Issue Date
October 3, 1996
Audit Case Number
97-CH-202-1001
TO: Richard B. Kruschke, Director, Office of Public Housing, Illinois State Office
FROM: Dale L. Chouteau, District Inspector General for Audit, Midwest
SUBJECT: Franklin County Housing Authority
Comprehensive Review
West Frankfort, Illinois
We completed an audit of the Franklin County Housing Authority. We conducted the audit at
the request of HUD's Illinois State Office. Our audit objectives were to determine whether the
Authority administered its housing activities in an efficient, effective, and economical manner
and in compliance with the terms and conditions of the Annual Contributions Contract, applicable
laws, HUD regulations, and other applicable directives. The audit did not include the Section 8
Program.
The Franklin County Housing Authority needs to improve its procedures. The Authority needs
to do more to improve the administration of its programs and ensure compliance with the Annual
Contributions Contract and other HUD requirements. This report addresses issues related to: (1)
poor cash receipt controls; (2) improper administration of the Public Housing Drug Elimination
grant; (3) inadequate safeguards over its inventories of parts and supplies; and (4) inadequate
controls over tenant accounts receivables.
Within 60 days, please give us, for each recommendation made in the report, a status report on:
(1) the corrective action taken; (2) proposed corrective action and the date to be completed; or
(3) why action is considered unnecessary. Also, please furnish us copies of any correspondence
or directives issued because of the audit.
Should your staff have any questions, please have them contact me at (312) 353-7832.
Management Memorandum
(THIS PAGE LEFT BLANK INTENTIONALLY)
97-CH-202-1001 Page ii
Executive Summary
We completed an audit of the Franklin County Housing Authority. Our audit objectives were to
determine whether the Authority administered its housing activities in an efficient, effective, and
economical manner and in compliance with the terms and conditions of the Annual Contributions
Contract, applicable laws, HUD regulations, and other applicable directives. The audit did not
include the Section 8 Program.
The Authority's internal controls are weak, and offered opportunity for its employees to misuse
or divert funds. We found no evidence that the employees misappropriated assets.
The Franklin County Housing Authority lacked adequate
The Authority lacked
controls over its cash receipts. Specifically, the Authority:
adequate controls over its
(1) allowed employees and others to cash personal checks,
cash receipts
totalling $40,575, against cash rent collections; (2)
reimbursed the petty cash fund $14,659 from cash rent
receipts; (3) did not make bank deposits timely; (4) did not
follow-up on cash shortages and overages in the rent
deposits; (5) did not properly reconcile the cash receipt
drawers; (6) did not properly use rent receipt forms; (7) did
not immediately endorse third party checks for deposit
only; and (8) did not adequately segregate cash receipt
duties. The Executive Director said the problems were due
to administrative oversight. Also, the Authority lacked
established policies or procedures to control the cash receipt
function. Consequently, the Authority cannot assure HUD
that its cash receipts were adequately controlled or
safeguarded.
The Franklin County Housing Authority did not properly
The Authority did not
administer its Public Housing Drug Elimination Program
properly administer the
grant. Grant costs of $46,469 were not adequately
Drug Elimination
supported or did not relate to the administration of the
Program
Program. Also, the contracts executed lacked specificity as
to the work to be performed. The Authority's former
Executive Director did not ensure that contractors used for
the Program properly supported their costs or that
administrative funds drawn down were used for the
Program grant. As a result, HUD cannot be assured that all
costs associated with the grant were necessary or that the
overall administration of the Program was adequate.
Page iii 97-CH-202-1001
Executive Summary
The Franklin County Housing Authority did not adequately
The Authority did not
safeguard its inventory of parts and supplies. Specifically,
properly safeguard its
the Authority did not maintain adequate inventory records
parts and supplies
and it lacked written policies and procedures to control its
inventory
inventory. As a result, HUD has no assurance the inventory
was properly accounted for and safeguarded against loss,
misuse, or waste.
The Franklin County Housing Authority lacked adequate
The Authority lacked
controls over its tenant accounts receivable balances. The
adequate controls over its
Authority did not: (1) enforce collection efforts on a
tenant accounts
consistent basis; and (2) obtain the Board of
receivables
Commissioners' approval to write off delinquent accounts.
We attribute these deficiencies to a lack of written policies
and procedures governing the tenant accounts receivable
process. As a result, the Authority cannot assure HUD that
its tenants were receiving fair and equitable treatment and
that collection efforts were adequate.
We recommend that the Director of Public Housing, Illinois
State Office, assures that the Authority takes action to
correct the weaknesses cited in this report.
We provided our draft findings to the Executive Director
and HUD's Illinois State Office during the audit. We held
an exit conference with the Executive Director on
September 18, 1996. The Executive Director provided
written comments to our findings and recommendations.
Excerpts from the comments are included in each finding
and Appendix B contains the complete comments.
97-CH-202-1001 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The Authority Lacked Controls Over
Its Cash Receipts 3
2 The Authority Did Not Properly
Administer Its Public Housing
Drug Elimination Grant 17
3 The Authority Did Not Adequately
Safeguard Its Inventory of Parts
and Supplies 25
4 The Authority Lacked Adequate
Controls Over Its Tenant Accounts
Receivables 31
Internal Controls 37
Follow Up On Prior Audits 39
Page v 97-CH-202-1001
Table of Contents
Appendices
A Schedule of Unsupported Costs 41
B Auditee Comments 43
C Distribution 53
97-CH-202-1001 Page vi
Introduction
The Franklin County Housing Authority was established by Franklin County pursuant to the laws
of the State of Illinois. The Authority is governed by a Board of Commissioners consisting of
five unpaid members who formulate and direct the Housing Authority's policies. The Chairman
of the Board is William Crocker. The Executive Director, Monica Stewart, is responsible for the
day-to-day operations.
The Authority operates four programs: (1) a Low-Income Housing Program comprised of 686
units, of which 397 are designated as elderly units; (2) a Section 8 Voucher Program consisting
of 49 vouchers; (3) a Comprehensive Grant Program; and (4) a Family Investment Center
Program.
The Authority's books and records are located at its central office at 312 East Elm Street, West
Frankfort, Illinois.
The audit objectives were to determine whether the
Audit objectives
Authority administered its housing activities in an efficient,
effective, and economical manner and in compliance with
the terms and conditions of the Annual Contributions
Contract, applicable laws, HUD regulations, and other
applicable directives.
To achieve the objectives, we interviewed HUD and
Audit scope and
Authority staff to obtain information relating to the
methodology
Authority's operations and internal controls. We reviewed
the Authority's policies and procedures and Board meeting
minutes to evaluate the policies and procedures. We
reviewed the Comprehensive Grant Program files and
contracts for proper execution and support of payments.
We analyzed the Low-Rent, Drug Elimination Grant, and
Family Investment Centers' general ledgers, cash receipts,
cash disbursements, billing statements, and payment
vouchers to verify the accuracy of receipts and
disbursements. We reviewed bank statements and
cancelled checks to assure that all sources of cash were
accounted for. We also analyzed tenant accounts
receivables, inventories, bank statements, and investment
records to insure that its assets were safeguarded and
properly recorded in the Authority's records.
The audit covered the period March 1, 1994 to February 29,
1996. We expanded the coverage as necessary. We
Page 1 97-CH-202-1001
Introduction
performed the on site audit work between April 1996 and
August 1996.
We conducted our audit in accordance with generally
accepted government auditing standards.
We provided a copy of our report to the Authority's
Executive Director.
97-CH-202-1001 Page 2
Finding 1
The Authority Lacked Controls Over Its Cash
Receipts
The Franklin County Housing Authority lacked adequate controls over its cash receipts.
Specifically, the Authority: (1) allowed employees and others to cash personal checks, totalling
$40,575, against cash rent collections; (2) reimbursed the petty cash fund $14,659 from cash rent
receipts; (3) did not make bank deposits timely; (4) did not follow-up on cash shortages and
overages in the rent deposits; (5) did not properly reconcile the cash receipt drawers; (6) did not
properly use rent receipt forms; (7) did not immediately endorse third party checks for deposit
only; and (8) did not adequately segregate cash receipt duties. The Executive Director said the
problems were due to administrative oversight. Also, the Authority lacked established policies
or procedures to control the cash receipt function. Consequently, the Authority cannot assure
HUD that its cash receipts were adequately controlled or safeguarded.
HUD Handbook 7511.1, Chapter 3, Section 1, Part 4b(3)
HUD Requirements
states that the cash drawer assigned to an employee for
receiving collections from tenants should not be used by
another employee for any purpose. No other person should
have access to the cash drawer except for a periodic cash
count in the presence of the employee to whom the drawer
is assigned. Part 4b(4)(a) states that all cash receipts should
be prenumbered and should be used in numerical sequence
and all copies of voided receipts should be maintained for
accountability purposes. Part 4b(4)(b) states that cash
receipts are to be signed by the employee receiving the
collection. Part 4b(4)(c) states that employees authorized
to accept rent collections from tenants should be assigned
a set of receipts for his or her sole use.
HUD Handbook 7511.1, Chapter 3, Section 1, Part 5(a)
states that cash receipts should be deposited in the bank
intact, as frequently as possible, preferably daily. If daily
deposits are not possible, due to weekends or holidays, the
cash should be stored in a locked fireproof safe or vault.
Disbursements should never be made from cash receipts.
Part 5(c) states that bank deposit tickets should show
complete details as to coin, currency, and checks deposited.
HUD Handbook 7511.1, Chapter 3, Section 1, Part 6 states
that cash collections should be reconciled daily with the
Page 3 97-CH-202-1001
Finding 1
total of receipts issued and any cash overage or shortage be
accounted for.
HUD Handbook 7511.1, Chapter 3, Section 1, Part 7(b)
states that the Board of Commissioners should establish a
policy governing cash shortages. The policy should
identify procedures to follow when cash shortages occur.
The procedures should include the type of investigation that
should take place, the reports to be prepared, and the factors
to consider in determining whether the accountable
employee should or should not be relieved of responsibility.
Internal control comprises the plan of organization,
methods, and procedures adopted by management to ensure
safeguarding of resources against waste, loss, and misuse.
The important features of an adequate system of internal
controls are:
• Control should be established early in a transaction and
carried through to its completion.
• No person should have complete control over all phases
of any significant transaction.
• Work should flow from one employee to another
without ever returning to an employee.
• Record keeping should be separate from operations or
the handling and custody of assets. For example, the
bookkeeping function should be separate from the
receipt function including the collection and issuance of
receipts. An employee who collects and issues receipts
for rental payments should not be responsible for
recording payments and adjustments to tenant accounts.
We judgmentally selected and reviewed, in detail, four
Employees cashed their
months of rent collections and bank deposits. The months
personal checks from
reviewed were January 1996, December 1995, August
Authority funds
1995, and April 1995. These four months were selected for
detailed review in order to evaluate cash receipt activity at
various intervals. We performed a limited review of all
other rent collections and deposits for the period of January
1994 to July 1996.
97-CH-202-1001 Page 4
Finding 1
Authority employees cashed personal checks for themselves
and others against the cash collected from tenant rent
payments. The Authority accepts rent payments in cash as
a convenience to the residents, as many residents do not
have a personal checking account. Authority employees
said the practice of cashing personal checks had always
occurred and was allowed for their convenience. The
Executive Director was unaware that the practice of cashing
personal checks was not allowed.
During the period January 1994 to July 1996, Authority
employees and other persons cashed 676 personal checks
totalling $40,575 against cash rent collections. This activity
is summarized as follows:
Amount
Payor Cashed
Executive Director $19,274
Section 8 Coordinator 7,272
Section 8 Coordinator's Boyfriend 2,402
Leasing & Occupancy Specialist 2,620
Accounts Receivable Clerk 949
Modernization Coordinator 1,069
Social Advisor 740
Former Executive Director 283
Miscellaneous 4,497
Unknown 1,469
Total $40,575
The miscellaneous amount consisted of: (1) five Authority
employees who cashed between $20 and $200 in personal
checks; (2) two checks from a local car dealership; and (3)
12 nonemployees who cashed between $5 and $274 each.
The unknown amount represents checks listed on the
deposit tickets that were not identified by a name. The
dollar amount was shown on the deposit tickets; however,
Page 5 97-CH-202-1001
Finding 1
the payee line was left blank. The Executive Director said
the Authority did not cash personal checks for
nonemployees and could not explain the miscellaneous or
unknown check amounts.
The three employees who maintained a rent drawer wrote
personal checks against their rent collections, totaling
$7,272; $2,620; and $949; respectively. While the three
employees cashed checks for other employees, no one
watched as they cashed their own personal checks against
the rent collections. The Executive Director said the
cashing of personal checks had always been a normal
practice at the Authority.
Since the Authority is not maintaining the rent receipts
intact as received by the residents, full accountability and
proper safeguarding of the cash assets cannot be assured.
We informed the Executive Director that the practice of
cashing personal checks was against HUD regulations. She
informed us that the practice had stopped during May 1996,
after we had spoken to her. During our review, we did not
identify any employee personal checks cashed in the June
or July 1996 bank deposits. However, the Authority had
not implemented a formal policy to prohibit future
occurrences.
Additionally, the Authority reimbursed its petty cash fund
Cash rent collections
from the cash rent collections. From January 1994 to June
were used to reimburse
1996, the Authority wrote 96 checks totalling $14,659 to
the petty cash fund
petty cash using rent collections to reimburse its petty cash
fund. The Executive Director said in the past, the account
was reimbursed when it was low and cash was immediately
needed, but it was a very infrequent occurrence.
The Authority failed to deposit the rent received from its
Bank deposits were not
tenants in a timely manner. The Authority makes bank
made timely
deposits on an as needed basis. There are no prescribed
time frames or amount of cash on hand at which a deposit
is required. The Executive Director acknowledged that the
Authority was lax and some deposits were made late.
During the four months reviewed, the Authority failed to
deposit 971 receipts totaling $127,460 in a timely manner.
97-CH-202-1001 Page 6
Finding 1
The deposits were made from three to 20 days after the rent
was received by the Authority as follows:
Number Dollar
of Days Deposit Amount
s
3 313 $ 38,578
4 234 34,182
5 101 13,107
6 59 8,906
7 85 10,727
8 41 4,640
9 10 1,237
10 47 7,173
11 15 2,072
12 13 1,171
13 17 1,796
14 3 495
15 15 1,423
16 5 429
17 4 331
18 1 188
19 2 377
20 6 628
Totals 971 $127,460
As outlined in the above table, there were many instances
in which a significant amount of cash such as $10,000 or
more was not deposited timely and was not properly
safeguarded. Also, since the Authority earns interest on
Page 7 97-CH-202-1001
Finding 1
funds deposited, the lack of timely deposits results in lost
revenue to the Authority.
The Authority currently maintains two rent drawers, each
located inside the cubicle of two employees. One drawer is
maintained by the Authority's Accounts Receivable Clerk
and the other drawer is maintained by the Leasing and
Occupancy Specialist. Each drawer maintains a $250 daily
cash balance. The drawers are not locked during the day
and they are not fireproof.
The Accounts Receivable Clerk places her rent drawer in a
fireproof vault at night and on the weekends. The Leasing
and Occupancy Specialist leaves the rent drawer in her
locked desk at night and on the weekends. She felt that her
locked desk was more secure than the vault because several
employees had access to the vault.
The Authority did not require the two employees who were
The Authority did not
assigned a rent drawer to reconcile cash activity in the rent
follow up on cash
drawers daily. Rather, the two employees said they
overages and shortages
reconciled the rent drawers about once a week. Also, the
Authority did not follow-up on cash shortages and overages
in its deposits.
The amount of cash in the two rent drawers is not
reconciled by the Authority when it prepares a bank
deposit. If an error was made in determining the amount to
be deposited, the bank deposit would be short or over and
the error would not be detected until the rent drawers were
reconciled.
On numerous occasions, bank deposit tickets we reviewed
showed minor cash shortages and cash overages. For
example, one deposit ticket dated August 2, 1995 was over
by $10 and another deposit ticket, dated August 4, 1995,
was short by $10. On two deposit tickets, dated May 3,
1995 and May 12, 1995, an employee wrote on the deposit
ticket that the amount was purposely $3 short and $3 over,
respectively.
On January 9, 1996, the Authority's bank deposit was $100
less than the amount that should have been deposited. The
Section 8 Coordinator, who maintained one of the
97-CH-202-1001 Page 8
Finding 1
Authority's cash drawers at the time, said the recorded total
rent receipts were $100 less than the amount actually
collected and the deposit total was obtained from the
recorded receipt total. Also, the Section 8 Coordinator said
because the amount deposited was $100 less than the
amount that should have been deposited, the rent drawer
balance was probably $100 over when the deposit was
made. On January 17, 1996, the bank deposit was $100
more than the recorded receipt total. The Section 8
Coordinator said the $100 overage was probably discovered
when the rent receipts and the cash in the drawer were
reconciled. The amount of the January 17, 1996 deposit
was increased to correct the previous $100 cash shortage.
The Authority did not have procedures to investigate cash
shortages or cash overages. The Executive Director
acknowledged that these shortages and overages did occur,
but said it was an infrequent occurrence. Also, the
Executive Director said a new cash management policy was
being prepared and it would include a section to handle
cash shortages and overages. The cash management policy
is expected to be finalized after completion of our audit
work.
The Authority does not reconcile its cash drawers daily, as
Cash drawer
prudent business practice dictates. According to the
reconciliations were not
Executive Director, the cash drawers are reconciled
properly performed
approximately each week during the first part of the month.
However, the reconciliations are not documented and the
dates they are performed are not recorded by the Authority.
She acknowledged that they had become lax in this area.
By not properly performing cash drawer reconciliations, the
Authority is not adequately safeguarding its cash assets and
cannot assure HUD that it properly controlled its cash
receipts.
The Authority did not use prenumbered rent receipt forms
Rent receipt forms were
for regular tenant rents collected. Prenumbered receipts
not properly used
were only used for rent adjustments and to record payments
made for other than regular monthly rent. The Authority
did not maintain the voided pre-numbered rent receipt
forms.
Page 9 97-CH-202-1001
Finding 1
For regular tenant rents, the Authority manually stamped a
set of rent cards with the date paid and a receipt number
when the rent was paid by the tenant each month. A receipt
properly recording the transaction was not made outlining
the method of payment such as cash, check, or money
order. Also, the rent card was not signed by the Authority
employee conducting the transaction. This does not allow
for proper accountability of the cash transaction should
there be a discrepancy in the cash receipt or deposit
process. Additionally, the rent checks were not always
immediately endorsed "For Deposit Only" to the Authority's
account.
During the four months reviewed, we identified the
following discrepancies: (1) the same receipt number was
issued to two different tenants in seven cases; and (2) the
rent card was stamped with two different receipt numbers
in eight cases. The first number was voided on the rent card
and in one case, the number was not sequential. The
Executive Director said it was probably human error that
caused the rent cards to have duplicate and voided receipt
numbers on them. The Executive Director said the
Authority was working with a consultant to obtain a new
computer system. The new system would be used for
tenant rents and would be able to print prenumbered rent
receipts.
The Authority did not maintain the prenumbered rent
receipts that were voided. The Accounts Receivable clerk
said the receipts that were voided were discarded. Without
maintaining these receipts, proper accountability cannot be
assured.
The Authority accepts third party checks such as
Third party checks were
government aid checks and social security checks for rent
not immediately endorsed
payments. These checks are not immediately endorsed "For
for deposit only
Deposit Only" in the Authority's account. Once they are
signed by the payee, the check becomes a bearer instrument
and can be cashed by anyone. Endorsing the check
immediately protects both the Authority and the tenant from
loss or theft, as the check cannot be cashed and can only be
deposited in the Authority's account.
97-CH-202-1001 Page 10
Finding 1
The Authority did not adequately segregate the duties
Cash receipt duties were
relating to the cash receipt function. The Authority's
not adequately segregated
Accounts Receivable Clerk and its Leasing and Occupancy
Specialist were the only two employees specifically
authorized to accept rent payments. The Accounts
Receivable Clerk was also responsible for updating
payment records and thus effectively had control over
tenant account balances. Although there was no indication
that the Accounts Receivable Clerk took advantage of the
opportunity to divert rent collections, she could have
diverted funds without detection by controlling accounting
entries to the cash receipts subsidiary ledger. Proper
accounting procedures require adequate segregation of
duties in order to provide control and assign accountability
over the cash receipt function.
The Executive Director said the Accounts Receivable Clerk
was assigned to collect rent because of the limited staff.
She agreed that this was not a proper segregation of duties.
Rent payments were accepted by all staff assigned to the
Several employees
Authority's administrative office. There were no policies or
accepted tenant rent
procedures that outlined who was specifically authorized to
payments
accept rent payments. Two individuals were specifically
authorized to accept cash receipts. However, all
administrative staff were allowed to accept rent payments
when the assigned individuals were unavailable. Since all
administrative staff were allowed to accept rent payments
and rent receipt forms were not properly issued, the overall
control and proper accountability of the cash receipt
function was compromised.
The Authority's Executive Director acknowledged that they
had not yet adopted policies or procedures to control the
cash receipts or any aspect of the financial management
process of the Authority. Although the Authority has
developed a draft version of a cash management policy,
finalization of the policy will not be done until completion
of our audit work.
Cash is an asset which is easily converted to improper use
in the absence of program controls. Therefore, cash must
be properly accounted for and adequately safeguarded. The
responsibility for safeguarding and accounting for cash rests
Page 11 97-CH-202-1001
Finding 1
primarily with the Executive Director and Chief Accountant
or Financial Manager of the Housing Authority and the
individuals receiving, recording, depositing, and disbursing
cash. During our review, we found no indication that the
Authority's employees took advantage of the opportunity to
divert funds.
Auditee Comments Excerpts from the Executive Director's comments on our
draft finding follow. Appendix B contains the complete
text of her comments.
The Executive Director issued a written memo to all
employees on May 9, 1996 explaining that personal checks
would no longer be cashed. The issue of cashing personal
checks is being addressed in the Financial Management
Policy.
The checks issued to reimburse petty cash were cashed
from Authority funds. This practice is similar to the
cashing of personal checks. This practice is no longer
being used and will also be addressed in the Financial
Management Policy.
Presently deposits are being made more timely. The
Authority is in the process of instituting a daily written
reconciliation and daily deposits. The Authority will
continue to maintain two cash drawers and is in the process
of obtaining new cash drawers that will be more secure and
fireproof. The Financial Management Policy will also
address the placing of the cash drawers in the vault and
keeping the drawers locked.
When a deposit was made the drawers were reconciled. In
the Financial Management Policy the Authority will address
the procedure for daily reconciliations and the criteria for
making a deposit.
Although the Authority does not have a written procedure
to investigate cash shortages and cash overages, when
either have occurred the Authority has attempted to find the
error. In most cases the errors have been found.
97-CH-202-1001 Page 12
Finding 1
The written procedures for investigating cash shortages or
cash overages will be addressed in the Financial
Management Policy.
The Authority acknowledges that it has been lax in
reconciling cash drawers, as previously noted. Again this
will be addressed in the Financial Management Policy.
Both the Accounts Receivable Specialist and the Leasing
and Occupancy Specialist said that after making their
deposits they each count their cash drawers to assure that
the drawers are balanced to $250.00.
The Financial Management Policy will also address the use
of daily written reconciliations.
After the OIG expressed his concern that the statements
were not prenumbered, the Authority began numbering the
rent statements before they were mailed. The Authority
found that this created some problems. Some of the
statements were not returned when payments were made
(due to them being lost, torn, etc.) therefore the Authority
has rent receipt numbers that cannot be accounted for.
All rent statements are numbered with a duplicate number
stamper when the statement is returned from the bank or
when a resident pays their rent. Therefore, all rent
statements are numbered at some point. The Authority does
use prenumbered receipts for payments and adjustments.
The voided prenumbered receipts are retained by the
Authority and placed in the batches.
The Authority has plans to obtain software that will
generate cash receipts, which will give all the information
that is needed.
Since approximately July 1, 1996 we have been stamping
checks upon receipt. This procedure will also be addressed
in the Financial management Policy.
The Executive Director does agree that duties should be
more segregated, but finds this difficult because of the size
of the Authority staff.
Page 13 97-CH-202-1001
Finding 1
Although the Accounts Receivable Specialist collects rent
and posts to the computer, the receipts with the deposit slip
goes to the Section 8 Coordinator to be posted manually
and to be batched. When batching the receipts the Section
8 Coordinator verifies that the receipts balance with the
deposit slip. After batched, the receipts go back to the
Accounts Receivable Specialist to be posted on the
computer.
The Authority feels that once computer generated receipts
are used it will allow less chance for any account to be
manipulated.
Approximately June 1, 1996 the Executive Director
informed all staff that the Leasing and Occupancy Specialist
and the Accounts Receivable Specialist would be accepting
rent payments.
Although the Board of Commissioners has not formally
adopted a Financial Management Policy, many procedures
have been implemented by the Executive Director and
carried out by the staff.
Some of the procedural changes the Authority has
implemented since the Inspector General audit began
includes: no longer cashing personal checks, only two staff
members collect rent and have access to their assigned cash
drawers, all deposits are verified by a second party, all
deposits are placed in a locked bank bag by a third party
and taken to the bank by a fourth party, and all checks are
stamped "For Deposit Only" upon receipt.
OIG Evaluation of The Authority's current development of a financial
Auditee Comments management policy shows positive action to address the
finding and recommendations.
The Section 8 Coordinator's matching of rent receipts with
bank deposit slips would not necessarily prevent the
Accounts Receivable Specialist from diverting rent
collections. The collection of rent and posting of payments
to tenant accounts still gives the Accounts Receivable
Specialist control over tenant account balances.
97-CH-202-1001 Page 14
Finding 1
Recommendations We recommend that the Director of Public Housing, Illinois
State Office, assure that the Franklin County Housing
Authority:
1A. Prohibits the cashing of personal checks and
reimbursing of the petty cash fund using cash rent
collections.
1B. Ensures that all cash receipts are deposited intact
and in a timely manner. A fireproof safe should be
used for the storage of all monies kept overnight and
on weekends.
1C. Reconciles cash balances on a daily basis and
investigates cash shortages and overages. The
Authority should follow-up on all cash shortages
and overages to determine the reason for the
discrepancies and take any necessary corrective
action(s).
1D. Uses prenumbered receipt forms for recording all
monies received by the Authority. The receipts
should always be signed and dated by the employee
receiving the money. Any voided receipts should be
maintained for proper accountability.
1E. Immediately endorses all third party checks received
"For Deposit Only."
1F. Segregates the duties of its employees to the extent
practical. No employee should have complete
control over all phases of the cash receipt function.
1G. Restricts rent collection responsibilities only to
specific authorized employees.
1H. Establishes formal policies and procedures to
control cash receipts. The policies and procedures
should be approved by the Authority's Board of
Commissioners.
Page 15 97-CH-202-1001
Finding 1
(THIS PAGE LEFT BLANK INTENTIONALLY)
97-CH-202-1001 Page 16
Finding 2
The Authority Did Not Properly Administer Its
Public Housing Drug Elimination Grant
The Franklin County Housing Authority did not properly administer its Public Housing Drug
Elimination Program grant. Grant costs of $46,469 were not adequately supported or did not
relate to the administration of the Program. Also, the contracts executed lacked specificity as to
the work to be performed. The Authority's former Executive Director did not ensure that
contractors used for the Program properly supported their costs or that administrative funds
drawn down were used for the Program grant. As a result, HUD cannot be assured that all costs
associated with the grant were necessary or that the overall administration of the Program was
adequate.
The Drug Elimination Program grant agreement signed by
HUD Requirements
the Authority on November 4, 1992 states that all costs
associated with the grant must be reasonable and necessary.
The contracts that the Authority executed with the Franklin-
Williamson Human Services Agency and the West
Frankfort Police Department state that the contractors shall
provide documentation as to the activities initiated.
The Authority contracted with Franklin-Williamson Human
A contractor did not
Services Agency (the Agency), a non-profit organization,
perform required services
to administer the portion of the Drug Elimination Program
that dealt with education and direct resident contact. The
contract was for $96,024 and covered a 24 month period
from January 20, 1993 to January 20, 1995. During this
period, the Agency was required to provide programs and
services designed to educate Authority residents in areas of
substance abuse.
The contract specified that a full time substance abuse
coordinator shall be furnished by the Agency to administer
the Drug Elimination Program. According to Agency
officials, a full time coordinator is required to work 37.50
hours per week, or 450 hours per quarter. The Agency's
contract amount was largely based upon the cost of a full
time coordinator. The Agency billed the Authority on a
quarterly basis for services rendered.
Page 17 97-CH-202-1001
Finding 2
The Authority was billed by the Franklin Williamson
The Authority was billed
Services Agency for services the Agency did not provide.
for services not provided
The Agency billed the Authority $12,003 per quarter for six
quarters, as specified by their contract and it billed the
Authority for lesser amounts for three other quarters.
However, the Agency routinely worked less than the
required hours to support their billings.
During the contract period of January 20, 1993 to January
20, 1995, the Agency was required to provide 3600 hours
of service (150 hours per month for 24 months). During
that period the Agency could provide documentation to
support 2,320 hours, or 64 percent, of the required contract
hours. The Agency used the number of hours worked as a
percentage of hours required as a basis for billing during the
April to June 1994 period.
Agency officials acknowledged that they were not able to
provide the required time to the Drug Elimination Program
during much of 1994, and that this negatively impacted the
overall effectiveness of the Program. However, they did
not perform any type of analysis at the end of the program
to determine if the intended program results were achieved.
The Agency officials also said they tried as best they could
to properly administer the Program grant and were proud of
their efforts.
The Agency extended their services beyond the contract
expiration date of January 20, 1995. According to Agency
officials, services were provided until March 31, 1995,
because the Agency provided less time than planned during
much of 1994. Personnel problems within the Agency,
specifically employee turnover which could not be
controlled, were incurred during the administration of the
Program. Although the Agency did not have a contract
extension with the Authority, the Agency felt they owed the
Authority these additional services to wrap up the Program
as well as to properly administer the contract. During the
extended period, the Agency performed an additional 300.5
hours of work for a total of 2,620.5 hours, or 73 percent, of
the required total hours. Additionally, HUD granted the
Authority a six month extension for completion of the Drug
Elimination Program through May 1995. The Agency
97-CH-202-1001 Page 18
Finding 2
thought this extended their time to administer the grant as
well.
The maximum contractual amount the Agency could have
earned, had they performed all required hours, was
$96,024. However, having only completed 73 percent of
the required hours, the Agency is only entitled to collect a
maximum of $70,097 (73 percent of $96,024). The Agency
was actually paid $93,439 for their services, or $23,342
over the amount actually earned.
The following table outlines the hours worked by Franklin-
Williamson in relation to the hours required and the
amounts billed:
Ratio of
Hours
Worked to
Time Amount Hours Hours
Period Billed Worked Required
1/93-3/93 $12,003 Unknown N/A
3/93-5/93 $12,003 150.0 33%
6/93-9/93 $12,003 644.75 107%
10/93-12/93 $12,003 408.0 91%
1/94-3/94 $12,003 194.25 43%
4/94-6/94 $ 4,761 178.5 40%
7/94-9/94 $ 6,387 219.5 49%
10/94-12/94 $12,002 367.0 82%
1/95-3/95 $10,274 458.5 102%
Totals $93,439 2,620.5 73%
Page 19 97-CH-202-1001
Finding 2
The Authority paid the West Frankfort Police Department
Payments to West
$64,689, under two separate contracts for the Drug
Frankfort police were
Elimination Program grant. The contracts were to cover
unsupported
additional police services that were beyond the normal
services already provided to the Authority's developments.
These additional services included foot patrols at all
Authority developments and providing personnel to the
Southern Illinois Task Force.
During our review of amounts the Authority paid to the
Police Department, we found that the Authority improperly
paid three invoices totalling $14,856. These invoices did
not include information as to the services provided and
there were no time records to support the hours billed on the
invoices. During our review of the invoices, it could not be
determined what housing developments the services were
provided to, which officers provided the services, the times
the services were provided, and what was accomplished by
these additional services.
In addition to the lack of adequate supporting
documentation, two of the three invoices in question
included services performed prior to the execution of the
contracts between the Authority and the Police Department.
The contracts became effective on December 11, 1992.
The Police Department submitted a $5,000 invoice for
housing patrol services for the period of December 1 to
December 23, 1992 and a $5,056 invoice for an undercover
agent assigned to the Task Force for the period of
December 1, 1992 to March 31, 1993. Therefore, both
invoices billed for services that were provided prior to the
execution of the contracts. Authority officials could not
explain why the Police Department billed for services prior
to the contract execution date.
The Authority drew down excess administrative funds of
The Authority drew down
$8,271 under the Drug Elimination Program grant. This
excess funds for
amount included $4,886 in unsupported salary costs, $2,000
administrative costs
in audit costs that were not incurred, and $1,385 for a
security camera that the Authority had not purchased.
97-CH-202-1001 Page 20
Finding 2
The Authority drew down $5,584 to pay for salaries of the
former Executive Director and the current Executive
Director for their time associated with the Program grant.
The Executive Director and the former Executive Director
were the only individuals at the Authority who pro-rated
their time to the Drug Elimination Program.
There was no support for the former Executive Director's
time spent on the Program grant. The current Executive
Director provided support for time she spent administering
the Program from 1992 to 1995. The total cost of her time,
according to her records, was $698. The remaining balance
of $4,886 received by the Authority for Executive Director
salary costs was unsupported.
The Authority budgeted and drew down $2,000 for an audit
of the Drug Elimination Program grant funds. However,
the Program expenses were audited as part of the
Authority's annual audit at no additional cost to the
Authority.
Additionally, the Authority drew down funds for two
security cameras. One of the cameras, budgeted at $1,385,
was not purchased as anticipated due to complications with
the contractor. The Executive Director said the camera may
be purchased and installed in the high-rise development at
a later date when the lock system is changed. However,
there are no immediate plans to purchase the camera. The
funds received from HUD for the security camera were
deposited in the Authority's operating account and used for
normal operating expenses.
The Authority entered into a total of eight contracts under
Contracts did not
the Drug Elimination Program. None of the contracts
specifically state the work
adequately specified the services to be provided by the
to be performed
contractors. The contracts primarily addressed the dollar
amount and frequency of payments to the contractors.
For example, contracts with the police departments did not
specify how often the foot patrols would take place, which
housing developments would be patrolled, the time periods
that the patrols would take place, or how many officers
would patrol at a time. The contracts simply outlined how
much the police departments would be paid over the life of
Page 21 97-CH-202-1001
Finding 2
the contracts and the frequency of payments by the
Authority.
The lack of specificity in the contracts as to the work to be
performed makes it difficult for the Authority to evaluate
whether the contractors actually provided the services as
intended in the contractual arrangements.
Auditee Comments Excerpts from the Executive Director's comments on our
draft finding follow. Appendix B contains the complete
text of her comments.
The Authority will contact the Agency and seek supporting
documents for the amount paid. If supporting documents
are not provided the Authority will take necessary steps to
re-pay the amount owed to HUD.
The Authority will ask the West Frankfort Police
Department for supporting documents for the amounts paid.
If supporting documents cannot be provided the Authority
will take necessary steps to re-pay the amount owed to
HUD.
The Authority will seek supporting documents from the
former Executive Director for his time spent on the
program.
The Authority did not incur any additional costs for the
audit and will return the $2,000 as requested.
The Authority does anticipate eventually installing the
security camera that the funds were requisitioned for. The
Authority is requesting to keep the funds and the camera
will be installed in the very near future.
The Authority assures the OIG and Department of HUD
that all future contracts will be properly executed and funds
will not be expended until the contracts are properly
executed. The Authority assures the OIG and the
Department of HUD that all future contracts will be much
more specific as to what is to be provided by the
contractors.
97-CH-202-1001 Page 22
Finding 2
Recommendations We recommend that the Director of Public Housing, Illinois
State Office, assure that the Franklin County Housing
Authority:
2A. Provides justification for $23,342 in costs
applicable to the Franklin-Williamson contract
for hours of service not provided as specified in
the contractual arrangement. If adequate
justification cannot be provided, the Authority
should repay HUD for any unsupported amount.
2B. Provides documentation to support $14,856 of
Drug Elimination Program services provided by
the West Frankfort Police Department between
December 1992 and March 1993. If supporting
documentation cannot be provided, the
Authority should repay HUD for any
unsupported amount.
2C. Provides documentation to support the use of
$8,271 of Drug Elimination Program
administrative funds. If supporting
documentation cannot be provided to show that
the funds were used for the Drug Elimination
Program, the Authority should repay HUD for
any unsupported amount.
2D. Ensures that all future contracts specifically
address the work to be performed to provide a
basis for analysis of contractor results.
Page 23 97-CH-202-1001
Finding 2
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97-CH-202-1001 Page 24
Finding 3
The Authority Did Not Adequately Safeguard
Its Inventory of Parts and Supplies
The Franklin County Housing Authority did not adequately safeguard its inventory of parts and
supplies. Specifically, the Authority did not maintain adequate inventory records and it lacked
written policies and procedures to control its inventory. As a result, HUD has no assurance that
the inventory was properly accounted for and safeguarded against loss, misuse, or waste.
Section 309 of the Annual Contributions Contract requires
HUD requirements
housing authorities to maintain complete and accurate
books of accounts and records.
HUD Handbook 7510.1, The Low-Rent Accounting
Handbook, Chapter 7, paragraph 5(g) requires local
authorities to inventory equipment and supplies annually
and compare the inventory results with inventory records.
housing authority records must be adjusted for any
differences.
The Authority did not maintain adequate inventory records
Inventory records were
of the parts and supplies stored at its warehouse. The
not properly maintained
Authority records and controls its inventory through an
Inventory by Part Number With Costs Report (inventory
report). This record, however, does not accurately reflect
the actual inventory usage or inventory balance maintained
by the Authority.
The Authority's "Inventory by Part Number With Costs
The Authority's inventory
Report" records materials purchased and used during the
record was inaccurate
year, and the current cost of each part. It is used by the
Maintenance Department to keep track of the inventory in
stock. This report is adjusted at year end for any difference
resulting from the annual inventory count. However, the
overall accuracy or usefulness of the report is questionable
because of poor inventory controls.
We conducted an inventory count on June 10 and 11, 1996,
using the Authority's latest inventory records. We
compared the inventory records to actual items on hand.
Page 25 97-CH-202-1001
Finding 3
Eighty five commonly used parts and supplies were
selected for our review. The Authority maintains an
inventory of approximately 826 different parts. The
Authority's records indicated that the aggregate value of the
parts and supplies was approximately $23,000. The
Authority purchased approximately $50,000 worth of
supplies during the year.
During our inventory count, 29 of 85 items (34 percent) had
greater quantities on hand than the Authority's inventory
records indicated; 27 of 85 items (32 percent) had fewer
quantities on hand, and 29 of 85 items (34 percent) had
quantities that agreed with amounts shown on the
Authority's inventory records. Overall, 66 percent of the
items examined had incorrect quantities listed. Some
examples of the discrepancies follow:
Quantity
Per Quantity
Part Part Authority Per OIG
Description Number Records Count Difference
Faucet Stem 1410 18 24 6
Drain Stopper 2306 18 5 (13)
Supply Line 3340 14 24 10
Heater Element 4215 10 8 (2)
Faucet 5221 5 7 2
Burner 9350 3 0 (3)
Element 9570 4 5 1
Element 9575 2 4 2
Bulb 21330 24 45 21
Exterior Paint 27368 10 12 2
Exterior Paint 27369 2 10 8
Interior Paint 27385 44 40 (4)
Interior Paint 27390 18 23 5
97-CH-202-1001 Page 26
Finding 3
The Authority established re-order points for each part or
supply listed on the inventory sheets. However, the
usefulness of the re-order points is diminished because the
inventory report is not accurate. The Authority's
Maintenance Superintendent would like to use the
inventory listing to determine when to re-order parts.
However, he normally has to physically inspect the parts
bins to determine the quantities on hand. He also said he
has run out of some parts and supplies because the
inventory report showed there were sufficient quantities on
hand when that was not actually the case. This is an
inefficient and ineffective way to control inventory. If a
computer system is to be effectively used, the information
should be accurate or it is of little use.
The Maintenance Superintendent said there were several
possible causes for the inaccuracies in the inventory report.
Access to the warehouse is virtually unchecked. Authority
personnel are allowed in the warehouse at any time during
normal business hours. Maintenance employees pick up
their parts and supplies as needed and are required to fill out
a requisition sheet listing the quantity and type of supply
taken. However, he said this was not always properly done
because maintenance personnel in many cases could be in
a hurry and inadvertently write down the wrong part
number or the incorrect quantity taken, or forget to prepare
the requisition sheet in their haste to get back to the job site.
Additionally, the Authority replaced its inventory computer
software early in 1996 and the new software had some
problems. The system was not accurately reporting the
information entered. Requisitioned parts were not being
subtracted from the total as they were entered into the
inventory records. This impacted the accuracy of the
inventory report because the quantity of parts were
overstated.
Because the warehouse is left unlocked and in many
instances unmanned during normal business hours, it is
difficult to determine the exact causes of the inaccurate
inventory report. Theft may be occurring and it may go
unchecked simply because the shortages are not followed
up on. The fact that there is not a parts person or someone
at the warehouse at all times leaves the parts and supplies at
Page 27 97-CH-202-1001
Finding 3
risk. Access to the warehouse is not restricted nor is there
any type of sign-in-sheet for people entering and leaving
the warehouse.
The Authority's Executive Director acknowledged that the
warehouse lacked controls, but she believed there had never
been any theft of any consequence. Also, the overall value
of the inventory is relatively low. The Maintenance
Superintendent also said some theft of parts may have
occurred, but felt it was very minor, and not a real concern
to the Authority.
The Authority did not properly record inventory to its
The Authority did not
general ledger. The parts and supplies purchased are not
properly record inventory
recorded as an asset in the general ledger but rather are
recorded as an operating expense in the general ledger. The
general ledger does not show the actual balance of
inventory on hand, except at year end. At year end, the
general ledger is adjusted to reflect the value of the year end
inventory count.
The Authority did not reconcile differences between its
Differences between the
"Inventory By Part Number With Costs Report" and the
inventory count and
actual year end physical inventory count. Discrepancies
Authority records were
between the actual physical count and the inventory records
were not analyzed. According to the Executive Director,
there has never been any type of reconciliation made to
reflect the difference between the year end physical
inventory count and the books and records. The Authority
has recorded inventory this way for many years and this
was the way the Executive Director said she had been
instructed to record the inventory.
Without a reconciliation being performed, the loss of
inventory due to theft, waste, or misuse cannot be
determined, nor can the overall management of the
warehouse be effectively evaluated.
The Authority's Executive Director said there were no
The Authority lacked
written procedures for controlling the warehouse inventory.
written policies and
The Authority did not have policies and procedures for
properly conducting a year end physical count, accounting
for inventory as it is received, reconciling the physical
inventory count with the book records, following up on
97-CH-202-1001 Page 28
Finding 3
differences between the books and actual count, or properly
maintaining records of inventory on hand.
Auditee Comments Excerpts from the Executive Director's comments on our
draft finding follow. Appendix B contains the complete
text of her comments.
The Authority agrees that the computerized report does not
agree with the physical count of the inventory. The
Authority will ensure more accurate recording of
requisitions and purchases. The more accurate recording of
requisitions and purchases shall be addressed in our policies
and procedures.
The Authority's inventory records have been somewhat
inaccurate which is contributed to by the lack of warehouse
controls. By controlling the access to the inventory with
locked doors, requiring accurate part/supply descriptions
along with part/supply numbers and educating the staff of
their role in obtaining a more controlled inventory, the
Authority anticipates a more accurate inventory.
The Authority has recorded the inventory as an expense and
adjusted the general ledger at year end to reflect the
inventory amount. The Authority acknowledges that this is
not the correct procedure and will at the start of the new
fiscal year begin recording the purchases as inventory and
record the parts and supplies as expenses as used. The
Authority will be using the perpetual inventory method.
Beginning with this year end, the Authority will reconcile
the differences in the inventory report and the physical
count and will properly record the difference. This proper
reconciliation will also allow the Authority to analyze the
differences and evaluate why the differences occurred.
The Authority does not have written policies and
procedures for controlling the inventory. The Authority is
in the process of writing policies to control the inventory
and will soon have the procedures into effect.
Page 29 97-CH-202-1001
Finding 3
Recommendations We recommend that the Director of Public Housing, Illinois
State Office, assure that the Franklin County Housing
Authority:
3A. Properly uses the current computerized inventory
system to control inventory and ensure that any
required adjustments are made.
3B. Controls the inventory through physical safeguards
or barriers such as a locked door and employee sign
in sheets.
3C. Updates the general ledger inventory accounts at
least monthly.
3D. Annually reconciles and explains differences
between the annual physical inventory count, the
"Inventory by Part Number With Costs Report", and
the general ledger.
3E. Establishes policies and procedures which outline
the proper steps required to control the inventory.
97-CH-202-1001 Page 30
Finding 4
The Authority Lacked Adequate Controls Over
Its Tenant Accounts Receivables
The Franklin County Housing Authority lacked adequate controls over its tenant accounts
receivable balances. The Authority did not: (1) enforce collection of former tenant accounts on
a consistent basis; and (2) obtain approval from the Board of Commissioners to write off
delinquent accounts. We attribute these deficiencies to a lack of written policies and procedures
governing the tenant accounts receivable process. As a result, the Authority cannot assure HUD
that its tenants were receiving fair and equitable treatment and that collection efforts were
adequate.
HUD Handbook 7511.1 Chapter 11, Section 1, Part 12(a)
HUD Requirements
states that the accounts of tenants which are considered
uncollectible after all means of collection have failed may
be written off as collection losses. The write offs of tenant
accounts receivables must be approved by the Board of
Commissioners.
Section 309 of the Annual Contributions Contract requires
the Authority to maintain complete and accurate books and
records.
The Authority did not establish a formal rent collection
The Authority did not
policy for delinquent former tenant accounts. The
actively pursue tenants'
Authority's unwritten policy was to notify the former tenant
accounts
in writing of amounts due. After three notifications are sent
at 14-day intervals, the Authority was to refer the
delinquent accounts to its attorney for collection. However,
the Authority did not follow its own unwritten policy.
The Authority's Accounts Receivable Specialist is
responsible for the collection of delinquent accounts. The
Authority's Social Advisor is responsible for tracking the
accounts that are forwarded to its attorney for collection.
The Authority failed to actively pursue collection from
former tenants. We reviewed files of 53 former tenants
with delinquent balances. The Accounts Receivable
Specialist said the Authority sends the tenants a letter after
Page 31 97-CH-202-1001
Finding 4
they move informing them of the balance owed. However,
the Authority did not have a policy specifying when the
letters should be sent. We considered timely notification to
be within 30 days of vacating the Authority. The Authority
failed to promptly send letters to nine of the 53 former
tenants informing them of the balance owed to the
Authority. The number of days ranged from 33 days to 63
days.
The Accounts Receivable Specialist said she sends three
letters to the tenants. If the Authority has not received a
response after she sends the three letters, she forwards the
account to the Social Advisor who will send the account to
the Authority's attorney for collection. However, the
Authority did not consistently follow this policy. The
following table shows the number of letters requesting
payment that were sent to delinquent former tenants prior to
collection or referral to the attorney:
Number of Number of
Letters Sent Tenants
0 32
1 2
2 1
3 6
4 6
6 1
7 3
8 1
15 1
The Authority did not make referrals of delinquent accounts
to its attorney in a timely manner. We considered 60 days
as a reasonable time period from the date the tenant moves
to the date that the account should be forwarded to the
attorney. Our basis is that the Authority should know
97-CH-202-1001 Page 32
Finding 4
within 60 days the likelihood of collection. Of the 53 files
reviewed, only eight were referred to the attorney in a
timely manner. The attorney could not find one file that the
Authority referred to him. For the remaining 44 tenant
files, it took the Authority from 64 days to 327 days to refer
the files to its attorney as follows:
Number of Number of
Days Accounts
64 days to
100 days 11
101 days to
199 days 29
200 days to
327 days 4
The Social Advisor does not keep a listing of accounts that
are sent to the attorney. The only documentation kept is in
the respective tenant files. The Authority did not maintain
documentation for 12 delinquent tenant accounts which
showed that the accounts were sent to the attorney for
collection. However, the Authority's attorney provided us
with documentation showing he received 11 of the
delinquent accounts. He was unable to provide
documentation for the remaining one delinquent account.
Without formal policies in place, guidelines do not exist to
determine when a delinquent account should be written off
or when the delinquent account should be forwarded to the
attorney's office for collection. Consequently, the tenants
cannot be assured that they are receiving fair and equitable
treatment.
The Authority did not obtain the Board of Commissioners
Tenant accounts were
approval to write off uncollectible tenant accounts
written off without
receivables. The Executive Director said the Authority did
approval of the Board of
not obtain the Board of Commissioners' approval to write
Commissioners
off the tenant accounts receivables because she thought it
was not necessary.
Page 33 97-CH-202-1001
Finding 4
From 1993 to 1995, the Authority wrote off the following
amounts:
Year Amount Written Off
1995 $27,723
1994 $12,101
1993 $23,217
The Executive Director said the large write off of tenant
accounts in 1995 resulted primarily from tenants who did
not report their true income. As a result, the Authority
charged retroactive rent. The Executive Director said most
of the tenants moved rather than pay the Authority the full
amount.
The Authority wrote off tenant accounts without
documenting the collection efforts made on the accounts.
In 32 out of the 53 tenant files we reviewed, there was no
documentation to support the type of collection efforts
made by the Authority prior to writing off the account. For
example, two tenants moved from the Authority in
December 1995 owing a total of $1,361 and another tenant
moved from the Authority in November 1995 owing a total
of $382. The Authority wrote off all three accounts in
December 1995; however, the Authority's tenant files had
no documentation to support any type of collection efforts
made by the Authority prior to the writeoffs.
Auditee Comments Excerpts from the Executive Director's comments on our
draft finding follow. Appendix B contains the complete
text of her comments.
Although the Authority does not have written policies to
pursue vacated tenant accounts the Authority does pursue
them.
The Executive Director randomly selected and reviewed 28
of the 53 files reviewed by the OIG. While reviewing the
97-CH-202-1001 Page 34
Finding 4
files it was apparent that there are circumstances that causes
the Authority not to follow their verbal policy. For
example:
(1) If the Authority does not have a forwarding address the
file is not sent to the attorney for collection until all
resources to obtain the forwarding address has been
exhausted.
(2) If the tenants file had already been forwarded to the
attorney for non-payment of rent - three letters are not
sent since it seems obvious that if they didn't pay while
living there, they will not pay once they move out.
(3) If the Authority sends the three letters and then a
payment is made then the Authority sends three letters
again before forwarding it to the attorney.
When taking all these circumstances into consideration it is
obvious why the number of letters mailed prior to being
sent to the attorney and the referral time would vary.
The Authority does not see the significance of the master
list of accounts other than for convenience.
The Authority did fail to present the written off accounts to
the Board of Commissioners for their approval. The
Authority will do so in the future.
OIG Evaluation of We recognize that there may be extenuating circumstances
Auditee Comments involved in pursuing collections from former tenants.
However, development and implementation of written
procedures addressing such circumstances would help
ensure that employees consistently follow the Authority's
procedures.
A master listing of tenants who are referred to the
Authority's attorney is more than a convenience tool. Such
a listing would facilitate the tracking of tenant cases. A
master listing would also provide the Authority with readily
available information regarding the effectiveness of
attorney referrals as a collection tool.
Page 35 97-CH-202-1001
Finding 4
Recommendations We recommend that the Director of Public Housing, Illinois
State Office, assure that the Franklin County Housing
Authority:
4A. Develops and implements written policies and
procedures for the collection and write off of
delinquent tenant accounts.
4B. Obtains the Board of Commissioners approval on
future write offs of tenant accounts receivable
balances.
4C. Maintains a master listing of accounts sent to the
Authority's attorney's for collection. The listing
should include: (1) the date sent to the attorney; (2)
the amount of the delinquent balance; and (3) the
amount recovered, if applicable.
97-CH-202-1001 Page 36
Internal Controls
In planning and performing our audit, we considered the internal controls of the Franklin County
Housing Authority to determine our auditing procedures and not to provide assurance on internal
controls. Internal controls consist of the plan of organization, methods, and procedures adopted
by management to ensure that resource use is consistent with laws, regulations, and policies; that
resources are safeguarded against waste, loss, and misuse; and that reliable data are obtained,
maintained, and fairly disclosed in reports.
We determined the following internal controls were
Relevant internal controls
relevant to our audit objectives:
• Management philosophy and operating style.
• Oversight body.
• Methods of assigning authority.
• Management monitoring methods.
• Completeness of accounting systems.
• Segregation of duties.
• Safeguards over access to and use of assets and records.
• Independent verifications and reconciliations.
• Policies and procedures.
We assessed all the relevant controls identified above.
It is a significant weakness if internal controls do not give
Significant weaknesses
reasonable assurance that resource use is consistent with
laws, regulations, and policies; that resources are
safeguarded against waste, loss, and misuse; and that
reliable data are obtained, maintained, and fairly disclosed
in reports.
Based on our review, the following items are significant
weaknesses:
Page 37 97-CH-202-1001
Internal Controls
• Management monitoring methods. The Authority did
not properly administer the Public Housing Drug
Elimination Program (see Finding 2).
• Completeness of accounting systems. The Authority
did not properly record inventory to its general ledger
(see Finding 3).
• Segregation of duties. The Authority lacked adequate
controls over its cash receipts (see Finding 1).
• Safeguards over access to and use of assets and records.
The Authority lacked adequate controls over its cash
receipts (see Finding 1).
• Independent verifications and reconciliations. The
Authority did not adequately reconcile its cash
collections (see Finding 1) and its inventory differences
(see Finding 3).
• Authority policies and procedures. The Authority
lacked adequate controls over its cash receipts (see
Finding 1), its inventory (see Finding 3), and its tenant
accounts receivables (see Finding 4).
97-CH-202-1001 Page 38
Follow Up On Prior Audits
This is the first OIG audit of the Franklin County Housing Authority.
The Authority's last Single Audit Report was for the Fiscal Year ended December 31, 1994. The
report contained no findings.
Page 39 97-CH-202-1001
Follow Up On Prior Audits
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97-CH-202-1001 Page 40
Appendix A
Schedule of Unsupported Costs
Recommendation Unsupported
Number Costs
2A $23,342
2B 14,856
2C 8,271
TOTAL $46,469
Unsupported costs are costs charged to a HUD-financed or insured program or activity and
eligibility cannot be determined at the time of the audit. The costs are not supported by adequate
documentation or there is a need for a legal or administrative determination on the eligibility of
the costs. Unsupported costs require a future decision by HUD program officials. This decision,
in addition to obtaining supporting documentation, might involve a legal interpretation or
clarification of departmental policies and procedures.
Page 41 97-CH-202-1001
Appendix A
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97-CH-202-1001 Page 42
Appendix B
Auditee Comments
August 28, 1996
Mr. Richard Urbanowski
Senior Auditor
Department of Housing and Urban Development
Office of Inspector General
77 W. Jackson Blvd., Suite 2646
Chicago, Illinois 60604-3507
RE: Finding resulting from the review of the Cash Receipts
Mr. Urbanowski:
Please find enclosed the Franklin County Housing Authority's response to the above mentioned
finding.
I will at this time extend my apologies for taking over the ten days to respond. Due to the length
of this finding and the information contained I wanted to assure that we were thorough with our
response. I will try to be more prompt on our future replies.
If any further information is needed or you have any questions, please feel free to call me at (618)
932-2124.
Sincerely,
Monica Stewart
Executive Director
Page 43 97-CH-202-1001
Appendix B
Employees cashed their personal checks from Authority funds.
The Authority acknowledges that personal checks have been cashed in the past. On or about the
week of May 6, 1996 the OIG discussed this practice with the Executive Director. The Executive
Director explained that this had been practiced the last 15 years.
Since the Authority acknowledged the fact that personal checks were being cashed and took
measures to stop, the Authority questions the significance of summarizing the activity. But since
the activity was summarized the Authority will attempt to further explain the "Miscellaneous" and
"Unknown" amounts. The "Miscellaneous" amount contains $1034.78 in checks cashed by the
Former Accounts Receivable employee. After reviewing the deposit tickets it appears that the
majority of the "Unknown" amount is also employee checks that were cashed.
The Executive Director issued a written memo to all employees on May 9, 1996 explaining that
personal checks would no longer be cashed. The issue of cashing personal checks is being
addressed in the Financial Management Policy.
Cash rent collections were used to reimburse the petty cash fund.
The checks issued to reimburse petty cash were cashed from Authority funds. This practice is
similar to the cashing of personal checks. This practice is no longer being used and will also be
addressed in the Financial Management Policy.
Bank deposits were not made timely.
The Authority acknowledges that some deposits were made late. Presently deposits are being
made more timely. The Authority is in the process of instituting a daily written reconciliation and
daily deposits. The Authority will continue to maintain two cash drawers and is in the process
of obtaining new cash drawers that will be more secure and fireproof. The Financial
Management Policy will also address the placing of the cash drawers in the vault and keeping the
drawers locked.
The Authority did not follow up on cash overage and shortages.
The Authority did not require daily reconciliations of the cash drawers. At the beginning of the
month when the rent collections are the highest deposits are generally made daily. After around
the tenth of the month when cash collections decrease deposits may be made weekly.
The Authority did follow-up on overages and shortages of the deposits. During the period of
January 1994 to July 1996 there were 986 deposits made at First Bank West Frankfort, which is
the Authority's main financial institution. Of the 986 deposits that were made there were
approximately 12 errors made. Although we attempt to have no errors, the fact that there were
12 out of 986 we do not feel that this is excessive. When an error occurred the error was
corrected on the next deposit.
97-CH-202-1001 Page 44
Appendix B
When a deposit was made the drawers were reconciled. The Executive Director expressed her
concern to the OIG that the terms being used by the Authority staff and the OIG staff regarding
the reconciliation and deposits was not necessarily the same. Our process has been: when a
deposit is made the Accounts Receivable Specialist and the Leasing and Occupancy Specialist
count the remaining cash to verify the $250.00 balance and therefore the drawer is reconciled.
The Authority has not made a deposit without reconciling the drawer. The Authority has not
made a reconciliation of the cash drawer without making a deposit. In the Financial Management
Policy the Authority will address the procedure for daily reconciliations and the criteria for
making a deposit.
Cash drawer reconciliations were not properly performed.
The Authority acknowledges that it has been lax in reconciling cash drawers, as previously noted.
Again this will be addressed in the Financial Management Policy.
The cash shortage identified during the OIG cash count had to occur the day the cash was
collected or after the deposit was made on the previous day. A deposit was made on the previous
day. Both the Accounts Receivable Specialist and the Leasing and Occupancy Specialist said that
after making their deposits they each count their cash drawers to assure that the drawers are
balanced to $250.00.
The Financial Management Policy will also address the use of daily written reconciliations,
Rent receipt forms were not properly used.
The Authority mails all elderly residents a monthly rent statement, which are not prenumbered.
After the OIG expressed his concern that the statements were not prenumbered, the Authority
began numbering the rent statements before they were mailed. The Authority found that this
created some problems. Some of the statements were not returned when payments were made
(due to them being lost, torn, etc.) therefore the Authority has rent receipt numbers that cannot
be accounted for.
All rent statements are numbered with a duplicate number stamper when the statement is returned
from the bank or when a resident pays their rent. Therefore, all rent statements are numbered at
some point. The Authority does use prenumbered receipts for payments and adjustments. The
voided prenumbered receipts are retained by the Authority and placed in the batches.
Although the Authority has stamped rent statements with receipt numbers and date paid we did
not record what method of payment and who conducted the transaction. The Authority has plans
to obtain software that will generate cash receipts, which will give all the information that is
needed.
Page 45 97-CH-202-1001
Appendix B
In the past checks have not been immediately stamped "For Deposit Only". Since approximately
July 1, 1996 we have been stamping checks upon receipt. This procedure will also be addressed
in the Financial management Policy.
Third party checks were not immediately stamped "For Deposit
Only. "
The Authority had failed to stamp third party checks upon receipt. Since approximately July 1,
1996 the Authority has been stamping the checks upon receipt. Again, this procedure will be
addressed in the Financial Management Policy.
Cash receipts duties were not adequately segregated.
The Executive Director does agree that duties should be more segregated, but finds this difficult
because of the size of the Authority staff.
Although the Accounts Receivable Specialist collects rent and posts to the computer, the receipts
with the deposit slip goes to the Section 8 Coordinator to be posted manually and to be batched.
When batching the receipts the Section 8 Coordinator verifies that the receipts balance with the
deposit slip. After batched, the receipts go back to the Accounts Receivable Specialist to be
posted on the computer.
The Authority feels that once computer generated receipts are used it will allow less chance for
any account to be manipulated.
Several employees accepted tenant rent payments.
At the time the Inspector General audit began all administrative staff could accept rent, although
primarily three staff members were accepting rent. The Authority acknowledged that this did not
allow for accountability. Approximately June 1, 1996 the Executive Director informed all staff
that the Leasing & Occupancy Specialist and the Accounts Receivable Specialist would be
accepting rent payments.
Although the Board of Commissioners has not formally adopted a Financial Management Policy,
many procedures have been implemented by the Executive Director and carried out by the staff.
The Executive Director and staff have spent many hours planning how all the procedures can be
properly implemented. Some procedures have been successful. Some procedures have proven
to be unsuccessful, so we are trying something different.
Some of the procedural changes the Authority has implemented since the Inspector General Audit
began includes: no longer cashing personal checks, only two staff members collect rent and
have access to their assigned cash drawers, all deposits are verified by a second party, all deposits
are placed in a locked bank bag by a third party and taken to the bank by a fourth party, and all
checks are stamped "For Deposit Only" upon receipt.
97-CH-202-1001 Page 46
Appendix B
September 12, 1996
Mr. Richard Urbanowski
Senior Auditor
Department of Housing and Urban Development
Office of Inspector General
77 W. Jackson Blvd., Suite 2646
Chicago, Illinois 60604-3507
RE: Finding resulting from the review of the Drug Elimination Program
Mr. Urbanowski:
Please find enclosed the Franklin County Housing Authority's response to the above mentioned
finding.
I will at this time extend my apologies for taking over the ten days to respond. I wanted to assure
that we were thorough with our response. I will try to be more prompt on our future replies.
If any further information is needed or you have any questions, please feel free to call me at (618)
932-2124.
Sincerely,
Monica Stewart
Executive Director
Page 47 97-CH-202-1001
Appendix B
The Authority was billed for services not provided.
The Authority was billed for services in which there is no supporting documents. The Authority
will contact the Agency and seek supporting documents for the amount paid. If supporting
documents are not provided the Authority will take necessary steps to re-pay the amount owed
to HUD.
The Authority assures the OIG and Department of HUD that in future grants all contracts and
extensions will be properly executed.
Payments to West Frankfort Police Department were unsupported.
The Authority will ask the West Frankfort Police Department for supporting documents for the
amounts paid. If supporting documents cannot be provided the Authority will take necessary
steps to re-pay the amount owed to HUD.
Again, the Authority assures the OIG and Department of HUD that all future contracts will be
properly executed and funds will not be expended until the contracts are properly executed.
The Authority drew down excess funds for administration costs.
The Authority will seek supporting documents from the former Executive Director for his time
spent on the program.
The Authority did not incur any additional costs for the audit and will return the $2,000 as
requested .
The Authority does anticipate eventually installing the security camera that the funds were
requisitioned for. The Authority is requesting to keep the funds and the camera will be installed
in the very near future.
Contracts did not specifically state the work to be performed.
The Authority assures the OIG and the Department of HUD that all future contracts will be much
more specific as to what is to be provided by the contractors.
97-CH-202-1001 Page 48
Appendix B
August 9, 1996
Mr. Richard Urbanowski
Senior Auditor
Department of Housing and Urban Development
Office of Inspector General
77 W. Jackson Blvd., Suite 2646
Chicago, Illinois 60604-3507
RE: Finding resulting from the review of the Inventory of Parts and Supplies
Dear Mr. Urbanowski:
Please find enclosed the Franklin County Housing Authority's response to the above mentioned
finding.
I believe that each issue has been addressed and is to your satisfaction.
If any further information is needed or you have any questions, please feel free to call me at (618)
932-2124.
Sincerely,
Monica Stewart
Executive Director
Page 49 97-CH-202-1001
Appendix B
Inventory records were not properly maintained.
The Authority agrees that the computerized report does not agree with the physical count of the
inventory. The Authority has a computerized inventory system that is adequate. The Authority
will ensure more accurate recording of requisitions and purchases. The more accurate recording
of requisitions and purchases shall be addressed in our policies and procedures.
The Authority's inventory record was inaccurate.
The Authority's inventory records have been somewhat inaccurate which is contributed to by the
lack of warehouse controls. The Authority realizes that the ideal situation would be to have an
inventory clerk. Because of our staff size and the low dollar amount of inventory, we do not feel
it is economically feasible to hire an inventory clerk. The Authority does intend to "tighten" the
controls and access to the inventory. By controlling the access to the inventory with locked
doors, requiring accurate part/supply descriptions along with part/supply numbers and educating
the staff of their role in obtaining a more controlled inventory, the Authority anticipates a more
accurate inventory.
The Authority did not properly record inventory to its general
ledger.
The Authority has recorded the inventory as an expense and adjusted the general ledger at year
end to reflect the inventory amount. The Authority acknowledges that this is not the correct
procedure and will at the start of the new fiscal year begin recording the purchases as inventory
and record the parts and supplies as expenses as used. The Authority will be using the perpetual
inventory method. These new procedures will allow the general ledger to more closely reflect
the actual amount of inventory on hand and aid in the reconciliation at year end.
Differences between the inventory count and Authority records
were not reconciled.
The Authority has not reconciled the inventory report generated by the computer to the actual
physical count. Beginning with this year end, the Authority will reconcile the differences in the
inventory report and the physical count and will properly record the difference. This proper
reconciliation will also allow the Authority to analyze the differences and evaluate why the
differences occurred.
The Authority lacked written policies and procedures.
The Authority does not have written policies and procedures for controlling the inventory. The
Authority is in the process of writing policies to control the inventory and will soon have the
procedures into effect.
97-CH-202-1001 Page 50
Appendix B
September 18, 1996
Mr. Richard Urbanowski
Senior Auditor
Department of Housing and Urban Development
Office of Inspector General
77 W. Jackson Blvd., Suite 2646
Chicago, Illinois 60604-3507
RE: Response to the Finding that The Housing Authority Lacked Adequate Controls Over Its
Tenant Accounts Receivables.
Mr. Urbanowski:
Please find enclosed the Franklin County Housing Authority's response to the above mentioned
finding.
If any further information is needed or you have any questions, please feel free to call me at (618)
932-2124.
Sincerely,
Monica Stewart
Executive Director
Page 51 97-CH-202-1001
Appendix B
The Authority did not actively pursue tenants' accounts.
Although the Authority does not have written policies to pursue vacated tenant accounts the
Authority does pursue them.
The Executive Director randomly selected and reviewed 28 of the 53 files reviewed by the OIG.
While reviewing the files it was apparent that there are circumstances that causes the Authority
not to follow their verbal policy. For example:
1) If the Authority does not have a forwarding address the file is not sent to the attorney for
collection until all resources to obtain the forwarding address has been exhausted.
2) If the tenants file had already been forwarded to the attorney for non-payment of rent - three
letters are not sent since it seems obvious that if they didn't pay while living there, they will
not pay once they move out.
3) If the Authority sends the three letters and then a payment is made then the Authority sends
three letters again before forwarding it to the attorney.
When taking all these circumstances into consideration it is obvious why the number of letters
mailed prior to being sent to the attorney and the referral time would vary.
The Authority does not see the significance of the master list of accounts other than for
convenience.
Tenant accounts were written off without approval of the Board of
Commissioners.
The Authority did fail to present the written off accounts to the Board of Commissioners for their
approval. The Authority will do so in the future.
97-CH-202-1001 Page 52
Appendix C
Distribution
Secretary's Representative Midwest
Director, Public Housing Division, Illinois State Office (2)
Director Accounting Division, Midwest
Field Controller, Midwest
Assistant General Counsel, Midwest
Public Affairs Officer, Midwest
Assistant to the Deputy Secretary for Field Management, SC (Room 7106)
Acquisitions Librarian, Library, AS (Room 8141)
Deputy Chief Financial Officer for Operations, FO (Room 10166) (2)
Chief Financial Officer, F (Room 10166) (2)
Director, General Management Division, PMG (Room 4216)
Comptroller/Audit Liaison Officer, PF (Room 4122) (3)
Associate General Counsel, Office of Assisted Housing and Community Development, GC
(Room 8162)
Assistant Director in Charge, U.S. GAO, 820 1st St. NE, Union Plaza, Building 2,
Suite 150, Washington DC, 20002 (2)
Page 53 97-CH-202-1001
Franklin County HA, West Frankfort, IL
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-10-03.
Below is a raw (and likely hideous) rendition of the original report. (PDF)