oversight

HA of the City of Las Vegas, Las Vegas, NV

Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-02-23.

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

                                                                       Issue Date

                                                                            February 23, 1996
                                                                      Audit Case Number

                                                                            96-SF-204-1003




TO:            Kevin Marchman, Acting Assistant Secretary for Public and Indian Housing, P

               John A. Knubel, Chief Financial Officer, F


FROM:          Gary E. Albright, District Inspector General for Audit, 9AGA

SUBJECT:       Housing Authority of the City of Las Vegas
               Low-Rent Housing Program
               Las Vegas, Nevada

We have completed an audit of the Housing Authority of the City of Las Vegas (Authority). We
audited the Authority's low-rent housing program, and our report contains seven findings.

This report recommends actions necessary to improve the Authority's current operations. But it
also raises questions about past operations - and the integrity of the audit resolution process. This
report includes deficiencies we have addressed to HUD management for more than seven years.
In 1989, we reported material deficiencies in Authority operations - including the need for the
Authority to repay $6 million to HUD or its own low-rent program (Report No. 89-SF-209-1004).
In 1992 we performed a corrective action verification and found that these deficiencies remained
(Report No. 93-SF-209-1801). In 1996, many of the same deficiencies remain - including the
$6 million debt.

To underscore the critical need for corrective action, we addressed the report to you - the
Department's highest level action officials for both public housing and audit resolution. Although
recent changes in Authority management and action indicate a willingness to improve operations,
your attention is essential to achieve that improvement.

On February 8, 1996, we met with the Authority's Executive Director and the Pacific/Hawaii
Director of Public Housing. In that meeting, the Authority identified current efforts to improve
operations and discussed its workout plan that provides for repayment of more than $7 million
(including the overdue $6 million) debt within two years.

Within 60 days please furnish us, for each recommendation in the report, a status on: (1) the
corrective action taken: (2) the proposed corrective action and the date to be completed: or (3)
why action is considered unnecessary. Also, please furnish us copies of any correspondence or
directives issued because of the audit.
Management Memorandum



To ensure timely action on this report, we will adhere to the Departmental requirement for a
management decision within 120 days after report issuance. If a decision is not reached by then,
we will refer the report to the Deputy Secretary.

We provided copies of this report to the Auditee.

If you have any questions, please call me or Glenn Warner, Assistant District Inspector General
for Audit at (415) 436-8101.




96-SF-204-1003                               Page ii
Executive Summary
We completed an audit of the Housing Authority of the City of Las Vegas's (Authority) low-rent
housing program. The engagement began as a limited review to follow-up on areas identified
during a site visit we made while assisting Pacific/Hawaii's Office of Public Housing in their
review. Initially, we concentrated on three areas because of outstanding audit recommendations
with large amounts owed to HUD, and because of questionable business practices that needed
to be addressed. As the review progressed, we expanded the areas to include all of the following:

       Long overdue obligations from its non-federal program to HUD and its low-rent program

       Condemned and vacated Section 8 project - Madison Terrace

       PILOT funds diverted from the low-rent program to support non-federal programs

       Improper use of the Risk Management Trust Fund (RMTF)

       Abusive travel practices

       Interest-free loans to staff members

       Inappropriate payments to a former executive director

As a result of our review of these areas, we concluded that substantial improvements are needed
to ensure efficient, effective and economic program operations.




                                     As disclosed during past audits, the Authority used funds
 The Authority needs to
                                     from its federally-assisted low-rent program to support its
 liquidate some of its non-
                                     non-aided housing programs-and more than seven years
 aided and other assets to
                                     later still has not repaid $6.3 million owed. As a result,
 pay its overdue debts
                                     HUD and the Authority's low-rent program have not
                                     received the funds to which they are entitled. This occurred
                                     because the Authority had not submitted a viable and
                                     acceptable repayment plan. In our opinion it is time for the
                                     Authority to liquidate and/or encumber a sufficient amount
                                     of its non-aided and other assets to fulfill its obligations.
                                     However, any disposal of those assets must be approved by
                                     HUD. During this review we noted instances where the
                                     planned disposition of such assets may not have provided
                                     the Authority with the greatest proceeds with which to pay
                                     its debts.



                                              Page iii                                96-SF-204-1003
Executive Summary



                              The Authority did not appeal the City of Las Vegas' Notice
 The Authority
                              and Order to Make Repairs/Vacate Madison Terrace even
 unnecessarily allowed
                              though that Order was inaccurate, not in accordance with
 Madison Terrace units to
                              the Uniform Housing Code, and many issues were not
 be vacated
                              supported. The Authority did not appeal because it placed
                              an unwarranted and unquestioned reliance on the City's
                              Department of Building & Safety to objectively assess and
                              report on conditions at Madison Terrace. As a result more
                              than $165,000 was spent, including amounts for ineligible
                              items, to relocate all Madison Terrace residents. In
                              addition, applicants on waiting lists were not housed,
                              available affordable housing units at Madison Terrace have
                              been boarded up for more than a year, and the Authority
                              has lost more than $670,000 annually in Section 8 Housing
                              Assistance Payments (HAP) since March 1994. Also, the
                              operating reserves are being drained by monthly mortgage
                              payments of more than $10,000 for a property that is not
                              being used.

                              The Authority modified the terms of its Cooperation
 The Authority diverted
                              Agreement with the City of Las Vegas without obtaining
 funds from its federally-
                              the required HUD approval. The new agreement allowed
 funded low-rent program
                              a majority of funds that the Authority paid to the City for
 to support its non-federal
                              Payment-in-Lieu-of-Taxes (PILOT) to be returned to the
 program
                              Authority to be used for the Authority's non-federal
                              programs. As a result, funds that had previously been
                              available for the Authority's federally funded low rent
                              program will now be used to support the Authority's non-
                              federal housing programs. This occurred because the
                              Authority intentionally devised a scheme to circumvent
                              HUD requirements. HUD approval is required for
                              modifications or amendments to Cooperation Agreements
                              but it was not sought. The Authority expects to receive
                              $760,000 in returned PILOT over a five year period and
                              plans to use more than $500,000 of that amount for its non-
                              federal program.




96-SF-204-1003                        Page iv
                                                                 Executive Summary



                           The Authority not only improperly used monies from its
The Authority's non-
                           Risk Management Trust Fund (RMTF) to pay debts owed
federal program owes the
                           by its non-federal program but also has been unable to
RMTF more than
                           accurately determine the amounts misspent. The debts were
$900,000
                           mostly for legal fees and costs of settling a lawsuit that
                           resulted from past improper activities. As of September 30,
                           1994 the Authority's unaudited books showed a balance of
                           $920,535 owed to the RMTF by its non-federal program;
                           however, the Authority could not demonstrate that the
                           balance shown represented the actual amount owed. We
                           attribute the problems to a disregard for HUD requirements.
                           The misuse of these funds deprived the Authority's
                           federally-assisted housing program of nearly $1 million that
                           could have been used to benefit low-rent housing tenants.

                           The Authority's controls over travel expenditures were not
The Authority's travel
                           consistent with good business practices and HUD
practices were abusive
                           requirements. The Authority did not reconcile travel
and costly
                           advances to actual travel expenses; therefore, it did not
                           know how much had been spent for that travel. When out-
                           of-town on official travel, employees claimed and were
                           reimbursed for costs that were personal in nature and not
                           necessary to accomplish the Authority's business. Also, an
                           Authority executive often charged in-town lunches to the
                           Authority. Charges for those lunches in Las Vegas
                           included costs incurred for the executive director, other
                           Authority employees, individual commissioners, and
                           persons seeking to do business with the Authority. Further,
                           employees routinely charged expenses to Authority credit
                           cards, and the bills were paid without supporting
                           documentation or evidence that the charges were legitimate.
                           We are particularly concerned about the lack of controls
                           since travel and training expenditures have exceeded
                           $125,000 a year for each of the past two fiscal years. The
                           abuse occurred because the Authority did not have a travel
                           policy that was comparable to local public practice and
                           Annual Contributions Contract requirements. In addition,
                           even though the policy itself allowed excessive costs, the
                           limits shown therein were not enforced.




                                   Page v                                  96-SF-204-1003
Executive Summary



                            Contrary to HUD requirements, the Authority used low-rent
 The Authority used low-
                            housing funds to make interest-free loans of at least
 rent funds to make
                            $130,585 to employees. We attribute these ineligible
 interest-free loans to
                            expenditures to a desire to assist employees but the practice
 employees
                            exhibited faulty judgement. Funds used in such a manner
                            are not available for the day-to-day operations of the
                            Authority's low-rent housing program.

                            Contrary to HUD requirements and its own personnel
 The Authority
                            policies the Authority paid $21,302 to a former executive
 inappropriately provided
                            director for termination pay ($18,259) and unused sick
 $21,302 to a former
                            leave ($3,043). As a result, those funds were not available
 executive director
                            for necessary and appropriate low-rent housing
                            expenditures. Further, since it was not consistent with the
                            Authority's written personnel policies it clearly
                            demonstrates inequitable treatment of its employees. We
                            attribute this improper use of the Authority's low-rent
                            housing funds to a disregard for published requirements.




Auditee Comments            We reviewed and considered the Authority's written
                            comments to the draft findings. Those written comments
                            are displayed in Appendix A. We also discussed the audit's
                            conclusions with Authority management officials at a
                            December 5, 1995 exit conference. Authority officials
                            expressed general concurrence with the audit's conclusions
                            except for the finding on diverted PILOT funds (Finding 3)
                            and the finding on the termination pay to a former executive
                            director (Finding 7). The Officials also took exception to
                            some of the findings' conclusions and/or recommendations.
                            The Authority's comments and our evaluation are
                            summarized in each finding.




96-SF-204-1003                      Page vi
                                                              Executive Summary




Recommendations         We are recommending that the Assistant Secretary for
                        Public and Indian Housing direct the Pacific/Hawaii
                        Director, Office of Public Housing to require the Authority
                        to:

                           Place liens on non-aided and other non-federal
                           properties to ensure recovery of the $7.2 million owed;

                           Repair or replace the major deferred maintenance items
                           at its condemned Madison Terrace project if it is not
                           sold in the near future;

                           Return all refunded PILOT funds to its federally-
                           supported low-rent program;

                           Ensure that any funds used as matching funds for the
                           HOME program are from non-federal sources as
                           required by 24 CFR 92.220;

                           Provide evidence that the amounts owed the Risk
                           Management Trust Fund have been paid before
                           approving dissolution of the Fund;

                           Change its travel policy and practices to comply with
                           HUD requirements;

                           Ensure that amounts owed as a result of interest-free
                           loans to employees are all collected; and

                           Return to the low-rent program any improper
                           termination costs that were paid by the low-rent
                           program.




Field Office Comments   HUD field office comments are included in Appendix B.
                        Pacific/Hawaii field office officials expressed general
                        concurrence with the audit's conclusions except for two
                        areas. The Pacific/Hawaii Director, Office of Public
                        Housing (Director) did not believe that the Authority could
                        be required to place liens on its non-aided or other
                        properties and stated that HUD could not require the



                                Page vii                                96-SF-204-1003
Executive Summary



                        Authority to obtain HUD approval prior to disposing of its
                        non-aided and other assets. The field office also said that
                        it had obtained legal advice that said HUD could not require
                        the return of PILOT funds since the City had provided the
                        necessary services pursuant to the Cooperation Agreement.

                        The Director also said that we needed to clarify the amounts
                        owed the RMTF, and requested that we provide comments
                        on an analysis that the Authority attached to its May 26,
                        1995 response to the draft finding. The Director also said
                        that we should not cite the Handbook as criteria for
                        comparability of travel costs since it had been discontinued,
                        and that we should not recommend that the Authority
                        review travel expenses as far back as 1992.




OIG Evaluation of       As discussed in the management memorandum and Finding
Field Office Comments   1, the Authority has proposed a workout plan that appears
                        to be viable. At the request of the Pacific/Hawaii Director,
                        Office of Public Housing, we met with her and the
                        Authority's Executive Director and members of his staff to
                        discuss details of the plan. The Authority agreed to place
                        liens on the properties and obtain HUD approval before
                        selling them. We referred the PILOT issue (Finding 3) to
                        the Inspector General's Counsel who stated that the finding
                        was valid. The IG's Counsel cited Part 85 of Title 24 of the
                        Code of Federal Regulations and OMB Circular A-87
                        which state that costs must be necessary and reasonable and
                        be the net of all applicable credits. Accordingly, we are
                        leaving the finding in the report.

                        We do not plan to review the Authority's analysis of the
                        RMTF because it was not provided to us while we were on
                        site. However, it was sent to the Director's staff in February
                        1995 for their review, and we believe there has been
                        sufficient time for that review to have been completed. The
                        Handbook pertaining to the comparability of travel was in
                        effect during our audit period so it was the valid criteria. In
                        addition OMB A-87 requires that all costs be reasonable
                        and necessary.




96-SF-204-1003                  Page viii
Introduction

BACKGROUND     The Housing Authority of the City of Las Vegas (Authority)
               was established pursuant to the laws of the State of Nevada
               to administer various low-income housing programs
               provided through the United States Housing Act of 1937, as
               amended, and local efforts. The Authority is governed
               through a five member Board of Commissioners, each with
               limited terms, appointed by the Mayor of the City of Las
               Vegas. The Commissioners establish policies and appoint
               an Executive Director who is responsible for policy
               implementation.

               The Authority operates both federally-assisted and non-
               federally assisted programs through the same Board of
               Commissioners and staff.

               During the audit period, the Authority was administering
               4,789 low-income and other housing units as follows:


                TYPE                                   NUMBER
                Conventional low-rent                  2,670*
                Section 8 Existing                      796
                Section 8 Voucher                       370
                Section 8 Mod Rehab                     221
                Madison Terrace                         100*
                Rayson Manor                             57*
                Managed                                 115*
                Non-Federally Assisted and owned        460*
                TOTAL                                  4,789

               * A total of 775 of the units in these projects were out of
                 service according to the Authority's Vacancy Report for
                 October 1995.




                       Page 1                                   96-SF-204-1003
Introduction



                    The Authority received a significant amount of HUD
                    subsidy for its 2,670 low rent units during the past three
                    years:

                                                                               PERCENT
                        FISCAL      OPERATING       HUD          TOTAL         HUD
                        YEAR        REVENUE         SUBSIDY      REVENUES      SUBSIDY

                        1992**      $2,408,597      $5,123,680   $ 7,532,277   68%

                        1993            2,856,032   8,318,553    11,174,585    74%

                        1994            2,429,019   9,460,374    11,889,393    80%




                    ** This was for only a 9 month period due to a change in
                       fiscal year reporting

AUDIT OBJECTIVES,   The original purpose of our review was to follow-up on
SCOPE AND           three areas identified during a site visit we made while
METHODOLOGY         assisting Pacific/Hawaii's Office of Public Housing. As the
                    review progressed and the complexity of the issues became
                    evident, we determined that an audit was necessary and
                    expanded it to include the seven areas identified within this
                    report.

                    The audit generally covered the period October 1, 1992
                    through September 30, 1994; however, we extended the
                    review to other periods as appropriate.

                    Audit procedures and methodologies for the audit included,
                    but were not limited to:

                       Examining financial records and supporting documents;

                       Examining public records from City Hall;

                       Interviews with Authority staff and vendors;

                       Reviewing prior OIG reviews and IPA audit reports;
                       and

                       Reviewing minutes of the Board of Commissioners
                       meetings.

                    The audit was conducted in accordance with generally
                    accepted government auditing standards.


96-SF-204-1003                 Page 2
                                                                                       Finding 1



    The Authority Needs To Obtain HUD
  Approval And Liquidate/Encumber Some Of
       Its Non-Aided And Other Assets
As disclosed during past audits the Authority used funds from its federally-assisted low-
rent program to support its non-aided housing programs and more than seven years later
still has not repaid $6.3 million owed. As a result, HUD and the Authority's low-rent
program have not received the funds to which they are entitled. This occurred because the
Authority had not submitted a viable and acceptable repayment plan. In our opinion it is
time for the Authority to liquidate and/or encumber a sufficient amount of its non-aided
and other assets to fulfill its obligations. However, any disposal of those assets must be
approved by HUD because during this review we noted instances where the planned
disposition of such assets may not have provided the Authority with the greatest proceeds
with which to pay its debts.



                                  Section 201 of the Annual Contribution Contract requires
                                  the Authority to conduct its operation in a manner which
                                  promotes serviceability, efficiency, economy and stability,
                                  and achieves the economic and social well-being and
                                  advancement of its low-rent program tenants.

                                  Paragraph 5-4 b.(3)(c) of HUD Handbook 2000.6, Audits
                                  Management System, establishes that the action official's
                                  decision to disallow costs should be accompanied by a
                                  specific plan for recovering the costs. The repayment plan
                                  should include the method (i.e., repayment, accounting
                                  adjustment, net offset, etc.) and either a realistic target date
                                  for a single recovery amount or an installment recovery
                                  schedule.

                                  The Authority used $6.3 million of federally-assisted low-
 The Authority's
                                  rent program funds for non-federal purposes as identified in
 repayment is long
                                  a January 1989 Office of Inspector General (OIG) audit
 overdue
                                  (Report No. 89-SF-209-1004) and those funds plus another
                                  $900,000 relating to the same time period (see Finding 4 in
                                  this report) are still owed. Since the original audit report
                                  was issued the Authority has submitted several proposals
                                  for satisfying its debt; however, they were not acceptable to
                                  HUD. In our opinion, most were not reasonable and did not



                                           Page 3                                     96-SF-204-1003
Finding 1


                            accurately reflect the Authority's capacity to pay. As
                            reported in our October 27, 1992 Corrective Action
                            Verification (CAV) Report, information provided to HUD
                            by the Authority proved to be misleading and in some cases
                            false.

                            Despite the more than $7 million owed by its non-aided
 The Authority took
                            program, the Authority continued to pursue arrangements
 questionable disposition
                            and questionable deals for its non-aided and other assets
 actions
                            while making no payments to reduce its debts to HUD or its
                            own low-rent program. In our opinion, these actions were
                            due to the Authority's disregard for HUD requirements and
                            its poor judgement in handling public funds. It signed a
                            joint venture agreement with a non-profit entity in January
                            1994 to use vacant Rayson Manor land, and also negotiated
                            with a developer to sell approximately eight acres of vacant
                            land known as the Torrey Pines parcel. Based on
                            information obtained during our review we are concerned
                            that the Authority would not receive the most that it could
                            from the disposition of those properties. It is a concern to
                            HUD and to the Authority's low-rent tenants if non-aided
                            and other assets are disposed of at less than the best price.
                            Unless the Authority receives the greatest proceeds for its
                            non-aided and other assets, there is no assurance that either
                            HUD or the Authority's low-rent program would receive the
                            entire amounts due.

                            Vacant Land - Rayson Manor

                            The Authority negotiated a joint venture agreement
                            (Agreement) to use approximately eight acres of vacant
                            land that was not part of the Authority's low-rent program
                            to build a project with Southern Nevada Housing
                            Corporation (SNHC), a non-profit entity run by a for-profit
                            developer. Most, if not all, of the negotiations took place
                            between the President of SNHC and the Authority's
                            Executive Director.           The Authority's Board of
                            Commissioners (Board) approved the Agreement on
                            January 19, 1994, and it was signed by the Authority's
                            Executive Director and the President of SNHC on the same
                            day. The Authority's Executive Director and the President
                            of SNHC later signed an addendum to the Agreement on
                            Friday March 11, 1994. Three days later, on Monday
                            March 14, 1994, the Authority's Executive Director
                            tendered a letter of resignation. He resigned effective April


96-SF-204-1003                       Page 4
                                                   Finding 1


29, 1994 and subsequently became the Executive Director
of SNHC.

The addendum significantly changed the ownership terms
of the Agreement and granted 50% ownership to the SNHC;
however, it was never approved by the Authority's Board.
Prior to the March 11, 1994 addendum the ownership
interest was to be in proportion to the value of the equity or
land contributed by each of the partners. We questioned the
Authority and reviewed both the Agreement and claims that
had been made by SNHC at the Board meeting on January
19, 1994 to determine what SNHC contributed that was
worth a 50% ownership. According to a September 16,
1994 response to our question SNHC's President wrote ..."it
was anticipated (emphasis added) that SNHC, through its
own efforts, would be raising $1 million in equity to
contribute to the project ...." SNHC, however, did not raise
the $1 million as it had claimed it would at the January 19,
1994 Board meeting when it was seeking approval of the
Agreement. SNHC had planned to raise monies by
applying for grants and appeared to have no intention of
using its identity-of-interest developer funds, or any of its
own funds to assist in financing the project. Further, as
stated in the September 16, 1994 letter ... "SNHC had no
assets." Since no funds were going to be provided by
SNHC the proposed project would be financed through the
sale of Low-income Housing Tax Credits, obtaining
mortgages, and equity contributed by the Authority. The
Authority was to contribute eight acres of vacant Rayson
Manor land believed to be worth between $400,000 and
$500,000 as their share of equity.

During the review we also learned that the Agreement was
severely flawed in that the legal description for the "vacant"
land to be conveyed actually included the 57-unit Rayson
Manor project which receives federal funding.

We believe that this Agreement has conditions that are not
in the best interest of the Authority since it would not allow
the Authority to receive the largest amount possible for
repayment of funds owed to HUD and its own low-rent
program. The Agreement in its present form also appears
to be invalid since it was never approved by the Authority's
Board. In our opinion it should not have received approval
since there would be no economic benefit for the Authority


         Page 5                                   96-SF-204-1003
Finding 1


                           if SNHC received 50% ownership with no equity
                           contribution.

                           Vacant Land - Torrey Pines

                           The Authority had been negotiating to sell approximately
                           7.8 acres of vacant land to a developer; however, it now
                           appears that the City of Las Vegas may be interested in
                           purchasing or receiving the land in a trade. The Authority
                           obtained an appraisal of the estimated value in July 1993;
                           however, there is some uncertainty regarding its "Highest
                           and Best Use". "Highest and Best Use" is a critical
                           appraisal element and the zoning at the time of an appraisal
                           is not necessarily the "Highest and Best Use" for a property.
                           Over two and a half years have passed since the appraisal
                           so it should no longer be considered valid. Therefore, any
                           planned sale or trade would require a new appraisal with
                           full consideration as to the "Highest and Best Use".

                           We were not advised of the Authority's intentions on the
                           use of the proceeds from any sale that may occur but we
                           have identified this as an unencumbered property that it lists
                           as a non-aided asset.

                           The Authority has had interim repayment plans and
 The Authority proposed
                           proposed recovery plans since shortly after the January
 unsatisfactory recovery
                           1989 OIG audit report was issued; however, none have
 plans
                           been successful in eliminating the Authority's debt to HUD
                           and its low-rent program. The Authority's failure to render
                           a plan that is acceptable is the reason that only a very small
                           portion of the original amount owed has been repaid. The
                           last recovery plan we reviewed was discussed in the CAV
                           report dated October 27, 1992. In that report we concluded
                           ..."that the alternatives espoused in the proposed Recovery
                           Plan do not accurately portray the non-Federal program's
                           ability to repay amounts owed." The San Francisco HUD
                           office sent the Authority a December 14, 1992 letter stating
                           that the proposed repayment plan would not be approved
                           and required the Authority to immediately initiate the
                           development of another repayment plan. Approximately
                           one and one half years later, in a letter dated July 15, 1994,
                           the Authority submitted the same plan that had been
                           rejected by HUD in the December 14, 1992 letter. In our
                           opinion, this was yet another example, in addition to those



96-SF-204-1003                      Page 6
                                                  Finding 1


in the CAV, that indicates the Authority's lack of good faith
efforts to resolve the issues.

On April 24, 1995 the Authority submitted another
proposed recovery plan to HUD. This was only a draft plan
and contained three proposals (not one) for HUD to review
and advise if any were acceptable. Since the plan was only
in draft form we did not spend much time reviewing the
three proposals. However, after our limited review of the
proposals, we concluded that none appear to be viable
methods for resolving the Authority's $7.2 million
obligation.

The Authority has had several Executive Directors
(including two Acting Executive Directors) and a number
of different Commissioners since the 1989 OIG audit report
was issued; however, no real progress has been made
towards resolving the significant findings on the misuse of
funds discussed in that report. The Authority has sufficient
non-aided and other assets that could be used to satisfy its
obligations to HUD and its low-rent program. According to
information provided to us during this review the
Authority's recorded book value for non-aided fixed assets
owned as of September 30, 1994 was $18 million with
related notes payable of only $2.3 million (see Appendix
C). The Authority also owns two Section 8 subsidized
projects, Rayson Manor and Madison Terrace, whose
recorded book balances totaled $4.6 million and whose
notes payable totaled $2.9 million as of that same date.

The Authority needs to realize and accept that its low-rent
program and HUD can no longer be used to fund its non-
aided program. That which was once envisioned by the
Authority as a means of funding a non-federal program at
the expense of low-rent tenants and HUD is not acceptable.
The Authority has had to discontinue: (1) charging tenants
rent for stoves and refrigerators that HUD had paid for, (2)
charging the low-rent program for leasing vehicles from its
non-aided program at a profit, and (3) charging overhead
for supplies and materials at the expense of HUD. Since
those sources of revenues were severed the Authority has
relied on rents, PILOT funds and HUD HOME grants (see
Finding 3) to fund its non-aided program. Despite the loss
of the discontinued revenues the Authority's non-aided
program's Surplus Earnings have continued to grow yearly


         Page 7                                  96-SF-204-1003
Finding 1


                    and according to the latest available draft financial
                    statements for the fiscal year ended September 30, 1993 the
                    balance was $15.8 million.

                    In our opinion, the Authority has had more than enough
                    time to establish an acceptable plan to pay off its debts. It
                    should immediately plan to reduce its non-aided and other
                    assets and/or take out mortgages on its unencumbered non-
                    aided and other assets and repay HUD and its low-rent
                    program.



Auditee Comments    The Authority provided a copy of its latest Recovery/Work-
                    Out Plan dated October 25, 1995 and stated that it had been
                    submitted to the HUD Office of Public Housing in San
                    Francisco.




OIG Evaluation of   At the request of the Pacific/Hawaii Director of Public
Auditee Comments    Housing, we met on February 8, 1996 with her and the
                    Authority's Executive Director and members of his staff to
                    discuss details of the proposed work-out plan to pay back
                    the amounts owed. Based on those discussions, the plan is
                    being modified and should be approved by the HUD field
                    office within the next two weeks. As presented, the plan
                    proposes the sale of various non-aided and other properties
                    to obtain money to pay the long-standing debts. The
                    proposal envisions that all debts will be paid within two
                    years. If the debts are paid within two years, we agreed that
                    the plan would be acceptable. We have, however, made
                    two recommendations that will assist in ensuring that the
                    amounts owed are repaid.




Recommendations     We recommend that the Assistant Secretary for Public and
                    Indian Housing direct the Pacific/Hawaii Director, Office of
                    Public Housing to:

                    1A.    Obtain a judgement and place liens on the
                           Authority's non-aided properties and Rayson Manor
                           and Madison Terrace, as identified in Appendix C,
                           in an amount equal to the outstanding debt owed as


96-SF-204-1003               Page 8
                                                Finding 1


      identified in this and previous OIG audit reports;
      and

1B.   Closely monitor the approved workout agreement to
      evaluate, on a continuing basis, the progress toward
      repayment in accordance with the repayment plan.
      If the sales of the properties do not provide enough
      money to repay in the manner envisioned, HUD
      should evaluate whether mortgages on remaining
      properties are needed to ensure the two-year
      repayment commitment is realized.




       Page 9                                 96-SF-204-1003
Finding 1




                 (This page is blank intentionally.)




96-SF-204-1003                 Page 10
                                                                                     Finding 2



        The Authority Unnecessarily Allowed
        Madison Terrace Units To Be Vacated
The Authority did not appeal the City of Las Vegas' Notice and Order to Make
Repairs/Vacate Madison Terrace even though that Order was inaccurate, not in
accordance with the Uniform Housing Code, and many issues were not supported. The
Authority did not appeal because it placed an unwarranted and unquestioned reliance on
the City's Department of Building & Safety to objectively assess and report on conditions
at Madison Terrace. As a result, more than $165,000 was spent, including amounts for
ineligible items, to relocate all Madison Terrace residents. In addition, applicants on
waiting lists were not housed, available affordable housing units at Madison Terrace have
been boarded up for more than a year, and the Authority has lost more than $670,000
annually in Section 8 Housing Assistance Payments (HAP) since March 1994. Also, the
operating reserves are being drained by monthly mortgage payments of more than $10,000
for a property that is not being used.



                                  Section 1.7 of the Housing Assistance Payments (HAP)
                                  contract requires the Authority to provide decent, safe and
                                  sanitary housing. Exhibit C of the HAP contract requires
                                  the Authority to provide routine exterminating services as
                                  conditions may require.

                                  On January 21, 1994 the City of Las Vegas issued a Notice
 The City declared
                                  and Order to Make Repairs/Vacate Madison Terrace. The
 Madison Terrace a public
                                  Order stated that inspections by the City's Department of
 nuisance
                                  Building & Safety on January 19 and 20, 1994 revealed
                                  conditions such that the housing units and ancillary
                                  facilities were determined to be substandard as defined in
                                  the Uniform Housing Code (UHC). The Order further
                                  stated that the units were declared a public nuisance and if
                                  the nuisances were not abated within a specified time frame
                                  such failure would initiate the order to vacate. The Order
                                  stated that the Authority could appeal the Order or any
                                  action by The Department of Building & Safety to the City
                                  Council. Any appeal was to be made in writing as provided
                                  in the UHC within ten (10) days from the date of service of
                                  the Order. The Order stated that failure to appeal would
                                  constitute a waiver of all rights to an administrative hearing
                                  and determination of the matter (emphasis added).




                                          Page 11                                   96-SF-204-1003
Finding 2


                            The Authority had numerous reasons to appeal the Order;
 The Authority should
                            however, it did not do so. Instead, the Authority only asked
 have appealed the City's
                            for more time to vacate (emphasis added) the buildings
 flawed Order
                            even though the Order contained irregularities and
                            inconsistencies. Those included:

                            Compliance time was insufficient - The time given for the
                            Authority to comply with the Order was insufficient for any
                            responsible corrective action to be taken. The Order was
                            issued on Friday, January 21, 1994 and gave the Authority
                            only until Monday, January 24, 1994 to make the repairs
                            and if not completed by then to vacate the buildings. This
                            short time frame was not practical. In fact it was not
                            possible to comply since the City did not provide the
                            Authority with the details of the inspections until January
                            27, 1994 ( three days after all work was required to be
                            accomplished ). When the inspection report did arrive, it
                            was equivalent to a deferred maintenance laundry list with
                            the notation that all work be done by licensed contractors
                            under permits and inspections for major jobs such as
                            plumbing, and that Authority maintenance staff could do
                            the others.

                            Time given to appeal was erroneous - The Order stated the
                            Authority could appeal the action within 10 days of service.
                            The City adopted the Uniform Housing Code (UHC) which
                            states in Sections 1101 and 1201 that appeals shall be filed
                            within 30 days from the date of service.

                            Severity of infestations not properly determined - The Order
                            cited the infestation of insect vermin or rodents as the
                            number one condition needing abatement. It cited [UMC
                            Sec. 201(c)] Paragraph 4 and Sec. 1001 as requiring the
                            abatement. The correct citation should have been from the
                            UHC; however, the significant problem with this was that
                            the responsible health official did not render a report
                            supporting the City's concerns. Since the City cited UHC
                            Section 1001 as an authority for issuing the Order, we
                            followed up to determine who the referenced health officer
                            was for the metropolitan area in and around Las Vegas.
                            Contrary to what we were told by City officials, and
                            contrary to the Order, we learned that this was not a City
                            function. This was, by State statute, a function of the
                            District Health Department. We contacted that Department
                            and learned that its personnel had been to Madison Terrace


96-SF-204-1003                      Page 12
                                                  Finding 2


and there had been some talk of tenting the buildings to rid
them of roach infestation. However, that Department's
conclusion was that it did not perceive there was an
emergency situation that required evacuation of the
units.

Inadequate sanitation not supported - The Order listed
inadequate sanitation as the second condition needing
abatement. It cited UHC Sec. 100 (b) no. 8 as the reason
for abatement and stated there was a lack of minimum
amount of natural light and ventilation (interior bathrooms).
Since the UHC does not include a section 100 we believe
the City intended to cite 1001 (b) which does pertain to
light and ventilation required by the UHC. Those
requirements are found in Section 504 (b) which discusses
light for guest rooms and habitable rooms but does not have
any such requirement for bathrooms. Further, it does not
seem to be practical or necessary for "interior bathrooms"
to have natural light as stated by the City in the Order.

HUD report differed from that of the City - Our review of
a HUD Inspection Report of an inspection that was made
during November 1993 disclosed that a number of units had
deferred maintenance and repair items in addition to severe
vermin infestations. However, the report did not indicate
that the units were in such poor condition that they should
either be immediately repaired or immediately vacated.

As shown, the City's Order was full of inconsistencies and
errors and as such did not warrant the unquestioned
compliance by the Authority. It is our belief that had the
Authority appealed the City's Order, reviewed and
questioned its contents, and asked for time to exterminate
and make repairs it would not have had to vacate all of the
tenants. It could have temporarily housed the Madison
Terrace residents as necessary and not have had to spend
money for permanent relocations. Such an appeal would
have negated the necessity of boarding up the units that
were needed for affordable housing. Although Madison
Terrace had a significant infestation and needed repairs,
there was insufficient justification for the Authority to
hastily vacate the property. By not appealing the City's
Order, the Authority waived all rights to an administrative
hearing that could have been used to discuss a rational and
planned approach to correcting the problems.


        Page 13                                  96-SF-204-1003
Finding 2


                         The Authority spent $165,079 to relocate the tenants of
 Relocation costs were
                         Madison Terrace; however, a significant portion of the
 excessive
                         expenses were improper or questionable. As a result the
                         costs of the tenants' relocation were higher than necessary.
                         This occurred because the Authority disregarded HUD
                         requirements pertaining to the payment of moving
                         expenses.

                         HUD requirements for paying moving and related expenses
                         are included in 49 Code of Federal Regulations (CFR) Part
                         24, Subpart D and HUD Handbook 1378, Tenant
                         Assistance, Relocation and Real Property Acquisition.
                         Those requirements provide that displaced residents may
                         choose to receive payment for their actual reasonable
                         moving and related expenses or an allowance as determined
                         according to a schedule of allowances as published by the
                         Federal Highway Administration.

                         Our review of the amounts disbursed and included in the
                         $165,079 showed that the Authority paid amounts that were
                         excessive. The various types of expenses paid by the
                         Authority and our evaluation thereof are:

                         Relocation Fee ($35,800) - This total was paid to 88
                         displaced tenants of Madison Terrace with individual
                         payments that ranged from $300 to $900. Since the
                         Authority also paid actual moving expenses of the displaced
                         tenants these were not eligible costs. The regulations allow
                         for actual costs or an allowance, but not both.

                         Rents written off ($9,436) - The Authority wrote off the
                         total $9,436 that was owed by 44 tenants that had been
                         displaced. The rents were owed to the Authority and should
                         have been collected. The write offs were even more
                         questionable since 39 of the tenants that owed the money
                         had each received a refund of their security deposit plus
                         interest. We believe that the Authority should have, at
                         least, applied the security deposit to the unpaid rent. In
                         addition, it is questionable whether tenants who had not
                         been paying rent should be offered another subsidized place
                         to live.

                         Utilities ($16,760) - The Authority paid a total of $16,760
                         for the cost of utilities that displaced tenants owed for
                         service at Madison Terrace as well as the cost of utilities


96-SF-204-1003                   Page 14
                                                                           Finding 2


                         hookup at their new residences. The costs associated with
                         new hookups, including reinstallation of telephone and
                         cable television service are allowable; however, the past
                         bills for service at Madison Terrace are not. We did not
                         attempt to isolate the costs of new hookups, however, we
                         believe it would be minimal since they were $7.50, $21.08,
                         and $36.60 for electricity, gas, and telephone respectively.

                         Utility Allowances ($15,271) - The Authority provided
                         utility allowances to displaced tenants during the period
                         January through July 1994. If the tenants were supposed to
                         receive utility allowances for any rents after they had been
                         moved, the costs would be applicable to their new situation
                         and not charged as a moving cost.

                         Other costs ($87,812) - The other costs for security deposit
                         refunds ($8,660) and moving expenses ($64,645) appear to
                         be allowable as valid relocation expenses in accordance
                         with federal regulations. The moving expenses included
                         costs for moving vans, moving crews, a coordinator for the
                         move, cellular phone bills for the coordinator and various
                         other nonspecific tenant costs. We also concurred with the
                         Las Vegas HUD office that since the displaced tenants were
                         forced to pay new security deposits of $14,507, this will be
                         considered as an eligible expenditure.

                         The Authority did not properly manage and maintain
The Authority did not
                         Madison Terrace. Local HUD office staff in November
fulfill its management
                         1993 performed an on-site inspection of 11 occupied and 9
and maintenance
                         vacant apartments. The rating given the Authority for
responsibilities
                         overall management was "Unsatisfactory". The majority of
                         the occupied units inspected were heavily infested with
                         german cockroaches and the vacant units were
                         uninhabitable due to fire damage or maintenance needs.
                         The report stated that roof covers for three of the buildings
                         had been leaking and need to be replaced as soon as
                         possible. It further indicated that bids had already been
                         obtained but no work had been done and that the bids
                         should be updated and work begun. The report cited
                         numerous other deferred maintenance items including
                         leaking sprinkler systems, facia boards in need of paint,
                         worn out weatherstripping and damaged kitchen cabinets;
                         however, it did not state anywhere that the units were in
                         such a condition that they needed to be immediately
                         vacated.


                                 Page 15                                  96-SF-204-1003
Finding 2


                    The report stated that needed major repairs had not been
                    done and that no major physical improvements had been
                    made during the year. However, the most urgent need
                    mentioned repeatedly in the report was the need to rid the
                    project of the heavy roach infestation. It stated..."This is a
                    major health problem and must, at all costs, be dealt with
                    immediately. Since the owner cannot or will not provide
                    for these units to be properly exterminated by staff, it is
                    imperative that a private contractor be retained to do the
                    work." It further stated that tenants should be instructed on
                    the importance of keeping their units clean and free of open
                    containers that perpetuate the problem.

                    The Authority could have prevented the City from getting
                    involved with Madison Terrace if it had acted promptly to
                    solve the overriding problem of roach infestation and then
                    established a reasonable plan to correct the other
                    maintenance problems in a timely manner. If that had been
                    done there would have been no question concerning the
                    relocation of the tenants and the resulting adverse effect that
                    it has had on the tenants, waiting list personnel, the
                    Authority, and HUD.




Auditee Comments    The Authority's written response stated that on October 23,
                    1995 its Board of Commissioners approved the sale
                    advertisement of the Madison Terrace Development at a
                    specified minimum price of $2 million. It also stated that
                    HUD would be informed and concurrence sought prior to
                    the sale.




OIG Evaluation of   At the Exit Conference, Authority staff stated that the
Auditee Comments    written reply did not respond to the recommendations in the
                    finding because it now plans to sell the project. As a result,
                    we have revised the recommendations to state that they
                    need to be implemented if no sale has occurred by
                    December 31, 1996.

                    We also need to express our concern regarding obtaining
                    the greatest proceeds for the project. Per correspondence
                    dated April 24, 1995 from the Authority to the Las Vegas


96-SF-204-1003              Page 16
                                                                      Finding 2


                  HUD office, the project had recently been appraised at $2.3
                  million and not $2 million. Since it appears the $2.3
                  million did not include the appreciation in value to be
                  expected from the recent rehabilitation work on one of the
                  16 unit buildings, we would expect the fair market value to
                  exceed $2.3 million unless the Authority provides
                  substantiated and reasonable evidence to the contrary. In
                  addition, we recommend that while negotiating the sale the
                  Authority should consider the added value of expected tax
                  credits and the HAP contract.



Recommendations   If the Authority does not sell the project by December 31,
                  1996, we recommend that the Assistant Secretary for Public
                  and Indian Housing direct the Pacific/Hawaii Director,
                  Office of Public Housing to contact the Director of Housing
                  and inform that person to require the Authority to:

                  2A.    Immediately repair or replace major deferred
                         maintenance items, including roof covers and
                         heating and air conditioning systems;

                  2B.    Repair and replace, as necessary, minor deferred
                         maintenance items including resetting bathroom
                         sinks and water closets, caulking tubs and showers,
                         weatherstripping and patching holes in walls and
                         ceilings;

                  2C.    Have an adequate number of its staff obtain
                         certifications to be allowed to perform pest control
                         services or retain the services of licensed pest
                         control contractors. Pest control spraying should be
                         provided on a scheduled periodic basis;

                  2D.    Provide counseling on good housekeeping and
                         sanitation practices to assist in ensuring that sanitary
                         conditions are maintained. The counseling should
                         be given to new tenants and annually thereafter;

                  2E.    Repay $35,800 from non-federal funds, to the
                         applicable accounts for funds that were improperly
                         disbursed for relocation fees;




                          Page 17                                    96-SF-204-1003
Finding 2


                 2F.   Repay, from non-federal funds, to the applicable
                       accounts any of the $32,031 spent for utilities and
                       utility allowances that can not be supported as
                       necessary and consistent with HUD requirements for
                       relocation expenses; and

                 2G.   Repay, from non-federal funds, to the applicable
                       accounts an amount equal to tenant security deposits
                       that were refunded to tenants whose unpaid rents
                       were written off. The maximum applied to any
                       tenant account should not exceed the amount written
                       off for that account.




96-SF-204-1003          Page 18
                                                                                   Finding 3



       The Authority Diverted Funds From Its
      Federally Funded Low-Rent Program To
         Support Its Non-Federal Program
The Authority modified the terms of its Cooperation Agreement with the City of Las Vegas
without obtaining the required HUD approval. The new agreement allowed a majority of
funds that the Authority paid to the City for Payment-in-Lieu-of-Taxes (PILOT) to be
returned to the Authority to be used for the Authority's non-federal programs. As a result,
funds that had previously been available for the Authority's federally funded low-rent
program will now be used to support the Authority's non-federal housing programs. This
occurred because the Authority intentionally devised a scheme to circumvent HUD
requirements. HUD approval is required for modifications or amendments to Cooperation
Agreements but it was not sought. The Authority expects to receive $760,000 in returned
PILOT over a five year period and plans to use more than $500,000 of that amount for its
non-federal program.



                                  Section 301(A) of the ACC states the Local Authority shall
                                  comply with all provisions of the Cooperation Agreement,
                                  including making payments in lieu of taxes as provided
                                  therein, and shall not amend or modify the same in any
                                  manner except with the approval of HUD.

                                  On June 4, 1992 the Authority submitted a proposal to the
 The Authority modified
                                  Las Vegas City Council to change the way the Cooperation
 the Cooperation
                                  Agreement was used as it related to the PILOT. The
 Agreement without HUD
                                  Authority signed the new agreement with the City on
 approval
                                  November 4, 1992 which in effect modified the
                                  Cooperation Agreement dated December 21, 1978. The
                                  proposal and new agreement were not presented to HUD for
                                  approval as required. This omission by the Authority was
                                  very significant because it not only allowed the Authority
                                  to use HUD assisted program funds to support its non-
                                  federal program but also circumvented management
                                  decisions that had been reached between the HUD program
                                  staff and our office to correct past program abuses by the
                                  Authority.

                                  Based on information presented in the Authority's proposal
                                  to the City these actions were deliberate and did not fully



                                          Page 19                                96-SF-204-1003
Finding 3


                              disclose the reasons behind the non-federal program's
                              problems. The proposal submitted to the Las Vegas City
                              Council by the Authority stated that in the past it
                              had..."obtained large amounts of revenue from the federal
                              government through leasing arrangements between its non-
                              aided and its federally aided programs. As a result of an
                              investigation in 1989 by the Inspector General of HUD,
                              those leasing arrangements were found to be improper and
                              thus were ordered discontinued." That statement was
                              essentially true; however, it did not provide a complete
                              disclosure as to how the Authority's non-federal program
                              found itself in need of more money. A complete discussion
                              would have disclosed that our 1989 audit report had cited
                              other areas wherein the Authority had used improper and
                              questionable methods in obtaining funds for its non-federal
                              program. Those included the improper use of its revolving
                              fund, leasing of appliances to low income housing tenants,
                              and excessive charges to the low income program for
                              salaries. Another problem for the Authority's non-federal
                              program was the cost of defending against lawsuits because
                              of the Authority's improper appliance leasing practices.

                              A major consideration for questioning the change in the
 Funds for benefit of low-
                              Authority's Cooperation Agreement is that the Authority
 rent tenants were diverted
                              had not been paying PILOT to the City and in its proposal
                              the Authority actually stated ... "Moreover, since the City
                              has never had use of the funds, approving this proposal will
                              not result in any reduction of existing income for the City."
                               A major problem with this plan is that of the expected
                              $760,000 in federal funds to be paid and returned over the
                              projected five year period, $502,750 (66%) is to be diverted
                              to non-federal program uses. During 1993 and 1994 the
                              Authority paid a total of $354,574 in PILOT to the City.
                              That total was returned and the Authority planned to use
                              $106,375 as matching funds for obtaining HUD HOME
                              program funding for James Jones Gardens, a non-federal
                              project. Any such use of returned PILOT funds not only
                              allows the federal low-rent program to support the non-
                              federal program but also clearly violates 24 CFR 92.220.
                              That section states that contributions made with or derived
                              from federal resources are ineligible forms of matching
                              contributions for obtaining HOME funds.

                              The methods devised by the Authority may help its non-
                              federal program; however, it deprives federally assisted low


96-SF-204-1003                        Page 20
                                                                        Finding 3


                    rent tenants of funds that have previously been available for
                    their benefit. In our opinion programs for federally assisted
                    low-rent tenants should not be used to help fund activities
                    of the Authority's non-federal program. This plan is even
                    more questionable since it was devised as a means of
                    perpetuating the Authority's past improper practices that
                    were disclosed in the 1989 audit report. We believe that
                    this would not have been approved by the City if all the
                    facts had been presented in the proposal.




Auditee Comments    In its written reply the Authority stated that it did not agree
                    with the finding and it strongly opposed the cause as stated
                    in the finding ... "This occurred because the Authority
                    intentionally devised a scheme to circumvent HUD
                    requirements." The Authority stated that it never modified
                    any terms of the original Cooperation Agreement dated
                    December 21, 1978. It also stated that on November 4,
                    1992 it signed an agreement with the City which allowed
                    returned PILOT funds to be used for certain scheduled
                    activities and expenditures.




OIG Evaluation of   We reviewed the facts as presented in the finding and based
Auditee Comments    on the evidence and documents provided concluded the root
                    cause to be as was stated. Since the Authority did not
                    provide explanations or evidence that the root cause as
                    stated was incorrect, we did not modify the finding. The
                    referenced November 4, 1992 agreement with the City is
                    clearly a modification of the Cooperation Agreement.
                    Section 301 of the ACC clearly and unambiguously
                    prohibits the Authority from terminating, amending, or
                    modifying the agreement without obtaining HUD approval.
                    We do not believe that it would have been appropriate for
                    HUD to approve the modification of the Agreement had it
                    been submitted for approval. The facts as presented would
                    amount to HUD approving a misuse of federal funds. Both
                    the ACC and OMB Circular A-87, Cost Principles for State
                    and Local Governments, require that costs are only
                    allowable if they are necessary and reasonable. The
                    expenditure of low-rent program funds for other than low-




                            Page 21                                    96-SF-204-1003
Finding 3


                  rent purposes would not be consistent with those
                  documents.


Recommendations   We recommend that the Assistant Secretary for Public and
                  Indian Housing direct the Pacific/Hawaii Director, Office of
                  Public Housing to require the Authority to:

                  3A.    Return the $354,574 in 1993 and 1994 refunded
                         PILOT funds to its federally supported low-rent
                         program. Any subsequent PILOT money that is
                         refunded should also be returned. Those funds must
                         be from the Authority's non-federal program;

                  3B.    Immediately rescind the November 4, 1992
                         Agreement with the City of Las Vegas that allows
                         for PILOT to be returned unless all of the funds are
                         used for the federally assisted program;

                  3C.    Submit any and all modifications and amendments
                         to the Cooperation Agreement to the Pacific/Hawaii
                         Public Housing office for approval prior to
                         execution; and

                  3D.    Provide assurance that any funds used as matching
                         funds for the HOME program are from non-federal
                         sources as required by 24 CFR 92.220.




96-SF-204-1003            Page 22
                                                                                   Finding 4



  The Authority's Non-Federal Program Owes
 The Risk Management Trust Fund More Than
                   $900,000
The Authority not only improperly used monies from its Risk Management Trust Fund
(RMTF) to pay debts owed by its non-federal program but also has been unable to
accurately determine the amounts misspent. The debts were mostly for legal fees and costs
of settling a lawsuit that resulted from past improper activities. As of September 30, 1994
the Authority's unaudited books showed a balance of $920,535 owed to the RMTF by its
non-federal program; however, the Authority could not demonstrate that the balance
shown represented the actual amount owed. We attribute the problems to a disregard for
HUD requirements. The misuse of these funds deprived the Authority's federally assisted
housing program of nearly $1 million that could have been used to benefit low-rent housing
tenants.



                                  Section 406(B) of the Annual Contributions Contract
                                  (ACC) requires that "Operating Expenditures" include all
                                  costs incurred for administration, maintenance and other
                                  costs and charges which are necessary for the operation of
                                  each project in such a manner as to provide decent, safe,
                                  and sanitary dwellings within the financial reach of low
                                  income families. The ACC has no provisions for paying
                                  debts for non-federal programs, making loans to non-
                                  federal programs, or using low-rent housing funds for other
                                  than ACC purposes.

                                  The RMTF was established as a self-insurance fund in 1986
 RMTF was established as
                                  after the Authority requested and received a waiver of
 a self-insurance fund
                                  Section 305(A) and part of Section 305(B) of its ACC
                                  regarding fire and liability insurance. The RMTF was
                                  discontinued in May 1994 when the Authority went from
                                  self-insurance to pooled insurance from the Housing
                                  Authorities Risk Retention Group, Incorporated. In July
                                  1994 the Authority's Controller prepared a draft plan to
                                  close out the RMTF and distribute the excess reserve funds
                                  by September 30, 1994. That date corresponded with the
                                  end of the Authority's fiscal year. However, by the
                                  conclusion of our field work, the proposed analysis had not




                                          Page 23                                96-SF-204-1003
Finding 4


                            been prepared. As a result the funds remained in limbo in
                            the unneeded RMTF.

                            The Authority's unaudited books showed that the RMTF
 RMTF assets appear to be
                            had net assets totaling $2,076,998 as of September 30,
 considerable
                            1994. This total included a $920,535 receivable due the
                            RMTF from the Authority's non-federal program; however,
                            the Authority could not be certain of those amounts because
                            it had not closed its books for the past two fiscal years. In
                            our opinion most of the $2 million is owed to the
                            Authority's federally-funded low-rent housing program.
                            We previously reported, in a January 20, 1989 audit report
                            (No.89-SF-209-1004), that the primary source of funding
                            for the RMTF was federal funds. Therefore, the remaining
                            assets should go back primarily to the low-rent housing
                            program, and not the Authority's non-federal program.

                            Our concerns regarding the mishandling of the RMTF were
                            previously addressed in a memorandum (No.93-SF-209-
                            1801) dated October 30, 1992. In that memorandum we
                            recommended the Authority be required to submit an
                            analysis of the RMTF account for all expenditures from
                            January 1, 1988 through September 30, 1992 and reimburse
                            the RMTF for non-allowable expenditures and loans.
                            Recommendation 2A of that memorandum showed a
                            $533,590 receivable due the RMTF and it has now
                            increased an additional $386,945 to a balance due of
                            $920,535 as of September 30, 1994. Recommendation 2B
                            in that memorandum, which recommended an analysis of
                            expenditures, was closed based on incomplete information
                            submitted to HUD program staff. The Authority claimed to
                            have analyzed all RMTF expenditures through December
                            31, 1991 and the proof of the analysis was copies of
                            adjusting journal entries for the fiscal year ended December
                            31, 1991. This was not satisfactory because we had
                            recommended an analysis of the RMTF and not simply
                            journal entries. We also recommended that the analysis
                            include the Authority's new fiscal year which ended
                            September 30, 1992, but this was not done. If the analysis
                            required to close this previous recommendation had been
                            properly done the Authority should have had no problem
                            updating that analysis to close out the RMTF by September
                            30, 1994 as proposed. The Authority also should have had
                            no difficulty providing us the requested analysis of income



96-SF-204-1003                      Page 24
                                             Finding 4


and expenditures in the RMTF, but our numerous requests
during site work were not fulfilled.




       Page 25                              96-SF-204-1003
Finding 4


                        We believe it is imperative that the RMTF be dissolved as
 RMTF should be
                        soon as possible. It is unconscionable that the Authority
 dissolved and assets
                        has large amounts of money sitting in an account when it
 distributed
                        could be put to good use for its low-rent housing program.
                        However, the following concerns must be addressed before
                        the fund's assets are disbursed. First, all funds improperly
                        spent from the RMTF must be identified and replaced, and
                        second the Authority must complete an analysis of the fund
                        so it can determine where the money should go. Any
                        actions affecting the assets in the RMTF must be approved
                        by HUD.




Auditee Comments        The Authority's written reply stated it has submitted an
                        analysis to the San Francisco HUD office showing income
                        and expenditures from the RMTF through September 30,
                        1994 (as was recommended in the Draft Finding). The
                        response also stated that it would transfer all cash
                        investments in the Fund to its Federal Low-Rent Program
                        and concurred that its non-federal would still owe $920,535
                        ($533,590 + $386,945) to the RMTF. It stated that the final
                        distribution can only be made after its non-Federal program
                        reimburses the RMTF. At the exit conference Authority
                        staff stated that all amounts in the RMTF had been
                        transferred to its low-rent program except the amount owed
                        by its non-federal program.




OIG Evaluation of       The Authority concurred with the finding and submitted an
Auditee Comments        analysis of income and expenditures from the RMTF to the
                        San Francisco HUD office for review and approval. We
                        have revised our recommendations that were in the draft
                        finding to reflect the Authority's actions.




96-SF-204-1003                  Page 26
                                                                   Finding 4



Recommendations   We recommend that the Assistant Secretary for Public and
                  Indian Housing direct the Pacific/Hawaii Director, Office of
                  Public Housing to require the Authority to:

                  4A.    Provide evidence that it has transferred all of its
                         cash investments in the RMTF to the low-rent
                         program and identify net assets remaining in the
                         RMTF that need to be distributed; and

                  4B.    Submit a proposed distribution plan to the
                         Pacific/Hawaii Director, Office of Public Housing
                         for review and approval before further distribution
                         of the net assets still in the RMTF. All amounts
                         identified should be reimbursed to the RMTF by the
                         program, or fund, that received or benefitted from
                         the monies. The Pacific/Hawaii Director, Office of
                         Public Housing should require evidence that the
                         additional $386,945 ($920,535 - $533,590) owed to
                         the RMTF by the Authority's non-federal program
                         has either been repaid or included in an approved
                         repayment plan before approving dissolution of the
                         Fund.




                          Page 27                                 96-SF-204-1003
Finding 5



           The Authority's Travel Practices Were
                   Abusive And Costly
The Authority's controls over travel expenditures were not consistent with good business
practices and HUD requirements. The Authority did not reconcile travel advances to
actual travel expenses; therefore, it did not know how much had been spent for that travel.
When out-of-town on official travel, employees claimed and were reimbursed for costs that
were personal in nature and not necessary to accomplish the Authority's business. Also,
an Authority executive often charged in-town lunches to the Authority. Charges for those
lunches in Las Vegas included costs incurred for the executive director, other Authority
employees, individual commissioners, and persons seeking to do business with the
Authority. Further, employees routinely charged expenses to Authority credit cards and
the bills were paid without supporting documentation or evidence that the charges were
legitimate. We are particularly concerned about the lack of controls since travel and
training expenditures have exceeded $125,000 a year for each of the past two fiscal years.
The abuse occurred because the Authority did not have a travel policy that was comparable
to local public practice and Annual Contributions Contract requirements. In addition,
even though the policy itself allowed excessive costs, the limits shown therein were not
enforced.



                                  Section 201 of the Annual Contributions Contract (ACC)
                                  instructs the Authority to operate each project in such a
                                  manner as to achieve the economic and social well-being of
                                  the tenants. In addition, Section 406(B) of the ACC
                                  requires that "Operating Expenditures" include all costs
                                  incurred for administration, maintenance and other costs
                                  and charges which are necessary (emphasis added) for the
                                  operation of a project in such a manner as to provide
                                  decent, safe, and sanitary dwellings. It also requires that the
                                  operation promote serviceability, efficiency, economy, and
                                  stability.

                                  The Authority did not ensure that employees who were
 The Authority did not
                                  given travel advances accounted for costs of the travel for
 control travel advances
                                  which the funds had been advanced. Since the Authority
                                  did not reconcile its travel advances on a monthly basis it
                                  had no idea whether the amounts advanced were necessary
                                  for operating its projects. We found instances where
                                  travelers did not provide an accounting of amounts
                                  advanced to them for travel completed as long ago as



96-SF-204-1003                            Page 28
                                                                       Finding 5


                      October 1993. Our selective testing disclosed that one of
                      the Authority's executives had received ten separate
                      advances totaling $1,475 during a ten month period
                      beginning in October 1993. These were in addition to the
                      executive's use of an Authority credit card for travel
                      expenses during the same travel periods. The advances
                      ranged in size from $25 to $250 and no travel expense
                      reports were on file showing whether the costs associated
                      with the travel were paid for by the executive from the
                      advance, or by the Authority when it paid the credit card
                      charges.

                      One reason for the unreconciled advances appears to be the
                      low priority given the subject by the Authority's
                      management staff and the culpability of the executive staff
                      itself as demonstrated by the example cited above. A major
                      factor causing these long outstanding unreconciled travel
                      advances was the Authority's method of accounting for the
                      advances. It recorded the advances as expenses rather than
                      as receivables as required by HUD and generally accepted
                      accounting principles. Since there were no receivables on
                      the Authority's books for travel advances given, the
                      advances appear to have been ignored.

                      Out-of-town costs - The Authority spent travel funds for
Ineligible expenses
                      out-of-town travel that should not have been charged to the
                      Authority. Instead the costs appeared to be personal in
                      nature and thus should have been paid for by the
                      individuals themselves. Included in this category were
                      payments to travelers for in-room movies, baby sitting
                      expense, laundry, taxi charges for going to dinner even
                      though the executive who claimed the costs simultaneously
                      claimed the costs of renting and parking a rental
                      automobile. Other ineligible payments were made for
                      lodging and meals for two days after a conference had
                      ended, duplicate payments of $463 each for a travel
                      expense report that was submitted twice by the same
                      Authority executive. The duplicate payment was made
                      even though the second expense report had no supporting
                      documentation.

                      In-town-costs - We tested some of the charges on selected
                      expense reports and found expenditures for in-town
                      executive staff lunches at local restaurants with individual
                      commissioners, city representatives, and persons pursuing


                              Page 29                                 96-SF-204-1003
Finding 5


                             business arrangements with the Authority. The total cost of
                             these lunches was not significant when compared to the
                             overall cost of the Authority's travel; however, the cost of
                             a lunch for those individuals in our test ranged from $13 to
                             $25 per person. We are not aware of any valid reason, or
                             necessity, for spending federal funds for such lunches even
                             if any business was discussed. HUD requirements do not
                             allow such expenditures as eligible operating expenses
                             regardless of the amount spent.

                             Unsupported credit card costs - We observed frequent
                             charges to Authority-issued credit cards for restaurants
                             (both local and out-of-town), car rentals, and hotels. These
                             credit card charges were routinely paid even though no
                             supporting documentation had been submitted by the
                             individuals who had incurred the expense. Such payments
                             should not have been made unless supporting
                             documentation was provided by the traveler. Our limited
                             review disclosed questionable payments for such things as
                             a car rental that cost $294 and a hotel cost of $527 when
                             travel had been authorized for only four days in December
                             1993. We also noted a restaurant charge of $327 for a Las
                             Vegas restaurant in September 1993, and another for a
                             restaurant charge of $137 and rental car charge of $79 for
                             a trip to San Francisco for an executive to attend a meeting
                             in May 1994. Another example of questionable costs
                             occurred in August 1993 when an executive incurred a
                             restaurant charge of $190 and a car rental cost of $225 in
                             San Francisco on August 13 and 15 respectively. We were
                             not provided with any approved travel order for that travel.
                             The unrestrained and unsupported use of credit cards and
                             the questionable travel practices clearly demonstrate that
                             there is a need to review and revise the Authority's travel
                             policy and practices.

                             The Authority's travel policy was not consistent with local
 The Authority's travel
                             public practice as required by HUD. The policy allowed
 policy and practices
                             Authority personnel more money for travel than the City of
 permitted excessive costs
                             Las Vegas allowed its employees. In addition, even though
                             the policy allowed excessive expenditures the Authority did
                             not ensure that its employees complied with the limits of
                             that policy. The limitations specified in the policy were
                             routinely ignored and Authority travelers were reimbursed
                             for actual costs without regard for any limitations.



96-SF-204-1003                       Page 30
                                                                               Finding 5


                           HUD Handbook 7401.1, Low-Rent Housing Administration
                           of Program, Chapter 5, Section 1, paragraph 7, states that
                           the Authority's travel policy should be comparable with
                           local public practice. It further states that if the officially
                           adopted policy of the local government provides a per diem
                           allowance in lieu of subsistence, the local Authority should
                           adopt a per diem allowance which is equal to or below the
                           allowance provided in that local government's policy.
                           However, if the officially adopted policy of the local
                           government provides for reimbursement of actual
                           subsistence expense, the local authority shall adopt an
                           actual subsistence policy with a maximum allowance
                           (emphasis added) which is equal to or below the maximum
                           provided in that policy.

                           The Authority's written travel policy allowed a maximum
The Authority's travel
                           per diem of $50 per day for meals when overnight lodging
policy was not
                           was required while the City of Las Vegas allowed the
comparable to the City's
                           Internal Revenue Service's (IRS) per diem limits. The
                           current IRS rates range from $26 to $38 per day for meals
                           and incidental expenses covered by per diem. The $38
                           maximum amount is limited to specified high cost cities.

                           Even though the Authority's written travel policy stated it
The Authority's travel
                           used a per diem rate, none of the travelers whose expense
policy was not followed
                           reports we reviewed were reimbursed through an applied
or enforced
                           per diem rate. Instead the Authority's practice was to
                           provide reimbursement for actual expenses claimed
                           regardless of the amount. Its travel practice observed no set
                           limits, or maximum, when travelers chose to submit actual
                           costs incurred. Although our review of selected vouchers
                           showed that travelers routinely were reimbursed for meals
                           that exceeded the $50 per diem we noted several
                           reimbursements to Authority executives that were
                           significantly above the maximum. For one trip in March
                           1994 an executive charged and was reimbursed for meals
                           totaling $74, $87, $77, and $83 for four consecutive days.
                           Those amounts were in addition to round trip taxi fares of
                           $10, $9, and $9 to go to lunch/dinner on each of the first
                           three days claimed. Those taxi fares not only increased the
                           cost of the meals but appeared to be unnecessary since the
                           same executive was reimbursed for a rental car and $16 for
                           daily parking during the same period. If the traveler had
                           been a City employee the maximum allowed each day for
                           meals would have been $38. During March 1993 another


                                   Page 31                                    96-SF-204-1003
Finding 5


                    executive was reimbursed $75, $57, and $93 for meals for
                    three consecutive days. This executive was reimbursed even
                    though no one ever officially approved payment of the
                    voucher. While these two examples were the highest we
                    noted during our testing our review disclosed that excessive
                    meal costs were not just occasional occurrences but were
                    generally the rule. These were not only excessive when
                    compared to the City of Las Vegas travel policies but were
                    excessive when compared to the Authority's. We consider
                    any practice that allows unlimited reimbursement of travel
                    costs to be abusive and not necessary for a housing program
                    that exists to provide decent and safe housing for low and
                    moderate income persons.




Auditee Comments    In its written response the Authority concurred that its travel
                    policy needed to be revised and stated that an amended
                    travel policy that complies with HUD's requirements would
                    be submitted to its Board of Commissioners. It agreed to
                    change its method of accounting for travel advances and to
                    discontinue the use of all credit cards except for use by its
                    Procurement Agent for guaranteeing payment for goods and
                    services and reserving rooms. It also stated that it would
                    review all credit card purchases since October 1, 1992,
                    expected to have it completed by July 15, 1995, and would
                    submit the results to HUD. At the Exit Conference
                    Authority staff stated that its review of credit card purchases
                    since October 1, 1992 has been completed but the results
                    had not yet been submitted to the San Francisco HUD
                    office.

                    In addition, the response stated that the Authority will
                    request reimbursement from its employees for any
                    ineligible expenditures or reimburse the federal programs
                    from non-federal sources.


OIG Evaluation of   The Authority agreed to correct its travel practices and
Auditee Comments    amend its policies to comply with HUD requirements. As
                    a result, we revised the recommendations to reflect that the
                    HUD staff should verify that the changes have been
                    implemented.




96-SF-204-1003              Page 32
                                                                   Finding 5



Recommendations   We recommend the Assistant Secretary for Public and
                  Indian Housing direct the Pacific/Hawaii Director, Office of
                  Public Housing to obtain evidence and verify that the
                  Authority has:

                  5A.    Changed its travel policy to comply with HUD's
                         requirements;

                  5B.    Discontinued paying for in-town meals for
                         employees, individual commissioners, and patrons
                         and reimburse its low-rent program for any such
                         amounts paid since October 1, 1992;

                  5C.    Reviewed all travel advances made since October 1,
                         1992 for which a travel expense report has not been
                         filed. The entire advance amount must be paid back
                         unless the traveler files an expense report that is
                         supported by acceptable documentation showing
                         that the funds had been spent for eligible and
                         necessary items;

                  5D.    Changed its method of accounting for advances to
                         record each advance as a receivable until it is paid
                         and/or a travel expense report has been submitted;

                  5E.    Discontinued the use of all credit cards, except for
                         use by its Procurement Agent for the purpose of
                         guaranteeing payment for goods and services and
                         room reservations; and

                  5F.    Reviewed all travel expense reports submitted for
                         the period October 1, 1992 through the present,
                         required repayment for any ineligible expenses
                         included on the expense reports, and submitted the
                         results to HUD for review and approval.




                          Page 33                                 96-SF-204-1003
Finding 6



 The Authority Used Low-Rent Housing Funds
  To Make Interest-Free Loans To Employees
Contrary to HUD requirements, the Authority used low-rent housing funds to make
interest-free loans of at least $130,585 to employees. We attribute these ineligible
expenditures to a desire to assist employees but the practice exhibited faulty judgement.
Funds used in such a manner are not available for the day-to-day operations of the
Authority's low-rent housing program.



                                  Section 201 of the Annual Contributions Contract (ACC)
                                  instructs the Authority to operate each project in such a
                                  manner as to achieve the economic and social well-being of
                                  the tenants.

                                  Section 406(B) of the ACC requires that "Operating
                                  Expenditures" include all costs incurred for administration,
                                  maintenance and other costs and charges which are
                                  necessary for the operation of each project in such a manner
                                  as to provide decent, safe, and sanitary dwellings within the
                                  financial reach of low income families (emphasis added).

                                  The Authority used low-rent housing funds to provide what
 Employee "pay
                                  it claimed to be pay advances to employees for personal
 advances" were interest-
                                  reasons such as car loans and college tuition. The advances
 free loans
                                  ranged from $100 to $2,000 and were not paid off with the
                                  next pay check as one would expect from advances. The
                                  amounts owed were paid off at $40 to $250 per pay period
                                  and, as such, were in every respect interest-free loans.
                                  These loans in no way assisted in achieving the economic
                                  and social well-being of the tenants as is required by
                                  Section 201 of the Authority's ACC. Instead, it was the
                                  employees' economic and social well-being that was being
                                  attended to at the expense of low income tenants.

                                  The interest-free loans issued grew from $6,665 in
                                  September 1992 to $130,585 by August 1994. The
                                  outstanding loans balance after payment deductions at
                                  August 31, 1994, was $85,731. Some of the employees had
                                  two, and even three, loans outstanding. One employee
                                  received a $1,500 interest-free loan for ..."personal



96-SF-204-1003                            Page 34
                                                                     Finding 6


                    reasons"... that was repaid over a 10 month period. Another
                    employee received a $2,000 loan to purchase a car two
                    months after becoming a permanent employee. Before that
                    loan was paid off the same employee received another $800
                    loan for his child's college tuition. The employee signed an
                    agreement that should he resign, or be terminated, his
                    vacation and unpaid compensation would be credited to the
                    advance/loan. But the total loan amount outstanding was
                    greater than his biweekly salary and he had earned
                    practically no vacation pay. In this instance the employee
                    continued to pay off the loan. However, the Authority was
                    not so fortunate in another example where an employee
                    abandoned his job in December 1993 with an unrecovered
                    $700 loan balance.

                    The Acting Executive Director took immediate actions to
                    stop the interest-free loans when we brought the practice to
                    his attention. The outstanding balances of all active
                    employees are continuing to be collected from bi-weekly
                    salary payments.




Auditee Comments    The Authority stated in its written response that it has
                    continued to collect amounts owed by employees and
                    would try to collect amounts due from terminated
                    employees by June 15, 1995. It stated that if they are
                    unsuccessful in recovering the amounts due from
                    terminated employees, it will pay the amounts owed from
                    non-federal funds.




OIG Evaluation of   The Authority has discontinued the practice, has been
Auditee Comments    collecting amounts owed from current employees, and has
                    agreed to repay any amounts not collected with non-federal
                    funds.




                            Page 35                                 96-SF-204-1003
Finding 6


Recommendations   We recommend that the Assistant Secretary for Public and
                  Indian Housing direct the Pacific/Hawaii Director, Public
                  Housing Division to confirm that the Authority:

                  6A.    Continued collecting amounts owed by employees
                         from their paychecks until all amounts owed are
                         collected; and

                  6B.    Reimbursed its low-rent housing program from non-
                         federal funds for all amounts owed by terminated
                         employees.




96-SF-204-1003            Page 36
                                       Finding 6




(This page is blank intentionally.)




              Page 37                 96-SF-204-1003
Finding 7



       The Authority Inappropriately Provided
      $21,302 To Its Former Executive Director
Contrary to HUD requirements and its own personnel policies the Authority paid $21,302
to a former executive director for termination pay ($18,259) and unused sick leave ($3,043).
As a result, those funds were not available for necessary and appropriate low-rent housing
expenditures. Further, since it was not consistent with the Authority's written personnel
policies it clearly demonstrates inequitable treatment of its employees. We attribute this
improper use of the Authority's low-rent housing funds to a disregard for published
requirements.



                                   Section 201 of the Annual Contributions Contract (ACC)
                                   requires the Authority to operate each project in such a
                                   manner as to promote efficiency, economy, and stability for
                                   achieving the economic and social well-being of the
                                   tenants.

                                   The Authority's personnel handbook prescribes various
 The Authority's personnel
                                   personnel procedures to ensure that employees are aware of
 handbook determined
                                   their rights and that all employees are treated fairly and
 benefits
                                   equally. The former executive director's February 14, 1990
                                   employment contract stated that salary and fringe benefits
                                   were to be paid as contained in the rules of the personnel
                                   handbook. The contract further stated that fringe benefits
                                   were to be the same as those of other Authority employees.

                                   The former executive director offered his resignation on
                                   March 10, 1994 and asked that it be effective within 45 to
                                   60 days. The Board of Commissioners accepted the
                                   resignation with an effective date of April 29, 1994. The
                                   payment of termination pay and unused sick leave was
                                   approved by the Authority's Board of Commissioners on
                                   April 20, 1994, and on April 29, 1994 the Authority paid its
                                   departing executive director $18,259 for termination pay
                                   and $3,043 for unused sick leave in addition to accumulated
                                   vacation pay. Payment for up to 200 hours of accumulated
                                   vacation pay was allowed by the Authority's personnel
                                   handbook; however, payments for termination pay and
                                   unused sick leave were not. In fact, the personnel




96-SF-204-1003                             Page 38
                                                                        Finding 7


                    handbook specifically stated there were to be no payments
                    for unused accumulated sick leave.

                    The Authority could not explain why it deliberately violated
                    its own personnel policies and its contract with the former
                    executive director by providing him with termination pay
                    and pay for unused sick leave. Any such payments were
                    also clear violations of Section 201 of the ACC in that those
                    payments were not necessary for the efficient and economic
                    operation of the Authority's low-rent housing program.




Auditee Comments    The Authority's written response stated that the $21,302
                    was termination pay and the action was outside the
                    Authority's Personnel Policy because it was related to the
                    contract between the Authority and the previous Executive
                    Director. It stated that the action did not violate any
                    policies and the costs were allocated to all programs. It also
                    stated that if it is found unacceptable it will prepare journal
                    entries charging non-federal sources for the amount
                    allocated to the low-rent Program.




OIG Evaluation of   We do not agree with the Authority's assessment that it did
Auditee Comments    not violate any policies. As stated in the finding, the terms
                    of the personnel policies and contract were clear and neither
                    provided for the termination pay given to the former
                    executive director.




                            Page 39                                    96-SF-204-1003
Finding 7


Recommendation   We recommend that the Assistant Secretary for Public and
                 Indian Housing direct the Pacific/Hawaii Director, Public
                 Housing to:

                 7A.    Require the Authority to reimburse its low-rent
                        program for that portion of the $21,302 that was
                        paid by the low-rent program. The reimbursement
                        should be made with non-federal funds.




96-SF-204-1003           Page 40
                                       Finding 7




(This page is blank intentionally.)




              Page 41                 96-SF-204-1003
Internal Control
In planning and performing our audit, we considered internal control systems used by the
Housing Authority of the City of Las Vegas in order to determine our auditing procedures and
not to provide assurance on internal control. Internal control is the process effected by an entity's
board of directors, management, and other personnel, designed to provide reasonable assurance
regarding the achievement of objectives in the following categories:

         Effectiveness and efficiency of operations,

         Reliability of financial reporting, and

         Compliance with applicable laws and regulations.

In each of these categories of objectives, organizations will establish their own specific control
objectives and control procedures aimed at achieving these broad objectives. If organizations are
to meet these control objectives, five components of internal control--control environment, risk
assessment, control activities, information and communication, and monitoring--must be present.
That is the control objectives in each category are inextricably linked with the five supporting
components.



                                       We determined the following internal control categories
 We evaluated pertinent
                                       were relevant to our audit objectives:
 internal control systems
                                           Accounts Payable Procedures

                                           Dwelling Maintenance Practices

                                           Use of Low-Rent Program Funds

                                           Administration of the Risk Management Trust Fund

                                           Travel Policy and Practices

                                           Payroll Practices

                                           Accounting Books and Records

                                       We assessed all of the relevant control categories identified
                                       above. For the assessment we obtained an understanding of
                                       the design of relevant policies and procedures and whether
                                       they had been placed in operation, and we evaluated control
                                       risk.



96-SF-204-1003                                     Page 42
                                                                  Internal Control



                        A significant weakness exists if internal control does not
Significant control
                        give reasonable assurance that all three control objectives
weaknesses were noted
                        are met. Based on our review, we believe the following
                        were significant weaknesses:

                           The Authority did not make good faith efforts to submit
                           a viable and acceptable repayment plan (Finding 1).

                           The Authority placed an unwarranted and unquestioned
                           reliance on the City (Finding 2).

                           The Authority disregarded HUD requirements (Findings
                           3, 4, and 7).

                           The Authority's travel policy was not comparable to
                           local public practice (Finding 5).

                           The Authority used faulty judgement in its desire to
                           assist employees at the expense of its low-rent program
                           (Finding 6).




                                Page 43                                96-SF-204-1003
Follow Up On Prior Audits
The last Office of Inspector General (OIG) audit of the Housing Authority of the City of Las
Vegas (Report No. 89-SF-209-1004) was issued January 20, 1989. Eleven of the findings from
that report have not yet been closed. Those findings include a total of $6.3 million that has not
been paid to either HUD or the Authority's own low-rent program.

We also accomplished a Corrective Action Verification (CAV) and issued a report (93-SF-209-
1801) on October 30, 1992. One finding in that report is also still open and it includes an
additional $533,590 that needs to be returned to the Authority's Risk Management Trust Fund for
redistribution to the low-rent program.

This report discusses the open issues and addresses ways that the open findings can be closed.




96-SF-204-1003                               Page 44
                                      Follow Up On Prior Audits




(This page is intentionally blank.)




              Page 45                                96-SF-204-1003
                             Appendix A

Auditee Comments




96-SF-204-1003     Page 46
          Appendix A




Page 47    96-SF-204-1003
Appendix A




96-SF-204-1003   Page 48
          Appendix A




Page 49    96-SF-204-1003
Appendix A




96-SF-204-1003   Page 50
                                      Appendix A




(This page is blank intentionally.)




              Page 51                  96-SF-204-1003
                             Appendix B

Field Office Comments




96-SF-204-1003     Page 52
          Appendix B




Page 53    96-SF-204-1003
Appendix B




96-SF-204-1003   Page 54
          Appendix B




Page 55    96-SF-204-1003
                                                                     Appendix C

Schedule of Non-Aided and Other Assets

                  AVAILABLE NON-AIDED AND OTHER ASSETS


                                                   Loan
  Development Name                  Recorded     Amount @
                                   Book Value     9/30/94     Difference
  Non-Aided
    Rayson Manor Annex              $ 947,026      $     0     $ 947,026
    Robert Gordon Plaza             10,115,024    1,835,051     8,279,973
    Howard Cannon Center             1,291,016           0      1,291,016
    Rulan Earl Mobile Home Park      1,017,877     470,240        547,637
    Sartini Plaza Annex              1,942,314           0      1,942,314
    James Jones Gardens              1,602,640           0      1,602,640
    Houses                             463,679           0        463,679
    Torrey Pines Land                  553,711           0        553,711
    Central Office Additions            59,198           0         59,198
    Structures                          35,487           0         35,487
       Subtotal                    $18,027,972   $2,305,291   $15,722,681
  Rayson Manor                      $3,249,346   $1,920,323    $1,329,023
  Madison Terrace                   $1,393,180   $1,044,107     $349,073
       Total                       $22,670,498   $5,269,721   $17,400,777




96-SF-204-1003                        Page 56
                                      Appendix B




(This page is blank intentionally.)




              Page 57                      96-SF-204-1003
                                                                                 Appendix D

Schedule of Ineligible Costs
Finding Number                                              Amount (a)

2.   Funds improperly disbursed for
     relocation fees and deposits                         $ 35,800

2.   Funds spent for utilities and
     utility allowances that did
     not meet relocation expense
     requirements                                            32,031

3.   Refunded PILOT                                         354,574

4.   Non-federal program misspent
     RMTF's monies                                      386,945

7.   Ineligible expenditures for
     termination pay and unused
     sick leave                                              21,302

     Total                                                $830,652


(a) Ineligible amounts obviously violate law, contract, HUD or local agency policies or
regulations.




96-SF-204-1003                              Page 58
                                      Appendix D




(This page is blank intentionally.)




              Page 59                  96-SF-204-1003
                                                                               Appendix E

Distribution
Secretary's Representative, 9AS
Director, Office of Public Housing, 9APH (2)
Director, Housing Division, 9H
Comptroller, 6AF (Attn: K.J. Brockington)
Chief, Multifamily Housing Management Branch, 9KHM
Assistant Secretary for Public and Indian Housing, P (10)
Chief Financial Officer, F (10)
Assistant to the Deputy Secretary for Field Management, SC
Acquisitions Librarian, Library, AS
Barbara Burkhalter, Audit Liaison Officer, PF (4)
Deputy Chief Financial Officer for Operations, FO (2)
Associate Director, US GAO, 820 1St. NE Union Plaza, Bldg. 2,
    Suite 150, Washington, DC 20002, Attn: Jim Wells (2)

Frederick A. Brown, Executive Director, Housing Authority of the City of Las Vegas,
    P.O. Box 1897, Las Vegas, Nv. 89125




96-SF-204-1003                             Page 60
                                      Appendix E




(This page is blank intentionally.)




              Page 61                 96-SF-204-1003
Appendix E




96-SF-204-1003   Page 62