Issue Date
November 1, 1995
Audit Case Number
96-CH-202-1006
TO: Kevin Fitzgibbons, Acting Administrator, Eastern Woodlands Office of Native
American Programs
FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest
SUBJECT: St. Croix Chippewa Housing Authority
Comprehensive Review
Hertel, Wisconsin
We completed an audit of the St. Croix Chippewa Housing Authority. We selected the St. Croix
Chippewa Housing Authority for an audit based on input from HUD program staff. Our audit
objectives were to: determine whether the Housing Authority administered its housing programs in
an efficient, effective, and economical manner; identify the causes that contributed to any financial
difficulties; and develop recommendations to correct the deficiencies disclosed.
The Housing Authority needs to improve the administration of its programs and ensure compliance
with the Annual Contributions Contract and other HUD requirements. This report addresses issues
related to: (1) inadequate internal control procedures; (2) the receipt of unauthorized loans; (3)
improperly disbursed program funds; (4) funds not properly accounted for; (5) excessive funds drawn
down from HUD; and (6) uncollateralized deposits exceeding Federal Deposit Insurance Corporation
limits.
Within 60 days, please give us, for each recommendation made in the report, a status report on: (1)
the corrective action taken; (2) proposed corrective action and the date to be completed; or (3) why
action is considered unnecessary. Also, please furnish us copies of any correspondence or directives
issued because of this audit.
Should your staff have any questions, please have them contact me at (312) 353-7832.
Management Memorandum
(THIS PAGE LEFT BLANK INTENTIONALLY)
96-CH-202-1006 Page ii
Executive Summary
We completed an audit of the St. Croix Chippewa Housing Authority. We selected the St. Croix
Chippewa Housing Authority for an audit based on input from HUD program staff. Our objectives
were to determine whether the Housing Authority administered its housing programs in an efficient,
effective, and economical manner; identify the causes that have contributed to any financial
difficulties; and develop recommendations to correct the deficiencies disclosed.
Improvements by the Housing Authority are needed to assure compliance with the Annual
Contribution Contract and HUD requirements and to increase the efficiency and economy of its
operations. To comply with the Annual Contributions Contract, HUD requirements, and improve
operations, the Housing Authority needs to correct the following problems.
The Housing Authority failed to maintain an adequate system
Internal Control
of internal controls. The Housing Authority did not ensure
procedures were
that: (1) accounting functions were adequately segregated; (2)
inadequate
unused checks were adequately safeguarded; (3) adequate
controls were maintained over the disbursement functions; (4)
accounting records were properly maintained; and (5) Housing
Authority resources were effectively used.
The Housing Authority obtained loans from the St. Croix
The Housing Authority
Chippewa Tribe for assistance in administering the Mutual
received unauthorized
Help Program without obtaining HUD approval. The loans
loans
were used to help pay for program expenses and were not
formally recorded on the Housing Authority's books and
records.
The Housing Authority improperly disbursed its development
The Housing
program funds. The Housing Authority: (1) spent $657,410
Authorityimproperly
of the development program funds for the construction of an
disbursed program funds
apartment project when the Authority was not a party to the
construction contract; (2) incurred a $15,100 finance charge
to complete the project; and (3) used $206,333 of
development funds to purchase parcels of land without
obtaining HUD approval.
The Housing Authority failed to maintain adequate controls
Housing Authority funds
for the accountability of its program accounts. The Housing
were not properly
Authority: (1) transferred account funds without adequate
accounted for
documentation, and (2) commingled the Youth Sports
Program funds with other program funds.
Page iii 96-CH-202-1006
Executive Summary
The Housing Authority drew down $482,340 of development
The Housing Authority
program funds in excess of its actual needs. Top management
drew down excess funds
at the Housing Authority did not implement effective
from HUD
disbursement controls over the development funds.
Collateralization was not maintained for Housing Authority's
The Housing Authority did
bank deposits that exceeded the $100,000 Federal Deposit
not collateralizedeposits
Insurance Corporation coverage. The Housing Authority's
exceeding Federal Deposit
Finance Officer said she did not understand the Federal
Insurance Corporation
Deposit Insurance Corporation limitations or the bank
limits
collateralization process and she was unaware the funds were
at risk.
We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assures that
the Housing Authority takes actions to correct the weaknesses
cited in this report.
We gave our draft findings to the Executive Director and the
Eastern Woodlands Office of Native American Program
officials during the audit. We held an exit conference with the
Executive Director on August 29, 1995. The Executive
Director provided written comments to our findings and
recommendations. Excerpts from the comments are included
in each finding and Appendix A contains the complete
comments.
96-CH-202-1006 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The Housing Authority's Internal Control
Procedures Were Inadequate 3
2 The Housing Authority Received Unauthorized
Loans From The St. Croix Chippewa Tribe 13
3 The Housing Authority Improperly Used
Development Program Funds 17
4 The Housing Authority Did Not Maintain
Adequate Accountability Over Its Program
Funds 21
5 The Housing Authority Drew Down Excess
Development Funds 25
6 Deposits Exceeding Federal Insurance
Were Not Collateralized 27
Page v 96-CH-202-1006
Table of Contents
Internal Controls 31
Follow Up On Prior Audits 33
Appendices
A Auditee Comments 35
B Schedule of Questioned Costs 43
C Distribution 45
96-CH-202-1006 Page vi
Introduction
The St. Croix Chippewa Housing Authority was formally organized pursuant to the authority of the
Constitution and Bylaws of the St. Croix Chippewa Tribe under Tribal Ordinance number one on July
20, 1967. The Housing Authority received its Annual Contribution Contract in 1972. The Housing
Authority is governed by a Board of Commissioners consisting of five unpaid members who direct
the Housing Authority's policies. The Chairman of the Board is Lewis Taylor. The Executive
Director, Monica Butler, is responsible for the day to day operations.
The Housing Authority manages a total of 200 units, of which 168 are Low-Rent with 12 units
designated for the elderly. The Mutual Help Homeownership Program has seven units with an
additional 25 under acquisition. In addition to its Low-Rent and Mutual Help programs, the Housing
Authority operates a: (1) Development Grant Program with funding of $3,917,455 for Fiscal Years
1990-1995; (2) Comprehensive Improvement Assistance Program with funding of $1,745,759 for
Fiscal Years 1990-1995; and (3) Youth Sport Grant Program with funding of $94,781 between May
1, 1992 to July 20, 1994.
The Housing Authority's official books and records are located at 4456 Highway 70, Hertel,
Wisconsin.
The audit objectives were to determine whether the Housing
Audit Objectives
Authority administered its housing programs in an efficient,
effective, and economical manner; identify the causes that
contributed to any financial difficulties; and develop
recommendations to correct the deficiencies disclosed.
To achieve these objectives, we interviewed HUD and
Audit Scope and
Housing Authority staff to obtain information relating to the
Methodology
Housing Authority's operations. We reviewed the following
Housing Authority records: the Development Grant, Low-
Rent, and Mutual Help Programs' general ledgers and cash
disbursements to verify the accuracy of receipts and
disbursements; bank statements, related reconciliations, and
cancelled checks to assure all sources of cash were properly
accounted for; vendors invoices and vouchers for proper
controls and payments; and the Development Grant and
Mutual Help Programs' contracts and expenditures for proper
execution and support for payments. We confirmed the
Housing Authority's bank balances with its depositories to
evaluate cash controls and procedures.
The audit covered the period January 1, 1990 to February 28,
1995. We expanded the coverage as necessary. We
Page 1 96-CH-202-1006
Introduction
performed the audit between March and July 1995 at the
Housing Authority.
We conducted our audit in accordance with generally accepted
government auditing standards.
We provided a copy of our report to the Housing Authority's
Executive Director.
96-CH-202-1006 Page 2
Finding 1
The Housing Authority's Internal Control
Procedures Were Inadequate
The St. Croix Chippewa Housing Authority failed to maintain an adequate system of internal controls.
The Authority did not ensure that: (1) disbursement functions were adequately segregated; (2) unused
checks were adequately safeguarded; (3) adequate controls were maintained over the disbursement
functions; (4) accounting records were properly maintained; and (5) resources were effectively used.
The Board of Commissioners did not effectively carry out its responsibility to review and verify the
supporting documentation for cash disbursements. As a result, the Authority increased the risk that
cash and other assets could be diverted without prompt detection, and its resources were not
effectively and efficiently used.
Internal controls comprise the plan of organization, methods,
Internal Control
and procedures adopted by management to ensure that
Requirements
resource use is consistent with laws, regulations, and policies;
that resources are safeguarded against waste, loss, and misuse;
and that reliable data are obtained, maintained, and fairly
disclosed in reports. Important features of an adequate system
of internal controls include:
• Control should be established early in a transaction and
carried through to its completion.
• No person should have complete control over all phases of
any function.
• Work should flow from one employee to another without
ever returning to an employee.
• Specific policies and procedures should be in place that
outline departmental goals, plans of organization, and
physical arrangements to provide a high degree of
assurance that the internal control objectives are efficient
and effective.
• Record keeping should be kept separate from operations
or the handling and custody of assets. For example, the
bookkeeping functions should be separate from the
disbursement function including check preparation and
distribution of checks after signature. Additionally,
Page 3 96-CH-202-1006
Finding 1
periodic verification and reconciliations of disbursements
and bank statements should be made by an employee who
does not handle cash, record vouchers and disbursements,
or sign checks.
• Accountability for the custody and use of resources should
be assigned and maintained.
• Access to resources and records should be limited to
authorized individuals.
Authority Commissioners have a responsibility to HUD to
Board of Commissioner's
ensure national housing policies are carried out, and to the
responsibilities
Executive Director and staff to provide sound and manageable
directives. The Commissioners are accountable to their
locality and best serve it by monitoring operations to be
certain that housing programs are carried out in an efficient
and economical manner.
The Authority did not properly segregate employee duties
The Authority did not
related to its cash disbursement function. An Authority
adequately segregate
employee performed various activities without adequate
employee duties
internal checks and balances. Therefore, the Authority
unnecessarily increased its susceptibility to program abuses.
The Finance Officer was responsible for functions that should
have been separated. She prepared the bank deposit slips,
made deposits, and obtained the bank validated deposit slips.
She also prepared disbursement checks, received the canceled
checks and bank statements directly from the bank, and
prepared the bank reconciliations before sending them to the
fee accountant. She had signatory rights for the Youth Sports
Program's checking account and signed several checks she
prepared for payment to the vendors. She transferred funds
from the Authority's savings account to the various Authority
program accounts without the need for any approval. Proper
internal controls should preclude the Finance Officer from
having access to disbursements, deposits, and bank
statements.
The Authority lacked adequate safeguards for its blank
The Authority lacked
checks. Blank checks were stored in an unlocked file cabinet
adequate safeguards for
at the Authority. The file cabinet was located in an area at the
Authority frequented by non-Authority personnel. Although
96-CH-202-1006 Page 4
Finding 1
the Authority required checks to have two signatures by the Authority's Commissioners, the
Commissioners usually pre-signed the checks before the checks had amounts or payees on them.
Officials said the pre-signed checks were used because it was difficult to locate the signatory's
when needed.
The Low-Rent Housing Accounting Guide, Handbook
7511.1, Chapter 3, Section 2, Part 5(c) states that the signing
or countersigning of checks in advance is prohibited.
The Authority did not maintain adequate controls over its cash
The Authority had
disbursements. The Board of Commissioners did not
inadequate controls
effectively carry out its responsibility to review and verify the
overdisbursements
supporting documentation for cash disbursements.
The Low-rent Housing Accounting Guide, Handbook 7511.1,
Chapter 3, Section 2, Part 2 (c) states that voucher checks in
payment of services rendered or materials furnished should not
be issued until all supporting documentation has been verified
and approved for payment.
The Authority disbursed $31,405 for services without
appropriate documentation. The services included $24,711
for construction expenses and $6,694 for purchases at a local
general store for groceries, gasoline, and miscellaneous
sundries.
The Authority did not have invoices that supported $24,711
of construction expenses paid. The construction expenses
included payments to two contractors as well as payments
made directly to the owners of one of the construction
companies. The Authority did not have executed contracts
with the construction companies. The Special Project
Coordinator said the work paid for was often not completed.
The invoices did not detail the services provided or the project
the payments were billed to.
The Authority was billed monthly for groceries, gasoline, and
miscellaneous sundries from a local general store. Most of the
items purchased would not be allowable Authority related
expenses. The Authority did not have documentation to show
the purchases were reasonable and necessary to its operations.
The store owner said that general grocery items such as soda
pop, donuts, rolls, and coffee were purchased on a regular
basis by the Authority staff. He also stated that the gasoline
Page 5 96-CH-202-1006
Finding 1
purchases were normally made by the maintenance staff of the
Authority.
There was not adequate documentation to determine which
expenditures were for gasoline and which were for general
grocery items. The gasoline for Authority maintenance
vehicles would be considered an eligible program expense, but
there was no documentation showing that the expenses were
in fact for Authority maintenance vehicles.
The Authority disbursed program funds totalling $6,993 for
ineligible expenses. Section 406 of the Annual Contributions
Contract states in part that in an Authority's "Operating
Expenditures" with respect to each Project shall mean all costs
incurred by the Local Authority for administration and
maintenance which are necessary for the operation of each
Project.
The following is a breakdown of the ineligible expenses:
• $2,947 in home mortgage payments for an applicant
whose residence was not approved for the Authority's
Acquisition Program.
• $3,100 for holiday bonuses and gift certificates given to
Authority employees and board members.
• $281 for meals at local restaurants.
• $665 for repairs to non-Authority vehicles.
These were not program related expenses. The expenditures
were not necessary for the daily operations of the Authority.
The Authority's top management did not review and verify the
supporting documentation before authorizing the disbursement
of funds. The former Executive Director had control over the
disbursements made by the Authority.
The Authority continuously prepaid a vendor credit card in
excess of the total balance owed. The Authority made a
standard monthly payment to a gas/convenience store
regardless of the balance owed on the account. As a result,
the account would have a credit balance in some months and
96-CH-202-1006 Page 6
Finding 1
a past due balance in other months. For example, the
Authority made a March, 1994 payment for $400 when only
$241 was owed, resulting in a $159 credit balance.
The Finance Officer said she made standard payments because
the previous Finance Officer made the same payment amount
every month to the convenience store regardless of the balance
owed. Therefore, she simply continued the practice.
The Finance Officer paid the former Executive Director and
former Resident Service Coordinator for their accrued
vacation time without proper approval. The Finance Officer
utilized the pre-signed checks to make the disbursements. She
said the former Executive Director asked her to make the
disbursements because the former Authority employees were
entitled to be paid for their accrued vacation time. She took
it upon herself to pay the individuals without the consent or
knowledge of the Acting Executive Director. The Authority's
personnel policy does not provide for payment of accrued
vacation time. As a result, the Authority failed to adequately
protect funds from misuse.
The Authority made an ineligible loan that was not adequately
The Authority used
supported. The loan has not been repaid in full. Section 401
program funds for a
of the Annual Contributions Contract states in part that the
personal loan
Authority may withdraw monies from the general fund only
for (1) the payments of development costs, (2) the payment of
operating expenditures, (3) the purchase of investment
securities as approved by HUD, (4) other purposes specified
in this contract, and (5) other proposes specifically approved
by HUD.
The Authority improperly used $2,000 of its development
funds to make an interest free loan to a St. Croix Chippewa
Tribal Center employee. The Authority's former Executive
Director authorized the loan in May 1994 and the Chairman of
the Board signed the loan check payable to the Tribal
employee. The loan transaction was not recorded on the
Authority's books. The Authority maintained a ledger sheet
showing the loan amount and two $300 loan payments made
in June and July 1994. Both loan payments were reflected in
the Authority's bank deposits.
Page 7 96-CH-202-1006
Finding 1
The Authority's Board Chairman said he signed the check
without reviewing any supporting documentation and did not
realize that the funds were development funds. He thought
the funds were from a State account.
The Tribal employee acknowledged he received the funds and
made two payments during 1994 totalling $600. He said he
did not make further payments because he forgot about the
money owed to the Authority. He did not specify the purpose
of the loan, but said he would start repayments immediately.
The Authority failed to properly safeguard access to, or
The Authority failed to
maintain its financial records. Section 309 of the Annual
adequately safeguard or
Contribution Contract states in part, that the Authority will
maintain its accounting
maintain complete and accurate books of account and records,
records
as may be prescribed by HUD, in connection with the
development and operation of the projects, including records
which permits a speedy and effective audit.
The Authority maintained cancelled checks, contracts, bank
statements, and personnel records in banker boxes in a spare
unlocked room. Access to the room was not restricted to
non-authorized personnel. The Authority maintained other
accounting records in banker boxes throughout the Authority.
The safeguarding of the Authority's records and documents
was the responsibility of the Financial Officer based on the
position descriptions. The Financial Officer said she was not
aware that it was her responsibility.
In addition, the Authority lacked a systematic filing system or
the ability to develop an audit trail for reviewing the records.
For example, the Authority did not always file the voided
checks with the bank statements. As a result, locating
canceled checks was a difficult task.
Public and Indian Housing Notice 95-27, requires the
Authority to execute General Depository Agreement with the
depository institutions.
The Authority did not maintain a General Depository
Agreement with its financial institution. The Executive
96-CH-202-1006 Page 8
Finding 1
Director said the Authority had not executed a General
Depository Agreement with its bank. The Depository
Agreement is an effective control for adequate cash
management to protect against unauthorized use.
The Authority did not have written policies and procedures in
Written policies were not
place for tenant rent collections or evictions to assure
established for tenant
delinquent accounts were pursued and the risk of collection
collections
losses were decreased.
24 CFR Section 905.335 states in part that each Indian
Housing Authority shall establish, adopt, and use its best
efforts to obtain compliance with written policies sufficient to
assure the prompt payment and collection of rent payments.
The Authority's records showed that many residents have gone
one year or more without making rent payments. An
Authority board member has gone two years without making
rent payments. As of February 1995, 88 of the Authority's
161 tenants, or 54 percent, were delinquent in making rent
payments for over one month, representing an account balance
of $51,394. As of July 1995, the delinquency rate had
increased to 124 of the 164 tenants, or 75 percent,
representing an account balance totalling $103,412.
HUD performed a management review of the Authority in
March 1993 and instructed the Authority to reduce its
accounts receivables balance through payroll deductions,
payback agreements, and evictions. However, the Authority
has not taken the recommended corrective actions. The
employees responsible for responding to the HUD review
were no longer employed at the Authority; thus, it could not
be determined why the recommended corrective actions were
not taken.
Auditee Comments Excerpts from the Executive Director's comments on our draft
findings follows. The complete text of her comments is
included in Appendix A.
The Authority agrees with this finding. The Authority will
make changes that are necessary to adequately safeguard all
funds and to make sure a good paper trail is prepared,
including back-up for any payments to anyone or transactions
Page 9 96-CH-202-1006
Finding 1
of funds with the banks. With the staffing as it is, the
Executive Director should have the responsibility of handling
all money transactions and then take the needed document to
the bookkeeper for proper recording.
The Authority had unsupported expenses that it realizes must
be paid back.
The Authority intends to get a plan with the Holiday Gas
Company for its housing vehicles that will give it a better
accountability of gas used and better control its fuel costs and
track expenditures.
The Authority is implementing purchase orders with various
businesses in the area so that it pays for nothing that does not
have a purchase order.
The check signers will always see supporting documentation
for each check they sign.
The Authority submitted a letter to the Tribal Center
employee to repay per payment plan and will accept a payroll
deduction plan. The Authority gave the employee one week
to make arrangements and if he does not, the Authority will
pursue tribal court garnishment of wages.
Also, there will be changes in the way rent collections are
handled. Eviction and collection policies will be established
immediately.
OIG Evaluation of The Authority indicated it will take action to adequately
Auditee Comments safeguard all funds and to correct the issue regarding the loan
reimbursement by the Tribal employee. However, the duties
of handling the money transactions should be segregated to
the extent practical. The Authority did not address the
implementation of procedures for the Board to maintain an
adequate oversight of the Authority's disbursements and
procedures requiring the Board to establish formal repayment
agreements with all delinquent tenants.
96-CH-202-1006 Page 10
Finding 1
Recommendations We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assure that
the St. Croix Chippewa Housing Authority:
1A. Segregates the duties of its employees to the extent
practical. No employee should have complete control
over a program area. The duties should be segregated
to provide checks and balances on all work.
1B. Restricts access to blank checks to those employees
involved in check preparation.
1C. Establishes and implements procedures and controls
for the Board to maintain adequate oversight of the
Authority's disbursements. At a minimum, the
procedures and controls should assure (1)
disbursement checks are not pre-signed by anyone, (2)
disbursements are supported by invoices, and (3)
supporting documentation are reviewed and
disbursements are approved by two members of the
Board of Commissioners prior to payment.
1D. Provides documentation to support the $31,405 of
expenditures or reimburses HUD for the amounts that
cannot be substantiated.
1E. Reimburses HUD $6,993 for the ineligible
expenditures.
1F. Requires the St. Croix Chippewa Tribal Center
employee to reimburse the Authority $1,400 for the
loan balance owed plus interest.
1G. Establishes and implements procedures to safeguard,
control, and maintain all accounting records to allow
efficient access to them.
1H. Establishes and implements written collection and
eviction policies and procedures.
1I. Establishes and implements policies and controls to
maintain Depository Agreements.
Page 11 96-CH-202-1006
Finding 1
1J. Develops procedures that require the execution of formal
repayment agreements with all delinquent tenants, or
documents the reasons for not executing repayment
agreements on a case by case basis.
96-CH-202-1006 Page 12
Finding 2
The Housing Authority Received Unauthorized
Loans From The St. Croix Chippewa Tribe
The St. Croix Chippewa Housing Authority received unauthorized loans from the St. Croix Chippewa
Tribe for assistance in administering its Mutual Help Program. The Authority used the loans to pay
its expenses and did not formally record the loans on its books and records. The former Executive
Director had extensive control over the administration of the Authority and was able to receive loans
as needed from the Tribe during periods of cash flow problems. As a result, the Authority was
encumbered with outside loans contrary to Annual Contributions Contract requirements.
Section 422 of the Annual Contributions Contract states that
HUD Requirements
the Local Authority cannot, without the approval of HUD,
obtain, from any source whatsoever, any loan in connection
with the Projects other than those specifically provided for
under this Contract.
Section 12.3 of the Mutual Help Homeownership Program
Annual Contributions Contract states in part that the
Authority must maintain complete and adequate books and
records which outline the operations of the Authority.
The Authority received several loans from the St. Croix
The Authority obtained
Chippewa Tribe to assist in the purchase of homes and to pay
loans from the Tribe
operating costs prior to HUD funds becoming available. The
Authority did not obtain HUD's approval to receive the loans.
Neither the Authority nor the Tribe had an accurate record of
the outstanding loan amount. For example, the minutes from
the Authority's May 3, 1995 board meeting, reported that the
Authority owed the Tribe $637,822. The Authority's books
did not document the amounts owed to the Tribe; but the
Finance Officer maintained informal ledger sheets which
documented the Tribe loan payable amount as $452,407. The
Tribe's Accounting Office staff said that they did not know the
exact amount owed by the Authority, but were in the process
of determining the amount.
The Authority's Board's meeting minutes stated that the
Authority used funds from the Mutual Help Acquisition Grant
to purchase 620 acres of land and several homes. It appears
Page 13 96-CH-202-1006
Finding 2
that the Tribal loans were used to fund the Acquisition
Program prior to the drawdown of HUD funds as well as pay
for past due vendor invoices.
The Authority also used $151,280 of the funds borrowed from
the Tribe in April 1995 to pay for past due vendor invoices.
The Authority suspended several employees and terminated
the Executive Director in March 1995 which caused the
vendor payments to be late.
The former Executive Director was responsible for obtaining
the majority of the Tribal loans during 1994; thus, the reasons
for the loans could not be determined. While there are no
formal documents outlining the amount owed by the
Authority, Authority and Tribal Officials acknowledged that
funds were borrowed from the Tribe to fund the Authority's
daily activities.
Auditee Comments Excerpts from the Executive Director's comments on our draft
findings follows. The complete text of her comments is
included in Appendix A.
The loans we received from the Tribe will be discussed with
the Tribal Council to see if the loans can be given to the
Authority as other income which will not effect our subsidy.
We can work with HUD on monies owed or whatever we
need to get projects in order as they should be.
Recommendations We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assure that
the St. Croix Chippewa Housing Authority:
2A. Provides documentation supporting the amount owed
to the St. Croix Chippewa Tribe as well as other non-
HUD sources.
2B. Maintains an adequate subsidiary record for all monies
borrowed, loaned, and repaid.
96-CH-202-1006 Page 14
Finding 2
2C. Obtains prior HUD approval for the repayment of
amounts owed to the St. Croix Chippewa Tribe or any
other outside entities.
2D. Discontinues the practice of receiving loans from
outside sources without prior HUD approval.
2E. Works with the Authority to encourage the St. Croix
Chippewa Tribe to donate the loaned amount.
Page 15 96-CH-202-1006
Finding 2
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96-CH-202-1006 Page 16
Finding 3
The Housing Authority Improperly Used
Development Program Funds
The St. Croix Chippewa Housing Authority improperly used $878,843 of its development program
funds to: (1) construct an apartment project in which it was not a party to the construction contract;
and (2) purchase land without obtaining HUD's approval. The Authority wanted the apartments
completed prior to the winter of 1994. The Authority used development funds from another project
to construct the apartment complex. The land was purchased for speculative purposes. As a result,
HUD funds were not available to achieve the development grant objectives.
The August 10, 1993, Mutual Help Annual Contributions
HUD Requirements
Contract Amendment for development projects 62-13 and 62-
14, states in part that the grant funds for the projects were to
be used for force labor and for the acquisition of 25 housing
units. The Housing Authority agreed to carry out the
development activities in accordance with the approved
proposal and at the lowest possible development cost.
The Authority's Annual Contributions Contract, Section 101
states in part that the Authority will administer and develop
each project to promote efficiency and economy. Section 102
states that each project will be developed in accordance with
the applicable Development Program. Section 103 states in
part that the Authority will not undertake to acquire real
property unless HUD has approved that acquisition.
The Authority disbursed $672,510 of program funds
The Authority used
designated for the acquisition of 25 single family homes for
program funds for
unauthorized development activities.
unauthorized activities
The Authority spent the funds between August 1994 and May
1995 for the construction of three apartment buildings. The
Authority was not a party to the construction contract and
HUD had not granted them authorization to build the three
apartment buildings. During that period, the Authority was
authorized a planning grant for the costs associated with the
planning of the apartment project, but it did not receive HUD's
approval for any construction until March 1995. The
construction of the apartments was completed in January
1995.
Page 17 96-CH-202-1006
Finding 3
The Authority wanted the apartment project completed prior
to the winter of 1994 because tribal members had expressed
a desire to live in the apartments. However, the Authority had
not completed the necessary HUD requirements which would
have authorized the construction and funding for the project.
In order to facilitate the construction of the project for the
Authority, the St. Croix Chippewa Tribe entered into a
contract with a builder to begin construction of the
apartments. The contract was signed by the Tribe and the
builder in August, 1994 for $657,410. In August, 1994 the
Authority paid $65,000 for the initial deposit to the builder.
The Authority made four additional payments for the
remaining $592,410 in December 1994, January 1995, and
February 1995. Since the Authority could not be a party to
the contract without an approved Annual Contributions
Contract from HUD and a secure funding source, the builder
initially required an additional 16 percent finance charge or
$20,107. The Authority re-negotiated the finance charge from
the original $20,107 down to $15,100 and paid the $15,100 in
May, 1995.
Authority officials said the former Executive Director had
control over all of the internal control functions at the
Authority. This control gave the former Executive Director
the ability to use project monies of one project to finance
another project, as well as, allowing payments to a builder that
the Authority did not have a contract with.
The Authority improperly purchased $206,333 of vacant land
The Authority improperly
between March 1994 and February 1995 without obtaining
used development funds to
HUD's approval. The Authority used project development
funds that HUD awarded for the acquisition of 25 housing
units to purchase the vacant land.
During an Authority board meeting, the former Executive
Director said the Authority could purchase the land if homes
were eventually built on it. However, HUD's Eastern
Woodland Office of Native American Program officials said
the project development funds were program specific,
indicating the funds drawn from the development project
account were to be used for the acquisition of houses only.
96-CH-202-1006 Page 18
Finding 3
At a May 3, 1995 meeting between HUD's Eastern Woodland
Office of Native American Programs, the Authority, and the
St. Croix Chippewa Tribal Council, HUD informed the
Authority that it can not own vacant land; therefore, it should
not have purchased the land parcels. It was suggested that the
Tribe reimburse the Authority for the land purchases. The
Tribal Council Chairman said the vacant land was purchased
for the development of future housing for tribal members. It
was agreed that the Tribe would reimburse the Authority for
the land purchases and lease the land back to the Authority
when housing needs arose. At the time of our audit, the Tribe
had not reimbursed the Authority for the land purchases.
As a result of the Authority using the development funds to
purchase vacant land, sufficient funds were not available to
close on approximately three of the 25 homes under contract
to purchase.
Auditee Comments Excerpts from the Executive Director's comments on our draft
findings follows. The complete text of her comments is
included in Appendix A.
The Authority agrees with this finding. Improperly disbursed
funds totalling $672,510 will be put into the correct project
and if necessary any balances owed the Government will be
taken up with the St. Croix Chippewa Tribal Government for
pay back. The Authority understands that it can not purchase
land and the Tribe will pay the Authority back funds for the
land purchase but then will lease the land when needed for
future housing.
Recommendations We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assure that
the St. Croix Chippewa Housing Authority:
3A. Establishes and implements proper controls to
segregate the duties over the development program
fund activities and expenditures. At a minimum, the
procedures and controls should assure that: (1) no
employee has complete control over the program, and
Page 19 96-CH-202-1006
Finding 3
(2) the duties provide checks and balances of the
work.
3B. Reimburses the development project account $15,100
for the unauthorized construction contract finance
charges.
3C. Reimburses the development project account for
$657,410, unless: (1) HUD approves a request for a
waiver to apply the funds against the March 1995
approved construction contract and (2) the property
title is transferred to the Authority's name.
3D. Reimburses the development project account for the
$206,333 used to purchase vacant land.
96-CH-202-1006 Page 20
Finding 4
The Housing Authority Did Not Maintain
Adequate Accountability Over Its Program
Funds
The St. Croix Chippewa Housing Authority did not maintain an adequate accountability for its
program accounts. The Authority: (1) transferred account funds without adequate documentation,
and (2) commingled the Youth Sports Program funds with other program funds. The Authority's top
management did not implement effective accounting controls over its funds. As a result, HUD
program funds were used for purposes other than intended and balances are outstanding between the
program accounts.
Section 309 of the Annual Contributions Contract states in
HUD Requirements
part that the Authority shall maintain complete and accurate
books of account and records. This includes records which
permit a speedy and effective audit.
24 CFR Section 960.229 paragraph (3) states in part that use
of development funds of projects under the Annual
Contribution Contract to covers costs for another project are
strictly prohibited.
24 CFR Section 950.635 states in part that the Housing
Authority shall undertake the modernization activities and
expenditures set forth in its approved Comprehensive
Improvement Assistance Program budget in a timely, efficient,
and economical manner subject to the following requirement.
The Housing Authority shall ensure that there is no
duplication between the activities carried out with
Comprehensive Improvement Assistance Program funds and
the activities carried out with other funds.
The Authority's Public and Indian Housing Youth Sports
Program Grant Agreement, Article I, paragraph H states in
part that the accounting systems of the grantee must ensure
that HUD funds are not commingled with funds from other
Federal agencies or other HUD program funds. Funds
specifically budgeted and/or received for one program may not
be used to support another.
Page 21 96-CH-202-1006
Finding 4
The Authority wire transferred its HUD program funds for the
Account funds were
Operating Program, Development Program, Youth Sports
improperly transferred
Program, and Comprehensive Improvement Assistant Program
accounts into one savings account. The Finance Officer
transferred funds from the savings account into the respective
programs' checking account as the Authority needed funds to
pay the program expenses. The Authority did not reconcile
the account balances when the transfers were made in order to
account for the money owed between the accounts.
The Authority also made interfund transfers between the four
program accounts and it did not maintain the wire transfer
authorization slips or record the transactions to its general
ledger and cash journal to support the wire transfers between
the accounts. As a result of interfund transfers made between
May 1992 and March 1995, the following balances were
outstanding between the different accounts:
• The Development Program owes Comprehensive Program
$17,000.
• The Development Program owes Operations Program
$78.
• The Development Program owes the Youth Sports
Program $60,000.
• The Operating Program owes the Youth Sports Program
$15,375.
The Authority transferred funds to pay the expenses from one
program with the funds of another program. This was
especially true for Youth Sports Program funds. Generally,
HUD regulations do not prohibit the transfer and commingling
of program funds. They only require that the Authority
maintain accurate records supporting the transfer of funds.
However, HUD's Youth Sports Program Grant Agreement
specifically requires that Youth Sports Program funds cannot
be commingled with any other program funds. The Authority
transferred Youth Sports Program funds into other program
accounts where they were commingled. It appears the
Authority used Youth Sports Program funds to pay
Development Program expenses and its daily operating
expenses. Due to inadequate recordkeeping, an exact
96-CH-202-1006 Page 22
Finding 4
accounting of the funds could not be performed in order to
determine how the funds were spent. It could only be
determined which program account the funds were transferred
into and what expenses were paid from that account.
The Chief Financial Officer said she relied on the former
Executive Director to monitor the transactions. We did not
locate any Authority records which documented the transfer
of the program funds. Due to inadequate record keeping
regarding the transfer of funds, the balances of the program
accounts were not adequately determinable.
As a result, HUD is not assured that the Authority used the
program funds for the purposes awarded.
Auditee Comments Excerpts from the Executive Director's comments on our draft
findings follows. The complete text of her comments is
included in Appendix A.
The Authority was scheduled for a HUD review August 29,
1995 at which time new procedures would be set forth to
properly handle and maintain control over program funds.
Any payments made will have all necessary documentation for
back-up of payments made with program funds.
Recommendations We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assure that
the St. Croix Chippewa Housing Authority:
4A. Maintains adequate documentation to support the wire
transfers from HUD in the program accounts.
4B. Establishes policies and procedures to properly
account for and document interfund transactions.
4C. Reimburses the program accounts the amounts owed
based on the interfund transfers.
4D. Establishes procedures and controls which will assure
compliance with the grant agreements.
Page 23 96-CH-202-1006
Finding 4
4E. Establishes procedures to discontinue the commingling
of the Youth Sports funds.
96-CH-202-1006 Page 24
Finding 5
The Housing Authority Drew Down
Excess Development Funds
The St. Croix Chippewa Housing Authority drew down $482,340 of development program funds in
excess of actual needs for acquisition costs and development payments. The Authority's top
management did not implement effective disbursement controls over the development funds. As a
result, HUD funds were not efficiently used.
Public and Indian Housing Notice Number 94-73 issued
HUD Requirements
October 5, 1994, Line of Credit Control System - Voice
Response System for Traditional Indian Housing
Development, paragraph 3-5, C, states the Indian Housing
Authority may requisition funds only when payment is due and
after inspection and acceptance of the work. It also must
distribute the funds within three working days of receipt of the
funds.
The Authority drew down $482,340 in excess funds from its
The Authority drew down
development account. In May 1995, the Authority drew
excess funds
down $756,548 of development funds for acquisition costs
and development payments, but it only disbursed $274,208 of
the funds for development activities. The excess funds were
maintained in a non-interest bearing account.
The Resident Services Coordinator said the majority of the
funds were drawn to acquire houses for the Authority's
development program. The Authority had not yet acquired
the houses at the time the draw was made. As a result, the
Authority drew down $482,340 in excess funds from its
development account.
Auditee Comments Excerpts from the Executive Director's comments on our draft
findings follows. The complete text of her comments is
included in Appendix A.
The Authority understands that this cannot happen in the
future and will follow the procedures that it set to draw down
on funds only as needed.
Page 25 96-CH-202-1006
Finding 5
OIG Evaluation of The Authority's comments indicate action will be taken to
Auditee Comments improve the controls over funds being drawn, but did not
address remitting the excessive funds to HUD.
Recommendations We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assure that
the St. Croix Chippewa Housing Authority:
5A. Establishes and implements procedures and controls to
assure funds are drawn only when payments are due.
5B. Remits $482,340 to HUD.
96-CH-202-1006 Page 26
Finding 6
Deposits Exceeding Federal Insurance Were Not
Collateralized
The St. Croix Chippewa Housing Authority failed to obtain collateralization for its bank deposits that
exceeded the $100,000 Federal Deposit Insurance Corporation coverage. The Authority's Finance
Officer said she did not understand the Federal Deposit Insurance Corporation limitations or the bank
collateralization process, and was unaware the funds were at risk.
Public and Indian Housing Notice 95-27 states the Housing
HUD Requirements
Authority shall require its depositories to continuously and
fully (100 percent) secure all deposits in excess of the
$100,000 (Federal Deposit Insurance Corporation) insured
amount. This may be accomplished by the pledging or setting
aside collateral of identifiable U.S. Government securities as
prescribed by HUD. Such securities shall be owned by the
depository and the manner of collateralization shall provide
the Authority with a continuing perfected security interest for
the full term of the deposit in the collateral in accordance with
applicable laws and Federal regulations. Such collateral shall,
at all times, have a market value at least equal to the amount
of the secured deposits.
The Federal Deposit Insurance Corporation coverage rules
states that all single ownership accounts are subject to a
$100,000 standard limit for deposit insurance. Joint accounts
cannot be insured for over $100,000 and multiple joint
accounts with identical ownership cannot be insured for over
$100,000 in the aggregate.
The Authority did not obtain any type of collateralization for
The Authority failed to
its bank deposits when they exceeded the $100,000 Federal
obtain collateralization for
Insurance coverage. As of May 31, 1995, the Authority had
the following funds on deposit at its depository:
Page 27 96-CH-202-1006
Finding 6
Account Number Balance
32600 $633,360
28732 3,354
1201728 3,477
35430 4,180
39754 9,381
9265523 100
$653,852
According to the Branch Manager at the Depository, the
Authority is the common account holder for the six accounts
listed above and no collateralization agreement existed
between the Authority and the bank. All six accounts are
viewed as a single account according to the $100,000 Federal
Deposit Insurance Corporation coverage.
The former Executive Director responsible for ensuring the
proper administration of the project funds was not available
for comment. The Finance Officer said she was not aware of
the Federal Deposit Insurance Corporation limitations, the
need for collateralization of funds, or that HUD required the
funds to be safeguarded beyond ordinary Federal Deposit
Insurance Corporation coverage.
As a result, if the depository failed, the Authority risked losing
the $553,852 of funds on deposit which were in excess of the
insurance limitations.
Auditee Comments Excerpts from the Executive Director's comments on our draft
findings follows. The complete text of her comment is
included in Appendix A.
The Authority agrees with this finding. The Authority
contacted HUD and is in the process of obtaining the
necessary form that is needed and correcting the issue.
96-CH-202-1006 Page 28
Finding 6
Recommendations We recommend that the Acting Administrator, Eastern
Woodlands Office of Native American Programs, assure that
the St. Croix Chippewa Housing Authority:
6A. Obtains adequate collateral for its aggregate bank
deposits at one bank that exceeds the $100,000
Federal Deposit Insurance coverage.
Page 29 96-CH-202-1006
Finding 6
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96-CH-202-1006 Page 30
Internal Controls
In planning and performing our audit, we considered the internal controls of the St. Croix Chippewa
Housing Authority to determine our auditing procedures and not to provide assurance on internal
controls. Internal controls consist of the plan of organization, methods, and procedures adopted by
management to ensure that resource use is consistent with laws, regulations, and policies; that
resources are safeguarded against waste, loss, and misuse; and that reliable data are obtained,
maintained, and fairly disclosed in reports.
We determined the following internal controls were relevant
Relevant Internal Controls
to our audit objectives:
• Management philosophy and operating style
• Oversight body
• Methods of assigning authority
• Management monitoring methods
• Proper authorizations
• Completeness of accounting system
• Segregation of duties
• Safeguards over access to and use of assets and
records
• Policies and procedures
• Independent verifications and reconciliations
We assessed all relevant controls identified above.
It is a significant weakness if the internal controls do not give
Significant Weaknesses
reasonable assurance that resource use is consistent with laws,
regulations, and policies; that resources are safeguarded
against waste, loss, and misuse; and that reliable data are
obtained, maintained, and fairly disclosed in reports.
Based on our review, the following are significant weaknesses:
Page 31 96-CH-202-1006
Internal Controls
• Management monitoring methods. Taken as a whole, the
six findings in this report show that the Authority needs to
increase its managerial oversight to assure HUD's
requirements are met, and supervisory control to assure
compliance with its own policies and procedures.
• Policies and procedures. The Authority did not establish
clear concise policies and procedures to ensure Federal
programs were effectively managed and costs controlled
(see Findings 1, 2, 3, 4, 5, and 6).
• Completeness of accounting system. The Housing
Authority did not properly account for development funds
on its books and properly report program funds (see
Finding 4).
• Segregation of duties. The Housing Authority did not
adequately segregate staff duties over its cash
disbursements function (see Findings 1 and 3).
• Safeguards over access to and use of assets. The Housing
Authority did not maintain effective controls over its
assets or disbursements and it did not restrict access to
blank checks and financial records (see Findings 1, 2, 3, 4,
and 5).
96-CH-202-1006 Page 32
Follow Up On Prior Audits
This is the first OIG audit of the St. Croix Chippewa Housing Authority. The Authority's last Single
Audit Report was for Fiscal Year ending March 31, 1994, dated June 23, 1994, contained two
findings that were unrelated to this report.
Page 33 96-CH-202-1006
Follow Up On Prior Audits
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96-CH-202-1006 Page 34
Appendix A
Auditee Comments
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Appendix A
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Appendix A
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Appendix A
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Appendix A
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Appendix A
96-CH-202-1006 Page 40
Appendix A
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Appendix A
96-CH-202-1006 Page 42
Appendix B
Schedule of Questioned Costs
Type of Questioned Costs
Recommendation Number Ineligible 1/ Unsupported 2/
1D $ 31,405
1E $ 6,993
1F 1,400
3B 15,100
3C 657,410
3D 206,333
5B 482,340
Total $712,166 $688,815
1/ Ineligible costs are costs are amounts that are questioned because of an alleged violation of a
provision of a law, regulation, contract, grant, cooperative agreement, or other agreement or
document governing the expenditure of funds.
2/ Unsupported costs are costs charged to a HUD-financed or insured program or activity or
eligibility cannot be determined at the time of the audit. The costs are not supported by adequate
documentation or there is a need for a legal or administrative determination on the eligibility of the
costs. Unsupported costs require a future 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.
Page 43 96-CH-202-1006
Appendix B
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96-CH-202-1006 Page 44
Appendix C
Distribution
Secretary's Representative, Midwest
Acting Director, Eastern Woodlands Region, Native American Programs
Assistant General Counsel for the Midwest
Field Controller, Midwest
Public Affairs Officer, Midwest
Director, Accounting Division, Midwest
Assistant to the Deputy Secretary for Field Management, SC (7106)
Acquisition Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10166)(2)
Deputy Chief Financial Officer for Operations, FO (Room 10166)(2)
Comptroller/Audit Liaison Officer, PF (Room 4122)
Office of the Special Assistant to the Secretary for Indian and Alaska Native Programs,
SV (Room 10222)
Assistant Director in Charge, U.S. GAO, 820 1st NE, Union Plaza Bldg. 2, Suite 150,
Washington D.C. 20002
Page 45 96-CH-202-1006
St. Croix Chippewa HA, Comprehensive Review Hertel, Wisconsin
Published by the Department of Housing and Urban Development, Office of Inspector General on 1995-11-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)