oversight

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)

                                          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
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Text item    1:

            Attached is the audit-related memo on the Cherokee     Health
            System.
File item   2: CHEROKE2.ARM 11/6/96 12:42PM
[20] 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
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Re: Cherokee Health System