oversight

Issue Date
January 16, 1996
Audit Case Number
96-DE-207-1001

TO: Vernon Haragara, Administrator, Northern Plains Office of Native
  American Programs, 8API

FROM: W. D. Anderson, District Inspector General for Audit, 8AGA

SUBJECT: Omaha Tribal Housing Authority
      Management of Cash Assets
      Macy, Nebraska


We have completed a limited review of the Omaha Tribal Housing Authority,
located in Macy, Nebraska. The review was conducted as part of Operation
Safe Home. The objective of our review was to determine whether the
Authority had adequate controls over its cash assets.

We found the Housing Authority's controls over cash receipts need to be
strengthened. Between September 1, 1994 and August 22, 1995, bank
deposits of $7,568.93 were made into the Authority's bank account without
numbered receipts being issued. Further, $976.29 was receipted with
non-numbered receipts which could not be traced into the Authority's bank
account. Some Authority employees are conducting non-housing authority
business by collecting funds for a private loan business at the office of
the Authority during regular business hours. Additionally, the Authority
did not adhere to its disposition policies and the Annual Contributions
Contract by allowing a purchaser to take possession of two trucks prior
to receipt of payment.

Within 60 days, please furnish this office, for each recommendation
cited in the report, a status report on: (a) the corrective action
taken; (b) the proposed corrective action and the date to be
completed; or (c) why action is not considered necessary. Also, please
furnish us copies of any correspondence or directive issued because of
this review.

We appreciate the courtesies extended to us during our review by the
Northern Plains Office of Native American Programs and Housing Authority
officials and staff. Should you have any questions, please contact
Ernest Kite, Assistant District Inspector General for Audit, at (303)
672-5452.
Executive Summary

We have completed a limited review of the Omaha Tribal Housing Authority
to determine whether the Authority had adequate controls over its cash
assets. We reviewed the Authority's records for the period from
April 1, 1994 through August 21, 1995.

The Housing Authority's controls over cash receipts and disbursements
were inadequate. Between September 1, 1994 and August 22, 1995, bank
deposits of $7,568.93 were made into the Authority's bank account
without numbered receipts being issued. Further, $976.29 was
receipted with non-numbered receipts which could not be traced into
the Authority's bank account. Also, the Authority collects cash on
behalf of the Omaha Tribal Credit Program and a private loan service
business and does not issue receipts or deposit the funds into the
Authority's bank accounts. The use of Authority staff and facilities
to collect and administer collections for the private loan service
business owned by the Authority's Executive Director should be
discontinued.

Our review also found that the Authority did not adhere to its
disposition policies and the Annual Contributions Contract by allowing
a purchaser to take possession of two trucks prior to receipt
of payment.

Inadequate Cash Control and Procedures Followed

The Housing Authority's controls over its cash and related accounts
need to be strengthened. This need is illustrated by the fact that
between September 1, 1994 and August 22, 1995, bank deposits of
$7,568.93 were made into the Authority's bank account without numbered
receipts being issued. Further, $976.29 was receipted with non-numbered
receipts which could not be traced into the Authority's bank account.
Also, the Authority collects cash on behalf of the Omaha Tribal Credit
Program and a private loan service business and does not issue receipts or
deposit the funds into the Authority's bank accounts. In addition, we
found that deposits were not deposited timely.

Proper management of the Authority's assets is required by the Terms
and Conditions of the Annual Contributions Contract; Section 85.20,
Title 24 of the Code of Federal Regulations; and HUD Handbook 7510.1,
Low-Rent Housing Accounting Handbook. Without proper controls over
its cash, the Authority is hampered in ensuring that all its funds are
being properly handled, deposited and recorded. The use of Authority
staff and facilities to collect and administer collections for the
private loan business owned by the Authority's Executive Director is
contrary to the provisions of the Annual Contributions Contract and
should be discontinued.

Because of the problems that have occurred, the Authority has initiated
corrective action to improve its internal control over cash.

Disposition Policy Needs to be Followed

The Authority failed to adhere to its disposition policies and the
Annual Contributions Contract governing the disposal of two trucks.
During 1995, the Authority purchased new trucks for its use and elected
to dispose of the two older trucks. At the time of our review, the
purchaser had taken possession of the used trucks but payment had not
been received. Further, the trucks were not removed from the
Authority's insurance coverage and title had not transferred.


Corrective Action Has Been Initiated by Authority officials

At the time of our review, Authority officials had initiated some
corrective actions to implement better internal controls over its cash
receipts. The Authority also notified the insurance carrier
of the disposition of the trucks and collection of the payment was
initiated.

We Recommend

We are recommending the HUD Office of Native American Programs provide
technical assistance and guidance to the Authority in revising its
procedures for the receipt and deposit of cash collections, the
discontinuance of collecting and administering collections for the
private loan business and its adherence to its disposition policies.
Specific recommendations are provided with each finding.

Auditee Comments

The audit results were discussed with the Authority officials and
employees during the course of the review. The draft findings were
discussed at an exit conference with Authority officials on December
7, 1995. Overall, Authority officials agreed with the findings and related
recommendations. Based upon discussions with Authority officials, the
audit findings were modified where necessary. The Authority's written
response is included in Appendix A of this report. The Authority will
work with the Office of Native American Programs to successfully
implement the recommendations detailed with the findings.

Introduction

The Omaha Tribal Housing Authority was established December 3, 1962 for
the purpose of providing decent, safe and sanitary housing for families
of low income. The Tribal Council appoints the Housing Board to manage
the Housing Authority.

Currently, the Housing Authority has 205 low rent units and 114 new mutual
help units.

At the time of our review, the Authority's fee accountant was Kopsa,
Sylvester and Associates of York, Nebraska. Kopsa, Sylvester and
Associates processed the monthly accounting information and maintained
documents received from the Housing Authority at their office in
York, Nebraska. The Housing Authority also maintained accounting books
and records at its office in Macy, Nebraska.

Objective and Scope

The objective of the review was to determine whether the Authority had
adequate controls over its cash assets. To accomplish the audit
objective, we reviewed the Authority's procedures for the collection
and deposit of cash receipts, and related accounting records.

Our review covered the period from April 1, 1994 through August 21, 1995.

During the review, we examined accounting records and other documents at
the Housing Authority and HUD's Office of Native American Programs. We
also conducted interviews with employees of these organizations.

Because of the specific and limited scope of our review, full compliance
with Generally Accepted Government Auditing Standards was not made. Our
field work began on August 21, 1995, and was completed on September
15, 1995.


Finding 1

Cash Controls and Procedures Need to be Strengthened

The Housing Authority's controls over its cash and related accounts need
to be strengthened. This need is illustrated by the fact that the
Authority does not receipt all cash and checks received and randomly
uses non-numbered receipts for non-rent cash transactions. Between
September 1, 1994 and August 22, 1995, bank deposits of $7,568.93 were
made into the Authority's bank account without numbered receipts being
issued. Further, $976.29 was receipted with non-numbered receipts which
could not be traced into the Authority's bank account. The Authority,
also, collects payments on behalf of the Omaha Tribal Credit
Program and a private loan service business and does not issue receipts
or deposit the funds into the Authority's bank accounts. Instead, the
collected cash is hand carried to the Omaha Tribal Credit Program or
the private loan business for payment. As a result, accountability
over such cash collections for these two entities is seriously diminished.
In addition, we found that Authority deposits were not deposited timely.

Proper management of the Authority's assets is required by the Terms and
Conditions of the Annual Contributions Contract; Section 85.20, Title
24 of the Code of Federal Regulations; and HUD Handbook 7510.1, Low-Rent
Housing Accounting Handbook. Without proper controls over cash, the
Authority is hampered in ensuring that all funds are properly handled,
deposited and recorded. The use of Authority staff and facilities to
collect and administer collections for the private loan business owned
by the Authority's Executive Director is contrary to the provisions of
the Annual Contributions Contract and should be discontinued.

During the time of our review, the Authority has initiated corrective
action to improve its internal controls over its cash collections.

Proper Controls Over Cash are Required

Under the Terms and Conditions of the Consolidated Annual Contributions
Contract, the Housing Authority is to operate its housing programs in
an economic and efficient manner. Specifically, all monies received by
the Authority are to be deposited promptly into an account that is
insured by the Federal Deposit Insurance Corporation.

Section 85.20, Title 24 of the Code of Federal Regulations details
that financial administration standards for program assets are to be
put into place by the Authority. Accordingly, the Authority is to
maintain accurate, current and complete disclosure of its financial
activities. Accounting records that clearly identify the source and
use of program monies are to be kept. In addition, effective controls
and accountability must be established and maintained to adequately
safeguard program assets and assure that they are used solely
for authorized purposes. A basic component of any internal control
system is the separation of responsibility for handling and recording
assets.
Specific accounting requirements and procedures the Authority is to
follow are contained in various HUD Handbooks including Handbook
7510.1, Low-Rent Housing Accounting handbook.


Inadequate Cash Controls Were Followed

The Authority has established controls between collection and recording
of receipt of rental income, but it lacks controls over the collection
and recording of receipt of other non-rental income.

Our review showed serious deficiencies in the Authority's handling of
its other non-rental cash receipts. These include:

    - All cash receipts are not receipted,

    - Non-numbered receipts are used,

    - Collections of loan payments for non-housing authority entities
      are not receipted or deposited, and

    - Deposits were not deposited timely for both rental and other
      non-rental income.

These deficiencies can be clearly illustrated in the following sections.

All Cash is Not Receipted

The Authority did not receipt all non-rent cash transactions such
as reimbursements for personal telephone calls, travel advances and
other miscellaneous items. During the period from September 1, 1994 to
August 22, 1995, bank deposits of $7,568.93 were made into the
Authority's bank account without numbered receipts issued.

All cash or checks received by the Authority, regardless of the source
or purpose, should be recorded on a cash receipt ticket. This will
ensure that all cash receipts are properly deposited in the Authority's
bank accounts. Although we did not find any diversion of funds, the
lack of receipts leave the monies susceptible to theft. Furthermore,
the Authority has no assurance that all funds are properly accounted
for and deposited.

Non-numbered Receipts are Used

Periodically, miscellaneous receipts are issued for non-rent cash
transactions. The receipts are non-numbered generic forms similar
to the type available from any office supply store. The issuance of
the receipt is based on the discretion of the Authority's employees.
During the period September 1, 1994 through August 30, 1995, seventeen
non-numbered receipts were issued for $976.29. All of the receipts could
not be traced into the Authority's bank accounts.


Without numbered receipts, the Authority cannot identify whether or not
there are missing receipts. Accountability for the funds is weakened
and the Authority's accounting records do not correctly reflect all
transactions.

Collecting Funds On Behalf of Non-Housing Entities

The Authority collects payments for the Omaha Tribal Credit Program,
a program of the Omaha Tribe of Nebraska. The collections are done as
a favor for the Omaha Tribe. In return, the Omaha Tribe will collect
Authority rent payments. The Authority benefits by receiving rent
payments that it might not otherwise receive.

According to Authority personnel, monies that are collected for the
Omaha Tribal Credit Program are not receipted but placed in an envelope
and then hand carried to the Tribal Office for payment. Under this
procedure, the Authority has no record of the monies actually collected
and/or delivered to the Tribe. Controls and accountability of such
collections are seriously lacking.

Procedures are needed whereby all collections for the Tribal Credit
Program are receipted with pre-numbered receipts and the monies
deposited timely and intact into the Authority's general depositary.
Then the Authority should issue a check to the Tribal Credit Program
for the monies the Authority has collected. Accordingly, the appropriate
accounting records should be established and maintained for the Tribal
Credit Program collections. This will provide the Authority with the
needed proper control and accountability.

Also, some Authority personnel are conducting non-housing business
transactions during regular business hours at the Authority's office.
Authority personnel collect funds from Housing Authority tenants that
have borrowed funds from the loan service business owned by
the Executive Director. The use of Authority staff and facilities to
carryout activities for a private enterprise is contrary to the
provisions of the Annual Contributions Contract.
The Executive Director stated that he provides loans to various individuals
on a personal basis. These individuals, as a matter of convenience,
make loan payments at the Authority office. Authority tenants make
their private loan payments at the same time they pay their
Authority rent. The related loan collections are kept separate from
the official Authority receipts and related records. In cases where
private loans have been made to Authority staff, payroll deductions had
been instituted to make the loan payments.

Authority staff stated that receipts are not issued for the collections
that are received for the private loan business of the Executive
Director. The weaknesses of internal controls and accountability of
these funds are the same as for the collections made for the Tribal Credit
Program.

The Authority should limit its activities to only Authority business
and business that benefits the Authority to avoid any suggestion of
an impropriety. Although the employees indicated that the collections
of private business loan payments are secondary to collection of rents,
the implication that the loan collections may take priority exists.
One cannot determine the thought process of the payee in determining
the priority of rent over loan payments. Both tenants and outside
parties may view the loan collections as a conflict of interest.

The appearance of a conflict of interest is as detrimental as the
actual occurrence of a conflict. Therefore, only Authority related
business should be allowed to occur at the Authority by its employees.
The collections for the private business enterprise, in our opinion,
should be discontinued.

Delayed Deposits of Funds

The Authority has failed to deposit their money on a timely basis. For
thirty-six low rent deposits made during the audit period, the funds
were held for five to twenty-three days before a deposit was made.
Such practice exposes the monies to increased risk of misuse and theft.

Cash and checks are not kept overnight at the Authority's office because
of the lack of a safe. Instead, Authority monies are taken and stored
overnight at the bank for safekeeping and then picked up by an
Authority employee the following day. With this process in place,
the Authority could easily deposit its daily cash collections when
the Authority staff take its funds to the bank each day for safe keeping.

Corrective Action Has Been Initiated
During the time of our review, Authority officials agreed that corrective
action was necessary to implement better controls over receipts.
However, more action is necessary. HUD will need to provide guidance
and any necessary assistance to the Authority in establishing the
needed internal controls.

Auditee Comments

Authority officials generally concurred with our findings and
recommendations. Their written response which is Appendix A states
that numbered receipts are being used for rent and non-rent transactions.
All receipts are currently being controlled and accounted for and
deposited on a timely basis. The Authority also provided additional
information as a Response to Audit Findings regarding the un-numbered
receipts and lawn mower receipts. The Authority has elected to discontinue
collections for both the private business enterprise and the Tribal
Credit Program.

OIG Evaluation of Auditee Comments

The actions initiated by the Authority are responsive to the findings
and recommendations. The information provided by the Authority with
the Response to Audit Findings regarding the $976.29 which was received
and receipted with non-numbered receipts was not verified by the Office
of Inspectors General. The information was forwarded to the Office of
Native American Programs for its perusal and closing of Recommendation 1C.


Recommendations

We recommend that the Northern Plains Office of Native American Programs:

1A     Provide the necessary guidance and assistance to the Authority in
     establishing the necessary controls over its cash receipts.

1B     Require the Authority to implement the necessary changes to its
     operating procedures to ensure that the Authority has proper
     internal controls over its cash receipts. These changes would
     ensure that:

     - Numbered receipts are issued for all rent and non-rent
       transactions, including collections for Omaha Tribal
       Credit Program.

     - All receipts are deposited timely and intact.
     - All receipt tickets are controlled and accounted for on a
       timely basis.

1C     Require the Authority to provide evidence that the $976.29 which
     was received and receipted with non-numbered receipts were properly
     recorded on the Authority's official books of account.

1D     Require the Authority to discontinue any participation in
     collection of funds for the private business owned by the
     Executive Director.

1E    Provide assistance and guidance to the Authority in identifying
     and avoiding conflicts of interest.

1F    Review and ascertain that, after recommendation 1B has been
     implemented by the Authority, proper controls are being followed
     by the Authority over its cash receipts.


Finding 2

Improper Disposition of Authority Vehicles

The Authority did not follow the provisions of the Annual Contributions
Contract, the Authority's adopted Disposition Policy, and the terms of
the sales notice in the 1995 sale of two Authority maintenance vehicles.
While the sale was to be a cash sale, the Authority transferred possession
of the two trucks to the successful bidder without receiving the $500 cash
bid.

This sale which was made to the son of an Authority employee directly
involved in the disposition process was not properly documented. This
included the failure to document when the bids were received, provide a
tabulation of the bids or the issuance of a bill of sale. While
possession of the two trucks had been transferred to the successful
bidder, the Authority was still continuing to insure them under the
Authority's insurance policies. At the completion of our site visit,
Authority officials stated they had initiated collection of the monies
from the successful bidder and cancelled the Authority's insurance
coverage of the two vehicles.


Disposition Policy Needs to Be Followed

Under the Terms and Conditions of the Annual Contributions Contract,
all personal property shall become a part of a project and is subject
to the Annual Contributions Contract.

The Authority's Disposition Policy, adopted by Resolution 72-4, requires
the Executive Director, for sales from $100 to $1,000, to solicit
informal bids from all known prospective purchasers, and to prepare a
tabulation of all such bids received which is to be retained as part of
the Authority's permanent record. The sale is to be documented by an
appropriate bill of sale. Additionally, the funds shall be used to
offset the cost of the equipment replacing the sold property.


Payment of Trucks Was Not Received

During the summer, 1995, the Authority disposed of two of its maintenance
vehicles. The Authority posted a request for sealed bids for two Ford
trucks requiring the bids be submitted to the Omaha Tribal Housing
Office by June 21, 1995. The posted request stated that all bids
were cash only.

The Authority received three bids. These were from two employees not
involved in the disposition process and from the son of an employee
directly involved in the disposition process. The highest bid of $250
per truck came from the son of the employee involved in the bidding
process. The high bidder took possession of the trucks without making
the required cash payment. At the time of our site review, the Authority
had not received payment for the two trucks.

The Executive Director stated that he was under the impression that the
payment for the trucks would be deducted from funds owed to the bidder
for construction work done by the bidder for the Authority. However,
this arrangement, which was contrary to the provisions of the sale
notice that the sale was for cash only, was not made.



Truck Sale Lacked Sufficient Documentation

Contrary to the Authority's adopted Disposition Policy, the bids were
not tabulated or maintained in a permanent record. In addition, the
Authority failed to comply with the terms of its published disposal
notice by not receiving the $500 cash payment before possession of the
trucks was given to the successful bidder.

The Authority files did not contain any evidence that the appropriate
bill of sale was executed for the sale of the two trucks. Furthermore,
the Authority, at the time of our review, still retained the title to
both vehicles. Obviously, the Authority should not issue a bill of sale
or transfer the title to the successful bidder until full payment has
been received by the Authority.


Sold Trucks Still Insured by The Authority

At the time of review, the Authority was still continuing to insure
the trucks under the Authority's insurance policies even though the
bidder had taken possession of the two trucks. Assets not owned by
the Authority should not be insured by the Authority. This is an
inappropriate use of Authority funds.

Authority Has Started Corrective Action

During our review, the Authority notified the insurance carrier that
the trucks were sold and collection of the $500 was initiated.

Auditee Comments

Authority officials stated during the exit conference that the payment
for the trucks had been received and the insurance was cancelled.


Recommendations

We recommend that the Northern Plains Office of Native American Programs:

2A    Require the Authority to submit documentation to show that the
     Authority has

  - collected and deposited the $500 from the successful bidder;

  - Removed the two trucks from the Authority's insurance policies; and

  - issued the necessary bill of sale and transferred the titles to the
    vehicles.

2B     Review the appropriate documentation from the Authority to show the
     corrective actions taken by the Authority in implementing
     recommendation 2A above.

2C    Provide the Authority with the necessary training and technical
    assistance in implementing adequate procedures to insure the
    proper disposition of its assets in the future in conformity with
    HUD requirements and the policy established by the Housing Authority
    Board.


Internal Controls

Our review of the internal controls of the Housing Authority was limited
to controls over the Authority's cash assets.

Internal controls are management's adopted plan, methods and procedures
to assure resources are used consistent with the laws, regulations and
policies; that the resources are safeguarded against waste, loss and
misuse; and that reliable data are obtained, maintained and fairly
disclosed in the reports.

Internal Controls Assessed

Controls to safeguard and assure reliable accounting of the Authority's
cash assets were relevant to our objective and were assessed during our
review. Based upon our assessment of the controls, we determined that
there were significant weaknesses that needed to be addressed.

A significant weakness exists if internal controls do not give reasonable
assurance that resources are used consistent with laws, regulations and
policies; that resources are safeguarded against waste, loss and misuse;
and that reliable data is obtained, maintained and fairly disclosed in the
financial statements and reports.

Assessment Procedures

The following audit procedures were used to evaluate internal controls:

  - Interviews with Housing Authority officials and employees, and
    review of files maintained at the Housing Authority;

  - Tests and evaluation of the Authority's procedures in place for
    collecting and depositing cash receipts and handling general fund
    investments; and

  - Review of the accounting records maintained by the Housing Authority
    relating to the collection and deposit of cash receipts and managing
    general fund investments.
Significant Weaknesses

Our review identified the following internal control weaknesses:

  - Receipts were not issued for all cash and checks received by the
    Authority;

  - Un-numbered receipts were used;

  - The cash receipts were not deposited timely;

  - Authority employees involved in non-authority business transactions;
    and

  - Disposition of assets were contrary to established procedures.


Follow Up On Prior Audits

This is the first Office of Inspector General audit of the Omaha Tribal
Housing Authority located in Macy, Nebraska.
.