U.S. Department of Housing and Urban Development District Office of the Inspector General Richard B. Russell Federal Building 75 Spring Street, SW, Room 700 Atlanta, GA 30303-3388 (404) 331-3369 November 6, 1996 Audit-Related Memorandum No. 97-AT-214-1804 MEMORANDUM FOR: William S. McClister, Director, Multifamil y Housing Division, 4JHM FROM: Ted E. Drucker, Acting District Inspector General fo r Audit-Southeast/Caribbean, 4AGA SUBJECT: Independent Auditor Report of Apparent Illegal Acts Cherokee Health Systems Talbott, TN We have reviewed information from an Independent Auditor (IA ) concerning apparent illegal ac ts by an employee of Cherokee Health System s (CHS), a management agent for two HUD-assisted projects . The information pertained to p ossible diversions of project funds. Our limited review also included corrective actions. We interviewed your staff and reviewed the project files , interviewed CHS staff and reviewed their financial and accounting contro ls, and performed a cursory review of the IA's workin g papers. We also reviewed the receipt and deposit of cas h applicable to HUD-subsidized o perations for selected test periods, including periods when the diversions occurred. SUMMARY CHS co rrective actions were generally adequate, as was IA audi t coverage, and we plan no additional audit work pertaining to either CHS or the IA. BACKGROUND CHS manages two projects owned by Five Rivers Service, Inc. (Owner) in acc ordance with a HUD-approved management agreement. Th e projects are HUD group home projects for mentally handicappe d individuals, project #087-EH053-NP-CMI in Morristown, TN an d project #087-EH075-NP-CMI in Tazewell, TN. Each project has nine uni ts. In addition to HUD-subsidized rental operations for eac h project, Five Rivers provides food and attendant care services to the tenants for a separate fee , which is not HUD-subsidized. Five Rivers maintains separate financial records and bank accounts for each project and between HUD-subsidized and non HUD-subsidize d operations for each project. The IA engaged to audit the Owner's financial statements for th e year ended September 30, 1995, reported to the HUD Office o f Inspector General that management discovered cash receipts o f about $4,500 could not be accounted for. The IA reported that for th e period July 1, 1995, through September 30, 1995, receipt s documented in receipt books were not deposited, approximatel y $1,700 from HUD-subsidized operations and $2,800 from food an d attendant care services. The IA indicated a breakdown in internal controls caused the discrepanc ies not to be timely identified, and CHS had reimbursed the Owner for the missing funds. RESULTS OF REVIEW The IA's description of events and transactions was accurate. No conc lusive determination of who was responsible for the missin g funds was reached. CHS repaid the Owner for the missing fund s becaus e it concluded its internal controls over the receipt an d deposit of cash did not adequately fix responsibility between two employees. Our review disclosed no additional funds missing. CHS stren gthened its internal control system so that employee responsibility fo r cas h collections is now clearly defined. We concluded CH S corrective actions were adequate. Base d on the actions taken by CHS, and the IA's work, we plan n o further audit work. * * * * Should you or your staff have questions, please contact Rudy E . McBee, Assistant District Inspector General for Audit, at Ext . 4368. Attachment - Distribution ATTACHMENT DISTRIBUTION Secretary's Representative, 4AS Director, Field Accounting Division, 4AFF Special Agent-in-Charge, Southeast/Caribbean, 4AGI Knoxville Area Coordinator, 4JS Director, Multifamily Division, 4JHM (2) Director, Office of Internal Control and Audit Resolution, FO I (Room 10176) (2) Audit Liaison Officer, Office of Housing, HF (Room 5132) (3) Executive Director, Cherokee Health Systems, 6350 W. Andrew Johnson Highway, Talbott, TN 37877 [18 ] From: Marcia E. Larner at atlpost1 12/30/96 12:21PM (19326 1 bytes: 2 ln, 1 fl) To: Morris F. Grissom at OIGPOST2 Receipt Requested bcc: Marcia E. Larner Subject: Cherokee Health System ------------------------------- Message Content s ------------------------------- Text item 1: Attached is the audit-related memo on the Cherokee Health System. File item 2: CHEROKE2.ARM 11/6/96 12:42PM  From: Morris F. Grissom a t OIGPOST2 1/2/97 8:54AM (235 bytes: 1 ln) To: Marcia E. Larner at ATLPOST1 Subject: Receipt of 12/30/96 12:21PM message ------------------------------- Message Content s ------------------------------- Re: Cherokee Health System
Cherokee Health Systems, Talbott, TN
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-11-06.
Below is a raw (and likely hideous) rendition of the original report. (PDF)