oversight

Rock Island HA, Rock Island, IL

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-05-23.

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

                                                                   Issue Date

                                                                        May 23, 1996
                                                                   Audit Case Number

                                                                        96-CH-202-1008




TO:           Richard B. Kruschke, Director, Office of Public Housing, Illinois State Office


FROM:         Dale L. Chouteau, District Inspector General for Audit, Midwest


SUBJECT:      Rock Island Housing Authority
              Low-Income Housing Program
              Rock Island, Illinois


We completed an audit of the Rock Island Housing Authority. We conducted the audit at the
request of HUD's Illinois State Office. Our audit objectives were to determine whether the
Authority administered its housing activities in an efficient, effective, and economical manner
and in compliance with the terms and conditions of the Annual Contributions Contract, applicable
laws, HUD regulations, and other applicable directives. The audit did not include the Section 8
Program.

While the Rock Island Housing Authority is striving to improve its procedures, the Authority can
do more 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 the
Authority's: (1) inadequate progress in meeting its established goals for the Vacancy Reduction
Program; (2) untimely preparation of units for occupancy; and (3) inadequate safeguarding of
inventories.

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 the audit.

Should your staff have any questions, please have them contact me at (312) 353-7832.
Management Memorandum




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96-CH-202-1008                   Page ii
Executive Summary
We completed an audit of the Rock Island Housing Authority. Our audit objectives were to
determine whether the Authority administered its housing activities in an efficient, effective, and
economical manner and in compliance with the terms and conditions of the Annual Contributions
Contract, applicable laws, HUD regulations, and other applicable directives. The audit did not
include the Section 8 Program.

While the Authority is striving to improve procedures, additional improvements are needed in
its administrative practices to assure compliance with the Annual Contributions Contract and
HUD requirements and to increase the efficiency, effectiveness, and economy of its operations.
The Authority needs to correct the following problems.



                                      The Rock Island Housing Authority has not made
 The Authority May Not
                                      reasonable progress in meeting the goals it established for
 Meet Its Established
                                      the Vacancy Reduction Program. The Authority has only
 Goals for the Vacancy
                                      completed repairs for 51 of the 235 units funded, has not
 Reduction Program
                                      submitted plan revisions to HUD as required, and has not
                                      leased the completed units timely. We attribute the reasons
                                      for the Authority not progressing with its goals to the
                                      inadequate Vacancy Reduction Program staffing levels and,
                                      delays by the Occupancy Department in leasing the units.

                                      The Rock Island Housing Authority allowed units to remain
 The Authority Did Not
                                      vacant for extended periods of time. The Authority did not
 Prepare Units For
                                      prepare and lease its vacant units within 30 calendar days.
 Occupancy Timely
                                      The Authority's 1995 Public Housing Management
                                      Assessment Program annual average turnaround time for
                                      vacant unit preparation was 159 days. HUD requires the
                                      Authority to maintain an average turnaround time for
                                      vacant units of 30 calendar days, with a goal of 10 days.
                                      The Authority did not adequately use its Maintenance staff
                                      and lacked sufficient staffing in its Occupancy Department
                                      to meet the 30 calendar days requirement.

                                      The Rock Island Housing Authority did not adequately
 The Authority Did Not
                                      safeguard its inventory of parts and supplies. Specifically,
 Adequately Control Its
                                      the Authority did not: (1) maintain adequate inventory
 Inventories
                                      records of the parts and supplies; and (2) ensure that
                                      warehouse stock was properly safeguarded. The Director
                                      of Administration said the Authority did not have policies
                                      and procedures to control its warehouse inventory system.



                                              Page iii                                 96-CH-202-1008
Executive Summary




                    We recommend that the Director of Public Housing, Illinois
 Recommendations
                    State Office, assures that the Authority takes actions to
                    correct the weaknesses cited in this report.

                    We gave our draft findings to the Executive Director and
                    HUD's Illinois State Office during the audit. We held an
                    exit conference with the Executive Director on April 22,
                    1996. 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-202-1008              Page iv
Table of Contents

Management Memorandum                                               i


Executive Summary                                                  iii


Introduction                                                        1


Findings

    1      The Authority May Not Meet Its Established
           Goals for the Vacancy Reduction Program                  3

    2      The Authority Did Not Prepare Units For
           Occupancy Timely                                       11

    3      The Authority Did Not Adequately
           Safeguard Its Inventories                              17



Internal Controls                                                 23


Follow Up On Prior Audits                                         25


Appendices
    A      Auditee Comments                                       27

    B      Distribution                                           31




                              Page v                    96-CH-202-1008
Table of Contents




96-CH-202-1008      Page vi
                                       Table of Contents




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                Page vii                     96-CH-202-1008
Introduction
The Rock Island Housing Authority, a non-profit corporation, was formally organized in 1941,
under the provisions established by the first U.S. Housing Act passed into law in 1937 to develop,
acquire, and operate low rent housing programs. The Authority is governed by a Board of
Commissioners consisting of five unpaid members who formulate and direct the Housing
Authority's policies. The Chairman of the Board is Anne Liggitt. The Executive Director, Mark
Stephenson, is responsible for the day-to-day operations.

The Authority manages 606 units, of which 359 units are designed for the elderly. The current
Section 8 allotment for all programs is 167. In fiscal year 1995, HUD awarded the Authority
$2,267,366 in Vacancy Reduction Program funds.

The Authority's books and records are located at its central office at 111 20th Street, Rock Island,
Illinois. The tenant files are maintained at each development and the unit files are maintained at
the Authority's warehouse.



                                      The audit objectives were to determine whether the
 Audit Objectives
                                      Authority administered its housing activities in an efficient,
                                      effective, and economical manner and in compliance with
                                      the terms and conditions of the Annual Contributions
                                      Contract, applicable laws, HUD regulations, and other
                                      applicable directives.

                                      To achieve the objectives, we interviewed HUD and
 Audit Scope and
                                      Authority staff to evaluate internal controls and obtain
 Methodology
                                      information relating to the Authority's operations. We
                                      reviewed the following Authority records: (1) Public
                                      Housing Management Assessment Program certifications
                                      for adequate documentation and support; (2) Cooperation
                                      Agreement to assure the Authority was not paying for
                                      services normally received through the Agreement; (3)
                                      maintenance and occupancy files for compliance with
                                      applicable requirements and the effectiveness of the
                                      programs' execution; (4) inventory ledgers to ensure that its
                                      inventory is safeguarded and secure; and (5) Vacancy
                                      Reduction Program grant files for proper program
                                      execution.

                                      The audit covered the period October 1, 1992 to September
                                      30, 1995. We expanded the coverage as necessary. We
                                      performed the audit between November 1995 and March
                                      1996 at the Authority.


                                               Page 1                                   96-CH-202-1008
Introduction



                 We conducted our audit in accordance with generally
                 accepted government auditing standards.

                 We provided a copy of our report to the Authority's
                 Executive Director.




96-CH-202-1008          Page 2
                                                                                     Finding 1




  The Authority May Not Meet Its Established
   Goals for the Vacancy Reduction Program

The Rock Island Housing Authority has not made reasonable progress in meeting the goals it
established for the Vacancy Reduction Program. The Authority has only completed repairs for
51 of the 235 units funded, has not submitted vacancy plan revisions to HUD as required, and
has not leased the completed units timely. We attribute the reasons for the Authority not
progressing with its goals to inadequate Vacancy Reduction Program staffing levels, and delays
by the Occupancy Department in leasing the units. As a result, the Authority cannot assure HUD
that it will complete the required work before the program completion date. Additionally, low-
income and elderly individuals were deprived of adequate housing.



                                    24 CFR Part 968 contains regulations for housing
 HUD Requirements
                                    authorities to follow while implementing their Vacancy
                                    Reduction Programs. Part 968.401 states it is the policy of
                                    the Department that public housing agencies should
                                    maximize the use of housing resources, using every
                                    reasonable means to achieve and maintain high levels of
                                    occupancy by eligible families in public housing authority-
                                    owned or operated housing.

                                    Part 968.422(3)(b) states that HUD expects most work
                                    items funded under the Vacancy Reduction Program to be
                                    completed within one year. Work items must be completed
                                    within two years from the date of funding.

                                    Article IX, paragraph 4, of the Vacancy Reduction Program
                                    Grant Agreement requires the Authority to inform HUD
                                    immediately, in writing, of any problems, delays, or adverse
                                    conditions which will impair materially the Authority's
                                    ability to comply with the Vacancy Reduction Plan, as the
                                    same may be revised from time to time as required by HUD
                                    or with HUD's approval. Such disclosure must include a
                                    statement of action taken, or proposed to be taken, and any
                                    assistance needed to resolve the situation.
 The Authority's Vacancy
 Reduction Program Grant
 Agreement


                                            Page 3                                  96-CH-202-1008
Finding 1



     The Rock Island Housing Authority received a $2,267,366 Vacancy Reduction Program
     grant in December 1994 to repair 235 vacant units within two years. The purpose of the
     grant was to assist the Authority with preparing units for occupancy, which would lead to a
     reduction in the Authority's vacancy rate. The grant also allowed for management
     improvements to assist the Authority with its marketing strategies.

                                     The Authority's Vacancy Reduction Program grant
 The Authority Has Not
                                     provided the Authority funds to repair 235 vacant units
 Repaired Vacancy
                                     between December 1994 and December 1996. As of
 Reduction Units Timely
                                     February 29, 1996, the Authority had only completed 51
                                     units, or 21 percent of the repairs.

                                     The Maintenance Supervisor said the easiest units were
                                     completed first. The Assistant Director said the Authority
                                     is in the process of obtaining bids for contract labor to
                                     finish the remaining units because those units will be more
                                     difficult to complete. The Assistant Director felt this would
                                     help the Authority meet the program goals.

                                     The Authority's Vacancy Reduction Program Plan stated the
                                     Authority would utilize a combination of additional
                                     employees and contract labor to coordinate, supervise, and
                                     carry out the Vacancy Reduction Program initiatives.
                                     However, the Authority did not hire the proposed number
                                     of employees or contract labor to carry out the initiatives as
                                     required.

                                     The Authority budgeted $717,297 in its Vacancy Reduction
                                     Program to hire 13 additional employees. However, as of
                                     February 1996, the Authority had only hired eight of the 13
                                     employees for the Vacancy Reduction Program. The
                                     Authority did not hire three maintenance aides and two
                                     preventive maintenance specialists that it had budgeted. In
                                     addition, the Authority did not hire the contract labor as it
                                     had originally budgeted. The Director of Administration
                                     said the Authority was in the process of hiring two
                                     maintenance employees. The Assistant Director said the
                                     Authority plans to hire the three Vacancy Reduction
                                     maintenance aides in the future.

                                     The Vacancy Reduction Program budget included a crew
                                     supervisor. At the beginning of the grant period, the
                                     Authority had a vacancy crew supervisor and a normal
                                     maintenance supervisor. However, the Authority fired the


96-CH-202-1008                                Page 4
                                                                              Finding 1



                           supervisor responsible for normal maintenance. Instead of
                           hiring another person for the position, the Authority
                           eliminated the position. The Assistant Director said it
                           would have taken too long to hire another supervisor. In
                           September 1995, the vacancy reduction supervisor was
                           promoted to be the supervisor for both normal maintenance
                           and the Vacancy Reduction Program. Prior to becoming
                           the Authority's only maintenance supervisor, the vacancy
                           reduction supervisor worked along with the vacancy
                           reduction crew.          The Maintenance Supervisor
                           acknowledged that productivity had slowed down in the
                           vacancy reduction work after his promotion.

                           The Executive Director said he felt the Authority was
                           keeping up with its schedule and some of the delays were
                           probably caused by an inefficient start-up process. We
                           believe the size of the Authority's vacancy reduction
                           maintenance staff was not sufficient to meet the workload,
                           which resulted in units not being repaired timely during the
                           14 months that has expired on the grant. The Authority has
                           7 months to complete the remaining 184 units. Based upon
                           the length of time it took the Authority to complete 51 units,
                           we believe the Authority will not meet its goal of
                           completing 235 units by December 1996 unless it contracts
                           out some of the work and HUD approves all of the
                           Authority's Vacancy Reduction Plan revisions.

                           The Authority did not request the necessary Vacancy Plan
The Authority Did Not
                           revisions from HUD for its Vacancy Reduction Program
Submit Vacancy
                           grant. The Executive Director said the Authority was in the
Reduction Plan Revisions
                           process of obtaining HUD's approval to reprogram Vacancy
to HUD As Required
                           Reduction funds for the disposition of seven units and the
                           demolition of 28 units. The Authority is required to inform
                           HUD immediately of any problems, delays, or adverse
                           conditions which will impair the Authority's ability to
                           comply with the Vacancy Plan. The Authority has a budget
                           revision for the disposition of seven units pending at HUD.
                           The Authority reported the demolition plans in its
                           December 31, 1995 Vacancy Reduction Program quarterly
                           report, but the Authority did not request HUD's approval to
                           demolish the 28 units until March 1996. The approval is
                           still pending at HUD.




                                    Page 5                                   96-CH-202-1008
Finding 1



                           The Executive Director said the Authority completed 78
                           units under the Lead Based Paint Program. He was under
                           the impression that the 78 units counted toward the 235
                           vacancy reduction units to be completed by December
                           1996. HUD's Central Office Vacancy Reduction Specialist
                           said the Authority must repair 235 units with the Vacancy
                           Reduction Program grant funds and cannot substitute other
                           program funded units to count towards the 235 units to be
                           completed without HUD's approval. The Authority
                           submitted a revision to HUD in March 1996 requesting that
                           funds from the lead based paint units be reprogrammed into
                           management improvements. HUD's approval of the
                           revision would allow the Authority to reallocate Vacancy
                           Reduction Program funds from the repair of the lead based
                           paint units to Authority wide physical improvements such
                           as outdoor lighting and playground equipment.

                           The Authority completed 51 units under the Vacancy
 The Authority Did Not
                           Reduction Program between March 1995 and February
 Lease Units In a Timely
                           1996. The Authority spent $227,577 to complete the units.
 Manner
                           However, the Authority did not lease 37 of the units in a
                           timely manner. The number of days the units remained
                           vacant ranged from 31 days to 216 days as follows:


                                 Number of Days Vacant          Number Of Units
                                   31 days to 49 days                    7
                                   50 days to 99 days                   16
                                   100 days or longer                   14

                           On February 29, 1996, seven of the 51 units were still
                           vacant. Three of the units were vacant for one day; three
                           were vacant from 61 to 72 days; and the last unit was
                           vacant 149 days. The Director of Housing said the majority
                           of the vacant units were designed for handicapped persons
                           and the units were difficult to lease. She said the Authority
                           may offer non-handicapped applicants a unit designed for
                           a handicapped person. However, she must also tell them
                           that if a handicapped applicant is approved for a unit, the
                           non-handicapped person may be transferred to another unit.
                           Most non-handicapped applicants decide to wait for a
                           standard unit. As of February 29, 1996 13 of the




96-CH-202-1008                      Page 6
                                                   Finding 1



Authority's 88 housing applicants waiting for approval
indicated they were disabled.

Handbook 7460.7 Rev-1, Field Office Monitoring of Public
Housing Agencies, paragraph 5-2(c) states that the
Authority should complete vacant unit turnaround in an
average of no more than 30 calendar days, but preferably
not more than 10 days.

The Executive Director said in 1995 the vacancy reduction
crew repaired numerous units in short periods of time. He
was aware some units would remain vacant for a short
period of time, but felt the Authority needed to get the units
back on-line.

The Director of Housing said the units were leased as
maintenance informed her of the available units. The
Maintenance Department's Facilities Assistant informs the
Director of Housing when units are ready for occupancy.
The Director of Housing said in the past, the Maintenance
Department did not forward the unit information to her in a
timely manner. She also said some delays occurred because
of delays in processing the housing applications such as
obtaining police reports and income verifications.

The Authority's Housing Assistant is responsible for
handling the majority of the occupancy functions. Due to
the Housing Assistant's workload the applicants were
required to setup an appointment one week after they
initially came to apply for housing. The Housing Assistant
said the process allowed her to schedule time to devote to
the applicant, instead of having them wait for her to finish
other duties before she could assist them. The Housing
Assistant said she processes the applications as quickly as
possible, but that is not her only responsibility. She also
had to prepare and disseminate official notices, prepare
occupancy and other reports, answer telephone calls, route
incoming mail, receive rent payments, and greet visitors to
the Authority. These other duties take up to 33 percent of
her time and prevent her from immediately processing
applications.      She said if she had less general
responsibilities, she could begin processing applications
sooner and the application process would be completed



         Page 7                                   96-CH-202-1008
Finding 1



                   quicker. As a result, the applicants screening and
                   certification process was lengthy.




Auditee Comments   Excerpts from the Executive Director's comments on our
                   draft findings follows. The complete text of his comments
                   is included in Appendix A.

                   The Authority agrees with this finding. The Authority is
                   currently utilizing increased contract labor for painting and
                   cleaning of vacant apartments to supplement in-house labor
                   and a contractor for turnkey unit preparation to increase the
                   output of units available for rental. HUD's approval of
                   disposition, demolition, and conversion of some apartments
                   will further reduce the number of apartments that must be
                   readied. The Authority believes this approach will allow
                   Vacancy Reduction Program goals to be met by the end of
                   the grant period.

                   The Authority will submit future revisions to the Vacancy
                   Reduction Plan when appropriate.

                   The Authority has improved applicant processing to less
                   than 30 days in most cases. Revised procedures for
                   improved communication between maintenance and
                   management staff now in effect will help ensure units are
                   rented without undue delay after they become available. In
                   addition, the Authority will continue to implement its
                   comprehensive marketing strategy in an effort to make sure
                   there is a sufficient pool of qualified applicants at all times
                   to whom newly renovated apartments can quickly be
                   rented.


Recommendations    We recommend that the Director of Public Housing, Illinois
                   State Office, assure that the Rock Island Housing Authority:

                   1A.    Ensures that the proposed contract labor and the
                          current level of vacancy reduction crew members
                          are sufficient to meet the goals of the program.



96-CH-202-1008              Page 8
                                                Finding 1



1B.   Submits future revisions immediately to HUD
      requesting approval for changes in the Vacancy
      Reduction Program grant agreement.

1C.   Leases units repaired under the Vacancy Reduction
      Program within a reasonable length of time.

1D.   Maintains ongoing coordination between the
      Maintenance and Housing Departments regarding
      the status of the units in its Vacancy Reduction
      Program.

1E.   Strengthens its procedures to ensure that applicants
      are approved for housing in a timely manner.

We also recommend that the Director of Public Housing,
Illinois State Office:

1F.   Coordinate with the Vacancy Reduction Specialist
      in Central Office to assure the Housing Authority's
      requested revisions to the Vacancy Reduction
      Program grant agreement are reviewed and acted
      upon in a timely manner.




        Page 9                                96-CH-202-1008
Finding 1




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96-CH-202-1008                   Page 10
                                                                                       Finding 2




      The Authority Did Not Prepare Units For
               Occupancy Timely

The Rock Island Housing Authority allowed units to remain vacant for extended periods of time.
The Authority did not prepare and lease its vacant units within 30 calendar days. The Authority
reported in its 1995 Public Housing Management Assessment Program certification that the
annual average turnaround time for vacant unit preparation was 159 days. HUD requires the
Authority to maintain an average turnaround time for vacant units of 30 calendar days, with a
goal of 10 days. The Authority did not adequately use its maintenance staff and lacked sufficient
staffing in its Occupancy Department to meet the 30 calendar days requirement. As a result, the
Authority did not maximize rental income and deprived low-income and elderly individuals of
housing.



                                     Handbook 7460.7 Rev-1, Field Office Monitoring of Public
 HUD Requirements
                                     Housing Agencies, paragraph 5-2(c) states that the
                                     Authority should complete vacant unit turnaround in an
                                     average of no more than 30 calendar days, but preferably
                                     not more than 10 days.

                                     The unit turnaround time is also used as an operations
                                     indicator under Handbook 7460.5, Public Housing
                                     Management Assessment Program. Paragraph 6-2 E 10(b)
                                     defines the turnaround time as including the time a unit is
                                     vacated until a new lease is in effect. Under the Assessment
                                     Program, unit turnaround is one of the seven performance
                                     indicators that public housing agencies must certify to
                                     HUD.

                                     The Rock Island Housing Authority allowed units to remain
 Excessive Time was
                                     vacant for more than 30 calendar days before the units were
 Taken to Prepare and
                                     prepared for occupancy and leased. The Authority certified
 Lease Vacant Units
                                     to HUD that for the fiscal year ended September 30, 1995,
                                     the average time used to prepare units for re-rental was 159
                                     days.

                                     We reviewed the vacant unit information for the Authority's
                                     five developments as of February 29, 1996. At that time,
                                     the Authority had 92 vacant units that were not part of the



                                             Page 11                                 96-CH-202-1008
Finding 2



                            Vacancy Reduction Program. Of the 92 vacant units, 88
                            (97 percent) were vacant an average of 321 days, ranging
                            from 35 to 1,531 days; and four had been vacant less than
                            30 calendar days. Of the 88 units vacant more than 30
                            calendar days, the Authority had completed the
                            maintenance work needed to prepare 12 units for
                            occupancy. The following table shows the number of days
                            it took to get its 12 vacant units ready for occupancy and
                            the total number of days the units were vacant:


                                                                     Days       Days
                                    Date        Date     Days to    Since     Vacant as
                             Uni   Vacated    Complete   Finish    Finished   of 2/29/96
                              t                  d

                              1     09-30-    12-08-94    434        448         882
                              2       93      09-14-95     83        168         251
                              3     06-23-    10-31-95     61        121         182
                              4       95      01-05-96    189         55         244
                              5     08-31-    02-28-96   1,387         1        1,388
                              6       95      02-02-96    422         27         449
                              7     06-30-    02-23-96   1,525         6        1,531
                              8       95      12-20-95    426         71         497
                              9     05-12-    12-29-95     67         62         129
                             10       92      02-28-96    116         21         137
                             11     12-07-    02-27-96    459          2         461
                             12       94      12-28-98    351         63         414
                                    12-20-
                                      91
                                    10-20-
                                      94
                                    10-23-
                                      95
                                    10-15-
                                      95
                                    11-25-
                                      94
                                    01-11-
                                      95


                            It took from 61 to 1,525 days to complete the maintenance
                            work on these 12 units. Although the 12 units were in
                            rentable condition, they remained vacant an additional one
                            to 448 days after the maintenance work was completed.
                            The remaining 76 units were not repaired and were vacant
 The Authority Took         an average of 285 days, ranging from 35 to 861 days.
 Excessive Time to
 Prepare Vacant Units For   The Authority did not prepare vacant units for turnaround
 Occupancy                  in a timely manner. We inspected 30 of the 76 unrepaired


96-CH-202-1008                      Page 12
                                                                                   Finding 2



units which were vacant for more than 30 calendar days, to determine the condition of the
units and the estimated time needed to prepare the units for occupancy. The Maintenance
Supervisor accompanied us on the inspections. The units were randomly selected from the
Authority's five developments. The 30 units inspected were vacant from 35 to 861 days.




                               The Maintenance Supervisor estimated the number of hours
                               needed to prepare the units for occupancy as follows:


                                       Estimated Number of Hours          Number
                                              to Complete                 of Units
                                      8 Hours or less                         4
                                      Between 9 and 40 Hours                 11
                                      60 Hours                                4
                                      80 Hours                                5
                                      Between 100 and 250 Hours               6

                               The Authority has 13 maintenance employees to prepare
                               vacant units that were not designated as part of the Vacancy
                               Reduction Program. However, the Authority did not use its
                               maintenance staff to their full capacity for preparing vacant
                               units.

                               The Assistant Director said the Authority has a maintenance
                               crew of four employees designated to perform unit
                               turnaround because it was the most efficient use of their
                               skill levels. The four employees are assigned to work
                               specifically on unit turnarounds. Five other maintenance
                               employees are responsible for work orders and assisting on
                               the unit turnarounds as their schedules allow. Three other
                               employees are responsible for cleaning out units. The
                               remaining employee is responsible for ground maintenance.
                               The Assistant Director said the maintenance crews only
                               prepare units that are expected to be occupied in the near
                               future. The Director of Housing informs her of the type and
                               quantity of units needed based on her estimate of approved
                               applicants from the applicant waiting list. However, as of
                               February 29, 1996, the Authority had 88 applicants for all
                               types of housing units. Because of delays in processing the



                                       Page 13                                    96-CH-202-1008
Finding 2



                           applications only a small number of applicants requiring
                           housing were approved by the Authority.

                           The Assistant Director acknowledged that many of the
                           vacant units only require minor work, but she said the
                           maintenance crew did not have the time to repair units that
                           the Director of Housing did not currently need for
                           occupancy. She said in the near future the Authority will
                           hire outside contractors to complete such work as painting
                           and tile replacement which will allow units to be prepared
                           for occupancy in a more timely manner.

                           The Authority did not lease its vacant units in a timely
 The Authority Took
                           manner. Once the Authority completed the maintenance
 Excessive Time to Lease
                           work on 12 units, the units remained vacant for an
 Vacant Units
                           excessive amount of time. As of February 29, 1996, the 12
                           units remained vacant, but ready for occupancy, from one
                           to 448 days. For example, Unit 3 was ready for occupancy
                           on October 31, 1995. As of February 29, 1996, the unit
                           was still vacant. Therefore, the unit has been vacant for 121
                           days since the Authority completed the maintenance work.
                           The Director of Housing said the delays in renting the
                           finished units resulted from delays in processing
                           applications for housing. The major delays are obtaining
                           police reports from the City of Rock Island and previous
                           landlord information.

                           According to the Authority's February 29, 1996 waiting list
                           the Authority had 88 applicants who could have filled all 12
                           units. However, the Director of Housing said the waiting
                           list did not represent approved housing applicants. It was
                           a listing of people who applied for housing and are still
                           being processed and pending approval. Therefore, the
                           waiting list could not be used to determine if any of the 88
                           applicants could have actually filled the 12 vacant units.

                           The HUD Occupancy Standards Handbook, 7465.1 Rev-2
                           requires a public housing agency to keep waiting lists
                           organized in a way that easily identifies each applicant's
                           priority and preferences and the date and time of the
                           application. The waiting lists also must be easily
                           reviewable by HUD.




96-CH-202-1008                     Page 14
                                                   Finding 2



The Authority's Housing Assistant is responsible for
handling the majority of the occupancy functions. The
Housing Assistant maintains an automated waiting list.
However, the list did not contain enough information for
selecting applicants. It did not show whether the applicant
was ready to be housed. An applicant is not ready to be
housed until the Authority receives and approves all
required information such as police reports, credit reports,
and income verifications. The waiting list also ranked
applicants by pre-application date instead of the date the
applicant became eligible.

The Housing Assistant is responsible for accepting
applications for housing, maintaining the applicant waiting
lists, screening applicants, notifying applicants of their
housing status, preparing occupancy reports, and office
receptionist duties. Most housing authority's have more
then one person performing these various duties.

Due to the Housing Assistant's workload the applicants
were required to setup an appointment one week after they
initially came to apply for housing. The Housing Assistant
said the process allowed her to schedule time to devote to
the applicant, instead of having them wait for her to finish
other duties before she could assist them. The Housing
Assistant said she processes the applications as quickly as
possible, but that is not her only responsibility. She also
had to prepare and disseminate official notices, prepare
occupancy and other reports, answer telephone calls, route
incoming mail, receive rent payments, and greet visitors to
the Authority. These other duties take up to 33 percent of
her time and prevent her from immediately processing
applications.      She said if she had less general
responsibilities, she could begin processing applications
sooner and the application process would be completed
quicker. As a result, the applicants screening and
certification process was lengthy.

After the required information is received from the
applicant, the information is forwarded to the Director of
Housing for review. The Director of Housing makes the
final decision to offer the applicant an unit. The Director of
Housing said the units remained vacant for long periods of
time because of various delays in processing the


        Page 15                                   96-CH-202-1008
Finding 2



                   applications for housing, such as obtaining police criminal
                   reports and previous landlord verifications. She said the
                   length of the approval process varies for each applicant.
                   Some people were unwilling to answer requests for
                   information and the Authority needed to follow up with
                   second and third requests for information. The Director of
                   the Housing Authority said that in the past, an applicant
                   could be on the waiting list as long as 90 days.




Auditee Comments   Excerpts from the Executive Director's comments on our
                   draft findings follows. The complete text of his comments
                   is included in Appendix A.

                   The Authority agrees with the finding. The Authority has
                   implemented a revised procedure which will reduce
                   combined maintenance and leasing turnaround time for
                   newly vacated units to the HUD standard of 30 days or less.
                   Also, an additional employee has been hired to assist with
                   processing of new applicants. The automated waiting list
                   has been enhanced so that each applicant's status is more
                   easily determined.

                   Management has determined the single most significant
                   delay is caused by the time it takes to obtain criminal
                   history checks from the State of Illinois. Alternative means
                   of obtaining criminal background information are being
                   utilized to reduce dependence on the State for this critically
                   important information.


Recommendations    We recommend that the Director of Public Housing, Illinois
                   State Office, assure that the Rock Island Housing Authority:

                   2A.    Establishes procedures and controls to ensure that
                          average unit turnaround time for vacant units is
                          brought within acceptable limits.



96-CH-202-1008             Page 16
                                                Finding 2



2B.   Redesigns and updates the automated waiting lists to
      provide sufficient information to identify an
      applicant's status easily.

2C.   Performs an analysis of the application, screening,
      and certification process to determine where delays
      occur and implements procedures to shorten the
      process including beginning the processing steps
      earlier in the cycle.




       Page 17                                96-CH-202-1008
Finding 3




 The Authority Did Not Adequately Safeguard
               Its Inventories

The Rock Island Housing Authority did not adequately safeguard its inventory of parts and
supplies. Specifically, the Authority did not: (1) maintain adequate inventory records of the parts
and supplies; and (2) ensure that warehouse stock was properly safeguarded. The Director of
Administration said the Authority did not have policies and procedures to control its warehouse
inventory system. As a result, HUD has no assurance the warehouse inventory was properly
accounted for or safeguarded against loss, misuse, theft, or waste.



                                      Section 309 of the Annual Contributions Contract requires
 Requirements and
                                      Housing Authorities to maintain complete and accurate
 Regulations
                                      books of accounts and records. Records must be kept of all
                                      personal property, including an annual inventory of
                                      equipment.

                                      HUD Handbook 7510.1, The Low Rent Accounting
                                      Handbook, Chapter 7, paragraph 5(g) requires local
                                      Authorities to inventory equipment and supplies annually
                                      and compare the inventory results with inventory records.
                                      Housing authority records must be adjusted for any
                                      differences.

                                      The Rock Island Housing Authority did not maintain
 Inventory Records Were
                                      adequate inventory records of the parts and supplies stored
 Not Properly Maintained
                                      at its warehouse. It did not maintain a perpetual
                                      computerized or manual inventory listing of its parts and
                                      supplies during the year. The Authority conducted an
                                      annual physical inventory count at year end, however, the
                                      physical count was not accurate. During the 1995 physical
                                      count, the Authority failed to account for an entire section
                                      of cleaning supplies. Because the Authority did not
                                      maintain perpetual or periodic inventory records, the error
                                      was not noticed. The supplies not accounted for was later
                                      estimated to be valued at $2,713, approximately 10 percent
                                      of the inventory at the warehouse.




96-CH-202-1008                                Page 18
                                                                             Finding 3



                           Additionally, the Authority improperly included several
                           used items such as toilets and lighting fixtures in the year
                           end inventory count. These items were priced out as new
                           items and included in the year end inventory total of new
                           items. The Inventory Manager said she was verbally
                           instructed to do this by Authority management. However,
                           Authority management could not explain why they gave
                           these instructions.

                           Since inventory records were not maintained, the Inventory
                           Manager physically examined the parts bins to determine if
                           certain parts were in stock or if adequate inventories were
                           maintained. The Inventory Manager said she had general
                           knowledge of the quantity of popular parts on hand at any
                           given time. However, if the actual quantity on hand of the
                           popular parts was different than she estimated, the
                           difference could not be explained. She had to physically
                           inspect the supplies that were used only occasionally as she
                           had little or no knowledge of what to estimate for quantities
                           on hand. If fire or theft occurred, the Authority could not
                           estimate with any certainty the value of the loss due to poor
                           inventory records.

                           The Authority did not properly safeguard its inventory. The
The Authority Lacked
                           inventory of parts and supplies maintained at the warehouse
Adequate Physical
                           were not safeguarded by any type of physical barrier such
Safeguards For Inventory
                           as a locked inventory cage. The inventory was kept in the
                           center of the warehouse which allowed all maintenance
                           personnel full access to the inventory. While there was a
                           verbal policy prohibiting maintenance personnel from
                           accessing the inventory, the Inventory Manager
                           acknowledged that maintenance personnel did have access
                           to the supplies and parts inventory in the warehouse.
                           According to the Inventory Manager, although theft of parts
                           and supplies was not common at the warehouse, it
                           occasionally occurred.

                           In a memo dated July 1994, from the Inventory Manager to
                           the Authority's Assistant Executive Director, the Inventory
                           Manager said maintenance employees were taking supplies
                           from the warehouse without her knowledge. Additionally,
                           the Inventory Manager could not readily determine which
                           supplies were taken, or the exact quantities missing,
                           because the Authority had inadequate inventory records.


                                   Page 19                                  96-CH-202-1008
Finding 3



                           This lack of control over the supplies resulted in adequate
                           quantities not being available when needed.

                           Also, during January 1995, leather work gloves were stolen
                           from a locked file cabinet in the Inventory Manager's office.
                           The Inventory Manager said if it was possible to break into
                           her locked cabinet, the unlocked inventory is also at risk.

                           Authority officials cited a short term lease as the reason
                           they did not invest funds to safeguard its inventory through
                           physical barriers. If the warehouse lease was not renewed,
                           the funds spent safeguarding the inventory could not be
                           recouped.

                           Many warehouse parts bins were not labeled with a part
                           number or description. If parts were placed in the wrong
                           bins, the Authority's employees would not notice the error
                           until the parts were counted or needed for a repair. Also,
                           parts were stored on the warehouse floor, putting the parts
                           at risk for loss or physical damage.

                           The Authority's five project sites maintain approximately a
                           two week supply of parts required for daily maintenance.
                           The five project sites stock items such as cleaning,
                           plumbing, and electrical supplies. The Inventory Manager
                           said the status of the sites is similar to the warehouse,
                           because inventory control systems and physical safeguards
                           are not properly maintained.

                           As a result of the Authority inadequately safeguarding its
                           inventory, we were unable to verify that supplies were
                           actually received and used only for the intended purposes.

                           The Authority's Director of Administration explained the
 The Authority's Lack of
                           lack of inventory controls as follows: (1) there were no
 Written Procedures or
                           written procedures controlling the warehouse inventory
 Policies Resulted in
                           system for parts and supplies; (2) the Authority did not have
 Inadequate Inventory
                           procedures for properly conducting a year end physical
 Controls
                           count, accounting for inventory, reconciling the physical
                           count with the book records, or maintaining records of
                           inventory on hand; (3) the Authority installed a new
                           computer system two years ago, however, the system does
                           not have software available to adequately control the
                           inventory; and (4) the Inventory Manager may lack the


96-CH-202-1008                     Page 20
                                                                     Finding 3



                   formal training to properly control the inventory. The
                   Inventory Manager had requested training in the past,
                   however, the Authority did not respond to the requests. The
                   Director of Administration said the Authority will pursue
                   training for the Inventory Manager in the near future.
                   Additionally, she said the Authority may hire an inventory
                   consultant to set up an adequate inventory control system.


                   The Authority recently established a written policy
                   restricting access to the warehouse inventory to four
                   individuals, the Inventory Manager, Maintenance
                   Supervisor, Assistant Director, and the Facilities Assistant.
                   The current policy carries penalties ranging from written
                   warnings to termination of employees who do not follow it.
                   Previously, a verbal policy existed which restricted access
                   to these individuals, however, the verbal policy was not
                   enforced.



Auditee Comments   Excerpts from the Executive Director's comments on our
                   draft findings follows. The complete text of his comments
                   is included in Appendix A.

                   The Rock Island Housing Authority agrees with the finding.
                   The Authority established a written procedure to restrict
                   access to the warehouse to only those employees with
                   immediate business to conduct. All visitors (including
                   employees) must log in and out of the building and have
                   supervisory-approved business to conduct. Additional
                   procedures are currently under review to restrict access to
                   the maintenance "shops" located at each development site.

                   Also, the Authority issued a request for proposal to obtain
                   a qualified consultant to develop and implement a
                   comprehensive inventory management system. The request
                   for proposal requires the consultant to develop formal
                   procedures, assess the current software's ability to meet the
                   inventory management need, and provide staff training to
                   allow for ongoing operation that is in compliance with
                   HUD requirements and sound management practices.




                           Page 21                                  96-CH-202-1008
Finding 3




Recommendations   We recommend that the Director of Public Housing, Illinois
                  State Office, assure that the Rock Island Housing Authority:

                  3A.    Establishes policies and procedures which outline
                         the proper steps required to control and account for
                         the inventory. The procedures should include
                         controlling the inventory through physical
                         safeguards or barriers such as a locked safety cage.
                         The policies and procedures should also ensure that
                         all parts are properly labeled with a part number and
                         description.

                  3B.    Provides training to its employees for properly
                         controlling warehouse inventory.




96-CH-202-1008            Page 22
                                        Finding 3




(THIS PAGE LEFT BLANK INTENTIONALLY)




                Page 23                96-CH-202-1008
Internal Controls
In planning and performing our audit, we considered the internal controls of the Rock Island
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 Internal
                                     relevant to our audit objectives:
 Controls
                                     •   Management philosophy and operating style.

                                     •   Oversight body.

                                     •   Methods of assigning authority.

                                     •   Management monitoring methods.

                                     •   Completeness of accounting systems.

                                     •   Segregation of duties.

                                     •   Safeguards over access to and use of assets and records.

                                     •   Independent verifications and reconciliations

                                     •   Policies and procedures.

                                     We assessed all the relevant controls identified above.

                                     It is a significant weakness if 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.




96-CH-202-1008                                Page 24
                                         Internal Controls



Based on our review, the following items are significant
weaknesses:

   •   Safeguards over access to and use of assets. The
       Authority did not adequately safeguard its inventory
       of parts and supplies (see Finding 3).

   •   Authority policies and procedures. The Authority is
       not meeting its established goals for the Vacancy
       Reduction Program (see Finding 1) and is not
       following its own verbal policies regarding
       occupancy (see Finding 2) and inventory (see
       Finding 3).




        Page 25                                96-CH-202-1008
Follow Up On Prior Audits
This is the first OIG audit of the Rock Island Housing Authority.

The Authority's last Single Audit Report was for the Fiscal Year ended September 30, 1994. The
report contained six findings, of which two were repeated from the prior year's audit report.
None of the findings are related to this audit.

                                                                                 Appendix B
Distribution


Secretary's Representative, Midwest
Director, Office of Public Housing, Illinois State Office (2)
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
 (Room 7106)
Comptroller/Audit Liaison Officer, PF (Room 4122) (3)
Acquisition Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10166)(2)
Deputy Chief Financial Officer for Operations, FO (Room 10166)(2)
Director, General Management Division, PMG, (Room 4216)
Associate General Counsel, Office of Assisted Housing and Community
 Development, GC (Room 8162)
Assistant Director in Charge, U.S. GAO, 820 1st NE, Union Plaza
 Bldg. 2, Suite 150, Washington, D.C. 20002




96-CH-202-1008                              Page 26