Selma Housing Authority, Selma, AL

Published by the Department of Housing and Urban Development, Office of Inspector General on 1995-10-26.

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

                                                      U.S. Department of Housing and Urban Development

                                                      District Office of the Inspector General
                                                      Richard B. Russell Federal Building
                                                      75 Spring Street, SW, Room 700
                                                      Atlanta, GA 30303-3388
                                                      (404) 331-3369

October 26, 1995                                       Audit-Related Memorandum

MEMORANDUM FOR:             Mack R. Heaton, Director, Alabama Public Hou sing Division, 4CPH

FROM:       Kathryn Kuhl-Inclan
            District Inspector General for Audit-Southeast/Caribbean, 4AGA

SUBJECT:      Citizen Complaint
              Selma Housing Authority
              Survey of Section 8 Program
              Selma, Alabama

     We have completed a survey of certain activities of the Selma Housing Authority (SHA).
The survey was done at the HUD Birmingham office and at SHA's offices mainly durin g
February and March , 1995. We primarily gathered information related to a citizen's complaint,
which was provided for consideration to the Special Agent In Charge, 4AGI.

      Based on the survey results, we will not do a detailed audit of SHA. However, w e
confirmed conflict of interest involvement by the SHA's Section 8 Director with Section 8
properties, which your Division and SHA should resolve. In addition, we noted the following
questionable practices:

      -     SHA Commissioners set their salaries, and

      -     There were Section 8 non-compliances with HUD administrative requirements,

       Within 60 days please give us, for the recommendations of the findings, a status report on:
(1) the corrective action taken, (2) the proposed corrective action and the date to be completed,
or (3) why action is considered unnecessary. Also, please furnish us copies of any relate d
correspondence or directives.
Finding 1 - Conflict of Interest Involvement with Section 8 Activities

SHA's Section 8 Director and/or family members were related parties with Section 8 landlords.
Two of the landlords ( Cloverdale Apartments\MJM Corporation and JEH Company) have units
housing Section 8 assisted tenants. A third, Diamile Corporation, had two units with Section 8
tenants; the deeds on the two properties showed that the property was previously owned by the
Director's daughter. Also, Tiremaster, a construction company controlled by the Director, di d
repair work on properties owned by three Section 8 landlords.


     Cloverdale was purchased by MJM Corporation (MJM) in December 1993. The Section
     8 Director and his wife are listed as directors for MJM. He told us that his involvemen t
     with Cloverdale is only as an endorser on a note used in the purchase of Cloverdale. He
     acknowledged his possib le conflict of interest at a SHA Board of Commissioners meeting
     held January 6, 1994. The Director told the Commissioners, and later H UD, that all Section
     8 contracts would expire by November 1994 and that MJM had decided not to renew any
     Section 8 contracts. However, at March 17, 1995, there were nine Section 8 tenants living
     at Cloverdale. Cloverdale received monthly HAP checks totaling about $1,870 on behalf
     of the nine tenants. The monthly rent for a unit at Cloverdale is $228, which has no t
     changed since MJM Corporation purchased the apartment complex.

     When MJM purchased Cloverdale there were approximately 46 Section 8 tenants living at
     Cloverdale. By March 17, 1995, 37 Section 8 ten ants had moved out, 11 of whom had left
     the Section 8 program altogether.


     Two properties owned by Diamile were formerly owned by the Section 8 Director' s
     daughter. The Warranty Deeds for two properties (1717 Lauderdale and 1013 Churc h
     Street) showed they were transferred to Diamile on December 29, 1992. John Ellio t
     Harakas, the Registered Agent for Diamile in 1992, later became corporate president .
     Since January 1995, the HAP for the two properties has been paid to JEH Company.

     In addition to the question of ownership and relationships, the Section 8 staff regularl y
     collected or collects the tenant portion of the rent for Diamile and JEH, and delivered the
     collections to the Section 8 Director.

     Concerning JEH Company, the S ection 8 Director told us that he convinced John Harakas
     to buy the properties and fix them up so that Section 8 tenants would have a decent place
     to live; however, because Harakas did not w ant to deal with the tenants, SHA collected the
     tenant portion of the rent and arranged for repairs.


      Tiremaster, a local construction company performing work f or Section 8 landlords, appears
      owned or controlled by the Section 8 Director. Based on building permits issued during
      January 1994, Tiremaster performed work for three Section 8 landlords.


The described situat ions create at a minimum the perception of conflicts of interest between the
SHA's Section 8 Director, and the integrity of its Section 8 activities. Therefore we believe the
situations should be resolved.


1A    We recommend that you work with the SHA Board and resolve the not ed Section 8 conflict
      of interest matters. If these matters are not resolved within 30 days, we suggest sanctions
      be applied.

Finding 2 - Salary Payments to Board Members

The SHA Board Commissioners approved and received monthly salaries, which effectiv e
February 1, 1994 increased from $400 to $500 monthly. These salaries were not disclosed on
SHA's operating bud gets. During fiscal years 1993 and 1994, about $35,434 of the $47,600 in
salaries paid to the commissioners were paid from SHA's conventional housing program funds.
Previously, the salaries were funded with management fees paid by the Selma Housin g
Development Corporation (SHDC). However, becau se expenses exceeded the management fees
received, SHDC funds were insufficient to pay the commissioners' salaries. There is an apparent
conflict of interest for the commissioners when making de cisions affecting SHDC. The principal
source of revenue for SHDC is fees for Section 8 HAP; SHDC was the beneficiary of ren t
increases and a few payments of unearned rent. Such actions permit t he appearance that the SHA
Board of Commissioners' salaries provided SHDC with preferential treatment.


2A   We recommend that you have the SHA reduce salaries of Board members to amount s
     justified by available funds, and approved by HUD.

Finding 3 - Administration of the Section 8 Program

We found noncompliances with HUD administrative requirements for the Section 8 program .
SHA did not consistently: (a) use the waiting list, (b) issue vouchers and certificates; (c) honor
the portability of certificates and vouchers; (d) conduct inspections; and, (e) approve ren t

      SHA did not use a waiting list when issuing vouchers and certificates. Also, Section 8
      applicants were not given a request for lease approval until they found a unit acceptable to
      SHA. Certificates and vouchers appeared to be issued when an applicant was willing t o
      lease a unit from a landlord acceptable to SHA; however its significance is lessene d
      somewhat in that Selma had fewer rental properties under the Section 8 program compared
      to demand.

      SHA did not honor the port ability component of existing certificates and vouchers. Some
      tenants were told they had project-based certificates which could not move.

      Some landlords received inspections more frequently than annual. Tested files fo r
      properties owned by SHDC, and properties where the Section 8 Director had an apparent
      conflict of interest contained only annual inspection reports.

      Three landlords received rent increases more frequently than at th e anniversary date of their
      respective Section 8 contracts. Also, one landlord in our limited tests received a $5 0
      monthly increase on an unit which equates to an increase of over 20 percent.

Recommendations - We recommend that you:

3A    Advise the SHA to actually and consi stently apply the criteria for waiting lists, unit leases,
      portability of existing certificates and vouchers, inspections and rent increases; and

3B    Include these matters in your staff's next monitoring review.

                                        *   *    *    *    *

     Should you or your staff have any questions, please contact Hoyle Seat, Senior Audito r
(205/290-7584) or Ted E. Drucker, Assistant District Inspector General for Audit (404/331 -
3369). We are providing the SHA Board Chairman and Executive Director copies of thi s

Attachment - Distribution


Secretary's Representative, 4AS
Audit Liaison Officer, 4AFI
Director, Alabama Public Housing, 4CPH
Alabama State Coordinator, 4CS
Director, Accounting Division, 4AFF
Field Comptroller, 4AF
Special Agent In Charge, 4AGI
Chief Financial Officer, F (Room 10166) (2)
Director, Office of Internal Control and Audit Resolution, FOI (Room 10176) (2)
Associate Director, U.S. GAO, 820 1st Street, NE
Union Plaza, Bldg. 2 Suite 150, Washington, DC 20420
Comptroller, Office of Public and Indian Housing, PF (Room 4122) (3)
Assistant to the Deputy Secretary for Field Management, SDR (Room 7106)
Board Chairman, Selma Housing Authority
Executive Director, Selma Housing Authority