital funds, (3) always maintain
adequate records to detail the significant history of its procurements, and (4) maintain
documentation of work orders before disbursing operating funds. This condition occurred
because the Authority did not fully understand the requirements related to procurement,
maintenance, and capital fund obligations. Additionally, the Authority did not have procedures
to implement the policies. As a result, the Authority could not guarantee that it received the best
value for the procurement of more than $71,000 in goods and services. Also, the Authority
could not provide assurance that more than $15,000 spent from its operating funds was for
maintenance activities.

Goods and Services Were Not Properly Procured
The Authority did not always follow applicable requirements in HUD Handbook 7460.8, REV-2,
and the Authority’s procurement policy when purchasing more than $50,000 in goods and
services with operating funds and more than $20,000 with capital funds. Specifically, it did not
(1) ensure that purchases over $2,000 were supported with three price quotes, (2) ensure that
revisions to contracts were duly signed before disbursing $1,298 in 2017 capital fund obligations
to a vendor, and (3) always maintain adequate records to detail the significant history of its
procurements.

Small Purchase Procurements Without Quotes
The Authority did not ensure that purchases over $2,000 were supported with three price quotes
before disbursing $50,109 to six vendors. For example, the Authority disbursed $9,145 for a
2017 Grasshopper Model 623T Tractor and a 2017 Grasshopper Model 3452 FrontMount Deck
in October 2016 but did not document that it had obtained at least three price quotes as required
by its procurement policy to ensure that the price paid for the equipment was reasonable. Based
on the dollar amount spent for the tractor and front mount deck, the Authority should have used
its small purchase procedures for the procurement. These procedures required the Authority to
obtain a reasonable number of quotes to establish cost reasonableness for purchases between
$2,000 and $25,000. According to the Authority’s procurement policy, the quotes may be
obtained orally, by telephone, or in writing, as allowed by State and local laws. The Authority
could not show that any of these things occurred.
Unsigned Contracts
The Authority did not ensure that contract revisions were duly signed before disbursing $1,298
in 2017 capital fund obligations to a vendor. The Authority revised the total amount for the



                                                 4
boiler project in one building from $7,635 to $8,933 but did not have a signed contract
modification. The Authority fully paid the contractor almost 4 months before the contract
modification was drafted, but neither the Authority nor the contractor signed the modification.

Inadequate Records To Detail Procurement History
The Authority did not always maintain adequate records to detail the significant history of its
procurements. The Authority did not maintain sufficient documentation as required by HUD
Handbook 7460.8, REV-2, section 3.3, and its own procurement policy in any of the nine
procurement files reviewed. For example, the Authority procured the services of a fee
accountant and spent almost $4,800 from April 2016 through February 2018 but was unable to
provide the contract or other documentation. The only support provided was the invoice and
payment made out to the fee accounting company. In an interview with the executive director,
she stated that the fee accountant sent a new contract to the Authority every 2 to 3 years but the
Authority had not gone out to rebid the service since 1970 or 1980. The Authority did not
document the solicitation process or information regarding the contractor selection. According
to HUD Handbook 7460.8, REV-2, section 3.3, the Authority must maintain records sufficient to
detail the significant history of each procurement, including the rationale for the method of
procurement and solicitation and information regarding contractor selection or rejection. The
Authority could not show that any of these things occurred for any of the procurement
expenditures reviewed, which are identified in the tables below.

             Unsupported procurement expenditures from operating funds
   Expenditure     Expenditure           Missing documentation           Amount
     number        description                                         unsupported
                 Tractor and front Sufficient number of quotes,
       1                                                                  $9,145*
                    mount deck     adequate procurement record
                                   Sufficient number of quotes,
       2              Gator                                               6,500*
                                   adequate procurement record
                                   Contract, sufficient number of
       3          Fee accounting                                          4,798**
                                   quotes, adequate procurement record
                                   Sufficient number of quotes,
       4           Auditing fees                                         10,500**
                                   adequate procurement record
                                   Sufficient number of quotes,
       5        Lawn care services                                       10,523**
                                   adequate procurement record
                                   Sufficient number of quotes,
       6          Floor covering                                          8,643**
                                   adequate procurement record
      Totals                                                                        50,109
 *Single expenditure amount, rounded up
 **Sum of expenditures spent with one vendor within the audit period, rounded up




                                                5
                 Unsupported procurement expenditures from capital funds
   Expenditure       Expenditure            Missing documentation           Amount
     number          description                                          unsupported
                   Unit 122 bathroom Contract, sufficient number of
         1                                                                  $5,200*
                      remodeling      quotes, adequate procurement record
                                      Contract modification, sufficient
                      Solar lights
         2                            number of quotes, adequate             8,625*
                      installation
                                      procurement record
                                      Revision to contract not signed,
                   Building C3 boiler
         3                            sufficient number of quotes,           7,100*
                         project
                                      adequate procurement record
      Totals                                                                         20,925
 *Single expenditure amount, rounded up

Work Orders Were Not Documented
In seven of the files reviewed, the Authority did not comply with its maintenance policy when it
did not document the work order, the source of the work, and an estimate of the work, which
were required to support purchases for maintenance activities. For example, when the Authority
purchased tires for its vehicle, the only documentation on file was the invoice and a copy of the
check paid to the vendor. The executive director stated that she did not know that the policy
required a work order to have the tires replaced. In addition, she stated that she had a discussion
with the maintenance staff on documenting work orders for all purchases related to maintenance
activities and also informed us that the Authority was having software installed in August 2018,
which would help document work orders properly. According to the maintenance policy,
mechanical equipment and vehicles were covered under the preventive maintenance program. In
addition, the policy required the Authority to have a comprehensive work order system, which
included all work request information: source of work, description of work, priority, cost to
complete, days to complete, and hours to perform. The policy also required that all work
requests and activities performed by the maintenance staff must be recorded on work orders.

The table below shows the total unsupported maintenance expenditures reviewed, which were all
missing work order documentation.




                                                 6
                          Unsupported maintenance expenditures
                   Expenditure   Description of         Amount
                     number       expenditure         unsupported
                       1       Vehicle maintenance       $2,749*
                       2        Unit maintenance          6,115*
                       3        Unit maintenance          5,429*
                       4       Vehicle maintenance         54**
                       5       Vehicle maintenance        130**
                       6        Unit maintenance            46
                       7        Unit maintenance         378***
                       8        Unit maintenance          379**
                      Totals                                        15,280
             *Sum of expenditures spent with one vendor within our audit period, rounded up
             **Single expenditure amount, rounded up
             ***Unsupported portion of a larger expenditure, rounded up

The Authority Did Not Fully Understand the Requirements
The Authority did not fully understand the requirements related to procurement, maintenance,
and capital fund obligations. Despite its being part of the Authority’s policies, the executive
director stated that she did not understand why she would need a work order for maintenance on
the vehicle. Also, she did not understand that she needed to document price quotes or sole-
source procurement exceptions when the vendor was reportedly the only one within 100 miles.
Additionally, the Authority did not have procedures, such as a checklist, to implement the
policies.

The Authority Did Not Receive the Best Value for Goods and Services
As a result of the conditions described above, the Authority could not guarantee that it received
the best value for the procurement of more than $71,000 in goods and services spent from the
Authority’s operating funds and capital funds combined. Also, the Authority could not provide
assurance that more than $15,000 spent from its operating funds was for maintenance activities.

Recommendations
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing require the
Authority to

       1A.     Provide adequate documentation to support that the $71,034 spent for improperly
               procured goods and services was spent at the most competitive prices. For any
               amounts not supported, it should reimburse its program from non-Federal funds.

       1B.     Provide adequate documentation to support $15,280 spent for maintenance
               activities. For any amounts not supported, it should reimburse its program from
               non-Federal funds.




                                                  7
1C.   Develop and implement detailed operating procedures, including checklists,
      which fully implement its procurement policy and HUD requirements.

1D.   Ensure that its executive director obtains appropriate procurement training.




                                       8
Finding 2: The Authority Improperly Completed Initial Tenant
Certifications and Annual Recertifications
The Authority improperly completed initial tenant certifications and annual recertifications. It
did not properly calculate or update flat rents; verify and report assets, income, and out-of-pocket
medical expenses; obtain Enterprise Income Verification system checks before annual
recertifications; or establish a passbook rate for income over $5,000. This condition occurred
because the Authority did not have a formalized process, such as a checklist, for conducting
initial certifications and annual recertifications. Further, the executive director was not fully
aware of the proper flat rents to use and some certification requirements. As a result, the tenants
paid the wrong amounts for monthly rent.

Flat Rents Were Not Properly Calculated and Updated
The Authority did not properly calculate and update its flat rent amounts. Notices PIH-2017-23
and PIH-2015-13 state that public housing agencies should establish their flat rents at no less
than 80 percent of the applicable fair market rent. For fiscal years 2016 and 2017, the Authority
set the flat rent amount at $325 for a small one bedroom, $355 for a one bedroom, and $495 for a
double one bedroom. The 2016 fair market rent for Dundy County, NE, was $471 for a one-
bedroom unit, making the appropriate flat rent $377 for a one-bedroom unit. The 2017 fair
market rent for Dundy County, NE, was $486 for a one-bedroom unit, making the appropriate
flat rent $389 for a one-bedroom unit. The executive director told us that in 2016 and 2017, the
Authority’s flat rent rates remained the same as the 2015 rates as the Authority did not reevaluate
or change them. Effective April 1, 2018, the Authority properly set the one bedroom flat rent at
$393, which was 80 percent of the 2018 Dundy County, NE, fair market rent of $491.

Assets, Income, and Out-of-Pocket Medical Expenses Were Not Properly Verified and
Reported
Of the 7 tenant files reviewed out of 55 households, the Authority did not always properly verify
and report the household’s assets in 6 of the files. In addition, the Authority did not always
properly verify and report the household’s income in two of the files, as well as the household’s
out-of-pocket medical expenses in three of the files. Notices PIH-2011-65 and PIH-2010-25
state that HUD relies on public housing agencies to submit accurate, complete, and timely data to
administer, monitor, and report on the management of its rental assistance programs. In one
example, a tenant had two checking accounts, with balances of $293 and $46. However, the
Authority listed only the $293 balance under tenant assets. The $46 account was not reported.
In another tenant file reviewed, we could not find documentation to support the reported annual
income of $42,396. In yet another tenant file reviewed, we were able to verify only $163 of the
$1,465 in out-of-pocket medical expenses the Authority reported.

EIV Checks Were Not Obtained Before Annual Recertifications
The Authority did not always obtain reports from HUD’s Enterprise Income Verification (EIV)
system before annual recertifications in two of the seven tenant files reviewed. According to
Notice PIH 2010-19, the EIV system is a web-based application which provides public housing
agencies with employment, wage, unemployment compensation, and social security benefit
information of tenants who participate in the Public Housing program. Notices PIH-2015-02 and



                                                 9
PIH-2010-19 state that all public housing agencies are required to review the EIV report of each
family before or during mandatory annual and interim reexaminations of family income or
composition to reduce tenant underreporting of income and improper subsidy payments.

A Passbook Rate Was Not Used for Income Over $5,000
One tenant had assets of $7,333, but the Authority failed to establish a passbook rate for this
amount and include it as imputed asset income. According to the Form HUD-50058 Instruction
Booklet, the passbook rate is the interest rate used to determine the imputed income of an
asset(s) that would otherwise be readily determinable. It usually falls between 2 and 3 percent.
Notice PIH-2012-29 requires public housing agencies to establish a passbook rate when a family
has net assets in excess of $5,000. The Authority should have established a passbook rate and
calculated an imputed asset income.

The table below documents the file review discrepancies found in each household file reviewed.

                                Tenant file review discrepancies
                                                                Medical
                                        Assets not Income not expenses
                                        properly properly          not      Passbook
           Flat rent    EIV system       verified    verified  properly      rate not
          amounts not reports not          and         and    verified and established
           properly obtained before entered          entered entered into and used for
  Tenant calculated or     annual      into family into family family      assets over
  number   updated     recertification    report      report     report       $5,000
     1
     2         X             X              X                       X           X
     3         X             X              X
     4                                      X                       X
     5         X                            X           X
     6                                      X           X
     7         X                            X                       X
   Totals      4              2             6           2           3            1

The Authority Had No Formalized Process and the Executive Director Was Not Fully
Aware of Requirements
The Authority did not have a formalized process, such as a checklist, for conducting initial
certifications and annual recertifications. In addition, the executive director was not fully aware
of the proper flat rents to use and some certification requirements and required additional
training. The executive director stated that the 2016 and 2017 flat rent rates remained the same
as the 2015 rates because the Authority did not reevaluate or change them. The executive
director did not understand that she could not have varying flat rents for varying sizes of one-
bedroom units. Further, regarding the assets, income, and out-of-pocket medical expenses, the
executive director stated that it was difficult to place everything correctly into the form HUD-



                                                10
50058 and she was often too lenient with her tenants about the required documentation. For
example, she allowed tenants to provide only MapQuest mileage for out-of-pocket medical
expenses for doctors’ appointments instead of receipts, for example. Additionally, she stated that
she did not know that there was a requirement that all public housing agencies review the EIV
report of each family before or during annual and interim reexaminations and did not know that
the Authority should establish a passbook rate for assets over $5,000. The executive director
believed the passbook requirement was discontinued and just got reinstated. However, she
attributed the majority of these conditions to poor training.

Tenants Paid the Wrong Amounts for Monthly Rent
As a result of the conditions described above, the tenants paid the wrong amounts for monthly
rent. The Authority’s failure to properly calculate and update flat rents resulted in three tenants
in our sample of seven underpaying rent in 2016 and 2017, while one tenant overpaid. Further,
the Authority’s failure to properly verify assets, income, and expenses also affected the tenants’
monthly rent because these items all factor into rent determination.

Recommendations
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing

       2A.     Work with the Authority to develop a formalized process, such as a checklist, to
               use when conducting initial certifications and annual recertifications, which
               would help to ensure that it follows HUD requirements for its public housing
               program.

       2B.     Require the Authority’s executive director to obtain appropriate training regarding
               public housing occupancy requirements.

       2C.     Require the Authority to conduct a 100 percent review of its tenant files to ensure
               that tenants’ rents are accurate and the proper income, asset, and medical
               expenses are complete and documented in the tenant files.

       2D.     Monitor the Authority after the recommended training and tenant file reviews are
               complete to ensure that the executive director understands and properly
               implements public housing occupancy requirements.




                                                 11
Finding 3: The Authority Improperly Certified Tenants With
Potential Conflict-of-Interest Relationships
The Authority improperly certified tenants with potential conflict-of-interest relationships. This
condition occurred because the Authority’s Admissions and Continued Occupancy Policy did not
address actual or potential conflict-of-interest relationships. The Authority’s approval of the
tenant certifications and annual recertifications could result in a loss of public trust.

There Was a Potential Conflict of Interest
The Authority improperly certified tenants with potential conflict-of-interest relationships in
three of the seven tenant files reviewed. The executive director lives in a public housing unit,
and her mother and nephew also live in public housing units. Although the executive director
had an executive director of a nearby public housing agency approve her initial certification on
March 1, 2015, for admission to the program, she later approved her own annual recertification
on April 1, 2016. Further, she approved her mother’s initial certification on October 1, 2016,
and annual recertification on April 1, 2017, as well as her nephew’s initial certification on March
1, 2018.

The Nebraska Housing Agency Act, section 1(b) of chapter 71-15,150, states that a housing
agency official is prohibited from engaging in professional or personal activity, among other
things, that secures or appears to secure unwarranted privileges or advantages for the official or
for others. The executive director’s approval of her own annual recertification, as well as initial
certifications for her nephew and mother, falls within this broad prohibition and constitutes a
conflict of interest under the Act. While she may not have secured unwarranted privileges for
herself and her family members when she reviewed their applications, it created the appearance
that they received an advantage in the public housing admission or reexamination process
because of their close relationship with the executive director.

There Were No Conflict-of-Interest Policies
The Authority’s Admissions and Continued Occupancy Policy did not address actual or potential
conflict-of-interest relationships. Further, the executive director did not know that she should
not approve certifications for herself or her family members.

There Was a Possible Loss of Public Trust
The Authority’s approval of the tenant certifications and annual recertifications could result in a
loss of public trust. The public expects its government to provide services without potential or
actual conflict-of-interest relationships.

Recommendations
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing

       3A.     Require the Authority to address actual or potential conflict-of-interest
               relationships in its Admissions and Continued Occupancy Policy.




                                                12
3B.   Work with the Authority to develop a plan to ensure that a third party reviews the
      initial tenant certifications and annual recertifications with an actual or potential
      conflict of interest.

3C.   Ensure that the Authority’s board of commissioners and staff receive HUD-
      approved training on conflicts of interest.

3D.   Monitor the Authority to ensure that initial tenant certifications and annual
      recertifications with an actual or potential conflict of interest are appropriately
      handled.




                                        13
Finding 4: The Authority Mismanaged Its Laundry Machine
Revenue
The Authority mismanaged its laundry machine revenue. The Authority did not have two staff
members reconcile its laundry machine revenue and did not deposit the revenue regularly. Also,
the Authority did not keep records showing how it spent the laundry machine revenue. This
condition occurred because the executive director did not know the laundry machine revenue
requirements. In addition, the Authority did not have a comprehensive policy regarding tracking
and use of the laundry machine revenue. As a result, laundry machine revenue was not available
for eligible purposes. In addition, the Authority put these funds at risk of loss or theft when it
did not regularly deposit or track its laundry revenue.

Laundry Machine Revenue Was Not Reconciled and Deposited According to Authority
Policy
The Authority did not have two staff members reconcile its laundry machine revenue and did not
deposit the revenue regularly. The Authority had a local policy, which required laundry machine
revenue to be regularly reconciled by the executive director and another staff member before
deposit. In an interview with the executive director, she stated that she collected and deposited
the money every few months. She also stated that the deposits ranged from $200 to $600.
However, based on general ledger entries, from November 2016 through January 2018, the
Authority made four deposits from the laundry machines totaling $2,030. The executive director
made the deposits over almost 15 months, with gaps of 7 months, 4 months, and 3 months
between deposits. In addition, there was no documentation showing that Authority staff had
reconciled the laundry machine revenue.

The Authority Did Not Keep Records of How It Spent the Revenue
The Authority did not keep records showing how it spent its laundry machine revenue. The
United States Housing Act of 1937, section 9(l), regarding operating funds, capital funds, and
public housing, states that nonrental income from nonrental sources shall be used only for low-
income housing or to benefit the residents assisted by the public housing agency. Regulations at
2 CFR (Code of Federal Regulations) 200.307(e) and (e)(1) require the Authority to spend
program income on eligible program costs in the same manner as it would treat regular program
funds. Also, HUD Asset Management Newsletter 172008 states that laundry and vending
machine income must be treated as program income and should be recognized as associated with
the projects that generated them. Although we found records showing that some laundry money
had been deposited, not all of the money had been deposited into the bank account. Further,
there were no records showing how the laundry machine revenue that was not deposited was
spent. Based on interviews, we found that the Authority sometimes spent its undeposited
laundry machine revenue for ineligible purposes, including barbeques for the residents and using
the money to wash the Authority’s vehicles, before depositing the remaining funds into its bank
account.

The Executive Director Did Not Know Requirements
The executive director did not know the laundry machine revenue requirements. In an interview
with the executive director, she stated that she did not know about this requirement and did not



                                                14
reconcile the laundry funds together with another staff member before deposit. In addition, the
Authority did not have a comprehensive policy regarding tracking and use of its laundry machine
revenue.

Revenue Was Not Available for Eligible Purposes and at Risk of Loss or Theft
As a result of the Authority’s spending its laundry machine revenue on ineligible purchases, the
money was not available for eligible purposes. In addition, the Authority put these funds at risk
of loss or theft when it did not regularly deposit or track its laundry revenue.

Recommendations
We recommend that the Director of HUD’s Omaha, NE, Office of Public Housing

       4A.     Require the Authority to develop and implement detailed policies and procedures
               to address collections, tracking, and use of its laundry machine revenue.

       4B.     Require the Authority to determine how much laundry machine revenue was not
               deposited into its accounts and used for eligible purposes and reimburse its
               program from non-Federal funds.

       4C.     Monitor the Authority to ensure compliance with its new laundry machine
               revenue policies.




                                                15
Scope and Methodology
Our audit period generally covered the period April 1, 2016, through March 31, 2018. We
performed our fieldwork from April through June 2018 at the Authority located at 100 Rainbow
Fountain Park, Benkelman, NE, and the Kansas City, KS, HUD, Office of Inspector General
(OIG), office.

To accomplish our objective, we reviewed

      applicable Federal regulations, HUD requirements, and the Nebraska Housing Agency
       Act;
      the Authority’s policies and procedures;
      HUD’s monitoring review of the Authority;
      board minutes and resolutions;
      the Authority’s audited financial statements covering our review period; and
      Authority records, including bank records, invoices, receipts, check vouchers, rent
       registers, tenant files, and other supporting documentation.

Additionally, we interviewed Authority staff and HUD’s Office of Public Housing staff in
Omaha, NE.

Further, we reviewed expenditures from the Authority’s general ledger to determine whether the
Authority followed HUD’s rules and regulations. We identified four areas for review, which
included potential procurements, training and travel expenses, questionable expenses, and
ineligible expenses. We compiled the expenditures in a spreadsheet to select the samples for
review. We entered each expenditure recorded in the general ledger into the spreadsheet. We
excluded payments for insurance, payroll, utilities, and taxes.

For the potential procurement expenditure sample, we selected a nonstatistical sample of 11
expenditures representing $50,975 (33 percent) of the universe of $154,645 spent from the
Authority’s general fund account during our audit period for items we classified as potential
procurements. We identified all recurring expenses to the same vendor and chose the most
expensive transaction for each recurring vendor for our sample. In cases in which there were
multiple expenses at the highest amount for a particular vendor, we selected the most recent of
those transactions. We selected another nonstatistical sample of two expenditures totaling
$13,825 (33 percent of the population of $42,040) from the fiscal year 2016 Capital Fund grant
and one expenditure of $7,100 (22 percent of the population of $32,138) from the fiscal year
2017 Capital Fund grant. We selected the most expensive transaction drawn from each of the
2016 and 2017 Capital Fund grants as well as the most expensive transaction from the 2016
Capital Fund grant paid to a recurring vendor.




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For our training and travel expenditure sample, we selected a nonstatistical sample of five
expenditures totaling $2,476 (54 percent of the population of $4,596) from the Authority’s
general fund account during our audit period for items we classified as training and travel
expenditures. We selected the most expensive charge related to training as well as all payments
to the executive director for travel reimbursement.

For the questionable expenditure sample, we selected a nonstatistical sample of seven potentially
questionable transactions totaling $1,678 (21 percent of the population of $7,883) from the
Authority’s general fund account during our audit period for items we classified as questionable
expenditures. For our universe, we selected recurring payments to online vendors and the
Authority’s administrative service contract. Additionally, we selected transactions for which we
were unsure of the service or item the Authority purchased. For our sample, we selected the
most recent recurring administrative service contract expenditure because all 23 related
expenditures were for the same amount; all 4 expenditures associated with an online vendor; and
the 2 largest transactions, which were also the most recent, of 8 expenditures related to Visa
purchases with no description.

For the ineligible expenditure sample, we selected a nonstatistical sample of four potentially
ineligible expenditures totaling $160 (27 percent of the population of $604) from the Authority’s
general fund account during our audit period for items we classified as potentially ineligible
expenditures. We reviewed the general ledger for potentially ineligible costs. For our four
sample items, we selected all expenses related to flower shops and donations, based on the
vendor name or memo description.

We did not use a statistical sample to select expenditures for review because we were looking for
specific examples of noncompliance and taking a representative statistical sample would have
included items that we believed to have a lower risk of being misspent. The results of our review
sample apply only to the items reviewed and cannot be projected to the portion of the population
that we did not test.

We also selected a nonstatistical sample of 7 of 55 (13 percent) households for review for
compliance with admission and recertification requirements, including verification of eligibility,
income determination, and rent calculation. We selected all three tenants who we knew were
related to or friends of the executive director. Also, we selected the executive director’s tenant
file to review, as she lived in one of the public housing units. To select the remaining three, we
used the PIH Information Center to create a Multifamily Tenant Characteristic System adhoc
report of the Authority for our audit period. We sorted the adhoc report by heads of households’
last names and selected the first, middle, and last records listed on this report. The results of our
review sample apply only to the items reviewed and cannot be projected to the entire universe.

We relied, in part, on accounting data provided by the Authority. Although we did not perform a
detailed assessment of the reliability of the data, we determined that the computer-processed data
were sufficiently reliable to be used in meeting our objective because the data in the sampled
items were corroborated by documentary evidence the Authority supplied. We did not rely on
the data as the sole support for our audit conclusions.



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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 finding
and conclusions based on our audit objective.




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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:

       Controls over the Authority’s procurement, flat rents and tenant certifications, laundry
        machine revenue, and expenditures.

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 procedures to fully implement procurement polices and HUD
        requirements (finding 1).
       The Authority did not have a process to use when conducting initial certifications and
        annual recertifications (finding 2).
       The Authority did not have policies and procedures that addressed conflict-of-interest
        relationships or collections, tracking, and use of its laundry machine revenue (findings 3
        and 4).

Separate Communication of Minor Deficiencies
We reported minor deficiencies to the auditee in a separate management letter.



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Appendixes

Appendix A


                             Schedule of Questioned Costs
                           Recommendation
                                             Unsupported 1/
                               number
                                   1A              $71,034
                                   1B               15,280
                                 Totals             86,314


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.




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   Appendix B
                Auditee Comments and OIG’s Evaluation



Ref to OIG
Evaluation         Auditee Comments




Comment 1


Comment 2

Comment 3




Comment 4



Comment 3



Comment 3



Comment 3



                                 21
Ref to OIG
             Auditee Comments
Evaluation



Comment 3




Comment 3




                          22
                         OIG Evaluation of Auditee Comments


Comment 1   We requested all supporting documentation regarding the purchase of the John
            Deere Gator and mower from the Authority. However, the only document the
            Authority provided was the invoice and check for the purchase. The Authority
            was unable to provide documentation of other quotes solicited and how they
            arrived at the best price for the procurement.
Comment 2   The Authority’s vehicle is covered under the preventive maintenance program of
            its maintenance policy and as such, a work order with information such as the
            source of work, description of work, priority, cost to complete, hours to complete,
            days to complete, and hours to complete is required. The Authority did not have
            this in place during our review and was unable to provide additional
            documentation such as a work request for the maintenance of the vehicle.
Comment 3   We acknowledge that the Authority is taking steps to correct issues found in this
            report. However, we recommend that HUD work with the Authority during the
            audit resolution process to ensure the changes meet HUD requirements.
Comment 4   We acknowledge that the Authority has classified all units as 1-bedroom units and
            is taking steps to correct the issues found. We recommend that HUD work with
            the Authority during the audit resolution process to ensure the changes meet HUD
            requirements.




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