Date Issued: December 18, 1996
Audit-Related Memorandum
97-SF-207-1802
TO: C. Raphael Mecham, Administrator, Southwest Office of
Native American Programs, 9EPI
FROM: Gary E. Albright, District Inspector General for Audit,
9AGA
SUBJECT: Hualapai Housing Authority
Internal Controls Over Monetary Assets and Inventory
Peach Springs, Arizona
INTRODUCTION
We con ducted a limited review of the Hualapai Housing Authorit y
(HHA) to evaluate its internal controls over monetary assets ,
inventory, and related areas. This included a review of the HHA's
controls over cash receipts, cash disbursements, security de posits,
inventory, investments, genera l accounting, travel and procurement
which were in effect at the time of our field work in Septembe r
199 6. We concluded that the HHA's controls over investments ,
travel , inventory and procurement were inadequate. Further, it s
controls over general accounting were so deficient that it wa s
impossible to determine the status of its programs. In general ,
the HHA had adopted policies but not implemented procedures tha t
provid ed adequate controls in these areas. We have recommende d
tha t the HHA implement strengthened controls over these areas i n
order to protect its assets and improve its administrative an d
budgetary controls.
BACKGROUND
At th e time of our review the HHA was administering 298 housin g
units in 11 projects under three programs as follows:
• Low rent program - 135 units
• New mutual help program - 53 units
• Old mutual help program - 110 units
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Hualapai Housing Authority
In add ition, the HHA was administering a Comprehensive Gran t
program with annual funding of approximately $1.5 million.
The HHA had 10 employees, incl uding seven administrative employees
and th ree maintenance employees. Its accounting records ar e
mainta ined by a fee accountant, Wright, Darnell & Rector, P.C. ,
located in Atlanta, Georgia.
PURPOSE AND METHODOLOGY
The objective of this review was to determine whether the HHA' s
internal controls over monetary assets and inventory were ad equate.
Based upon problems noted while carrying out the review, ou r
objective was expanded to include a limited analysis of th e
adequacy of the HHA's controls over travel and procurement. T o
accomplish our review objectives we:
• Interviewed HHA staff.
• Reviewed existing HHA policies and procedures relating to ca sh
receipts, cash disbursements, inventory, travel, an d
procurement.
• Tested the implementation of the HHA's adopted policies an d
procedures by reviewing selected travel charges, procurement
actions, disbursements and receipt cycles.
• Scanned available accounting records.
Our review was primarily limit ed to a testing of in place policies
and procedures at the time of our review. However, as part of this
testing, a limited number of transactions occurring during th e
period July 1993 through June 1996 were reviewed.
REVIEW RESULTS
The Hualapai Housing Authority Needs to Strengthen and Enforce
its Financial and Management Controls
The Hualapai Housing Authority (HHA) did not enforce its adopte d
policies or had not developed adequate procedures relating t o
controls over accounting, investments, procurement, travel, an d
inventory. As a result, it has lost budgetary and administrative
contro l over its programs and operations; its assets are no t
adequately protected; ineligible travel costs were paid; and it has
no assurance that goods and services were obtained in such a manner
as to ensure full and open competition and price reasonableness .
In our opinion, the HHA's failure to adhere to its adopted p olicies
was a result of unfamiliarity with the policies, a failure t o
Audit-Related Memorandum Page 2 97-SF-207-1802
Hualapai Housing Authority
develop procedures to implement policies, and intentional di sregard
of procedures by the previous executive director.
The Hualapai Housing Authority is Required to Have Financial and
Management Controls
The HHA's contractual responsibilities to HUD are set out in it s
Annual Contributions Contract (ACC). Section 4 of the ACC r equires
the HHA to operate its projects in an economic and efficien t
manner. In order to do this, appropriate operating policies an d
proced ures must be adopted and implemented. Additiona l
requirements relating to general financial and procuremen t
requirements are contained in 24 CFR Parts 85 and 950. Esse ntially
these regulations require housing authorities (and other federa l
grant recipients) to:
• Establish financial management systems whic h
provide accurate, current, and complete disclosure
of its operations; effective controls an d
accountability; budgetary controls; procedures for
determination of cost eligibility; and accountin g
records supported by source documentation.
• Adopt and comply with procurement policies which ,
at a m inimum: ensure full and open competition i n
all procurement transactions; establish procedures
for inventory control; set out employee and boar d
members standards of conduct and conflict o f
interest provisions; and provi de for implementation
of a contract administration system to ensure that
contractors adhere to the terms, conditions, an d
specifications of their contracts.
We noted problems in the HHA's financial and management control s
rela ting to (a) accounting records, (b) procurement, (c )
investments, (d) travel and (e) inventory as detailed below:
a. Accounting Records
At the time of our review, the HHA's accounting records were posted
only through June 1995. Further, the accounting records for fiscal
year ended (FYE) June 30, 1995 were not available until July 1996.
The lack of current accounting records seriously impacts the HHA's
ability to administer its programs. It is unable to monitor th e
fin ancial progress of its projects and programs or even complet e
and manage an operating budget. Basically, it lacks th e
information needed to effectively and efficiently administer it s
operations.
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Hualapai Housing Authority
The HHA currently uses the services of a fee accountant for posting
its accounting (general ledger) records. However, it has no t
submit ted documents needed by the fee accountant to post th e
accoun ting records on a timely basis, i.e. check carbons an d
related invoices, bank statements, cash receipt records, deposi t
slips, copies of contracts, budgets, etc. For example, none of the
documents needed to post the a ccounting records for FYE ended June
30, 1996 were submitted to the fee accountant until August 1996 .
The failure to submit needed documents to the fee accountant wa s
due to staff's unfamiliarity with the terms of its fee accountant
contract and the lack of procedures to identify and promptly submit
required documents to the fee accountant.
Comp licating the accounting process is the HHA's attempt t o
establish its own on-site accounting system. It recently pu rchased
a software accounting package and has been attempting to use learn
the use of it. However, staff does not currently have th e
expertise or program experienc e to implement the accounting system
to the point that a fee accountant would not be necessary .
Accordingly, the HHA should place primary emphasis on gettin g
needed documents to its fee ac countant, with secondary emphasis on
postings to its on-site system.
To ensure timely submittal, the HHA should establish procedure s
which provide for a check list detailing documents needed to b e
sent to the fee accountant mon thly and assigned responsibility for
ens uring that these documents are accumulated and shipped to th e
fee accountant on a timely basis, such as by the 15th of the next
month.
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Hualapai Housing Authority
b. Procurement
The HHA had adopted a comprehensive procurement policy. However,
the policy was not followed. Our review of procurement wa s
limited, but we noted numerous deficiencies including:
• Large procurements were made without obtaining pric e
quotes, or sealed bids as appropriate.
• Substantial repair contracts were entered withou t
appropriate plans and specific ations setting out work to
be done under the contracts.
• Contract "change orders" were entered without an y
documentation showing what the change order was for, onl y
that the price of the contract was being raised .
Further, change orders were entered into which resulted
in large rehabilitation contracts being increased by up
to 96 percent indicating, at a minimum, serious problems
in the procurement planning process.
• Substantial up-front payments were made to contractor s
(up to 100 percent) prior to construction start .
Additionally, contract retainage was limited to 2. 5
percent rather than the 5 percent set out in severa l
large rehabilitation contracts.
• Small purchases were made by employees (and non -
employees) without purchase requisitions as called for b y
the HHA's policies.
As a result of these deficiencies in the procurement process ,
competition was limited and there was no assurance that goods and
services were obtained at the best available price. Further, the
HHA was placed at risk of contractors being paid for work bu t never
completing it, which happened in at least one instance. Th e
weakne sses also resulted in the HHA being unable to properl y
monito r rehabilitation contracts because of the lack of detaile d
plans and specifications and the payment for goods and service s
without determination as to their legitimacy.
The procurement deficiencies identified occurred during the term of
the prior executive director. The current HHA administration i s
attemp ting to strengthen its procurement process. To b e
successful, it needs to train its employees in its procuremen t
poli cy; establish vendor lists to assist in the procuremen t
process; and assign one employee responsibility for its larg e
procurement activities.
c. Investments
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Hualapai Housing Authority
The HHA had not adopted investment policies and procedures whic h
ensured that excess funds were fully invested and investments and
investment income were controlled and properly accounted for .
Specifically, the HHA did not have procedures in place to identify
and invest excess funds (inves tment policy) nor did it maintain an
investment register to properly account for and control inve stments
it did h ave. Further, its policy for the handling of investmen t
income was inconsistent as on some investments, income was rolled
back into the investment and i n other instances income was sent to
the HHA on a monthly basis. As a result of these deficienci es, the
HHA has no controls over investments and a significant risk o f
loss.
In order to properly control its investments the HHA needs t o adopt
and implement an investment policy and establish and maintain a n
investment register. As part of its investment policy, investment
earnings should be rolled into the investment rather than sent to
the HHA. Such a procedure will strengthen the HHA's interna l
controls. Additionally, the HHA should ensure that its inve stments
are adequately insured and collateralized.
d. Travel
The HH A had adopted travel policies, however its procedures fo r
implementation of these policies were inadequate to ensure t hat all
employee travel costs were legitimate and eligible program costs.
Additionally, travel advances were accounted for as a cost rather
than as an advance. In order to ensure adequate control, advances
should be accounted for as such until the travel vouche r
documenting actual costs is submitted by the employee an d
processed.
During our limited review of travel we noted several questionable
travel charges as follows:
• On August 22, 1995 the former Executive Director was pai d
$213.60 for use of her own vehicle on a trip t o
Albuquerque, New Mexico. However, based upon othe r
available information, the for mer Executive Director did
not use her own vehicle for the trip but instead rented
a ca r which was also paid for by the HHA. There is n o
documentation which indicates that the improper duplicat e
payment for the use of a perso nal vehicle was reimbursed
to the HHA.
• The HHA paid $617.84 for the r ental of a vehicle for the
former Executive Director's si ster for the period August
11 through 20, 1995. This individual was not a HH A
emp loyee and there is no documented reason why the HH A
would be responsible for paying her car rental expense.
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Hualapai Housing Authority
The HHA needs to establish strict controls over its approval an d
review of travel and related claimed costs.
e. Inventory
The HHA had developed policies but not implemented procedures t o
adequately account for and control equipment and materials an d
sup plies. Specifically, up to date property records were no t
main tained nor were annual inventories taken. Without suc h
controls the HHA can not protect and control its assets.
AUDITEE COMMENTS
On December 6, 1996 we received a written response from th e
Hualapai Housing Authority (HHA) in response to our draft report.
The HHA expressed agreement with our draft findings an d
rec ommendations and detailed steps they are taking or plan o n
taking to improve their operations. The complete text of th e HHA's
comments is included as Attachment A to this memorandum.
RECOMMENDATIONS
In order to protect and account for its monetary assets an d
inventory, ensure cost eligibi lity and fairness in its procurement
activities, and provide for full and current disclosure of it s
operations, we recommend you require the HHA to:
A. Establish procedures which provide for a check lis t
detailing documents needed to be sent to the fe e
accountant monthly and assign responsibility to ensur e
that these documents are accumulated and shipped to the
fee accountant on a timely bas is, such as by the 15th of
the next month;
B. Train its employees in its pro curement policy; establish
vendor lists to assist in the procurement process; an d
assign one employee responsibility for its larg e
procurement activities;
C. Adopt and implement an investment policy and establis h
and maintain an investment register. As part of it s
investment policy, investment earnings should be rolled
int o the investment rather than sent to the HHA an d
investments must be adequately insured an d
collateralized;
D. Establish strict review procedures for approving an d
reviewing travel requests and claims. Additionally, all
tra vel advances should be accounted for as such in th e
accounting records;
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Hualapai Housing Authority
E. Identify all existing equipment inventory, establis h
appropriate control records for this equipment, an d
install procedures for properly recording new equipment
purchases and the performance of periodic inventor y
counts.
* * * *
Within 60 days, please furnish us a status report on the cor rective
action taken, the proposed corrective action and the date to b e
com pleted, or why action is not considered necessary for eac h
recommendation. Also, please furnish us copies of correspondence
or directives issued because of this review.
We have provided a copy of this audit-related memorandum to th e
Audit ee. If you have any questions, please contact me at (415 )
436-8101.
Attachments: A - Auditee Comments
B - Distribution
Audit-Related Memorandum Page 8 97-SF-207-1802
Hualapai Housing Authority
Attachment A
AUDITEE COMMENTS Page 1 of 2
Audit-Related Memorandum Page 9 97-SF-207-1802
Hualapai Housing Authority
Attachment A
Page 2 of 2
Audit-Related Memorandum Page 10 97-SF-207-1802
Hualapai Housing Authority
Attachment B
Distribution
Secretary's Representative, 9AS
Administrator, Southwest Office of Native American Programs, 9EPI
State Coordinator, Phoenix Office, 9ES
Administrative Service Center #3
Director, Accounting Division, 9AFF
Office of the Comptroller, Texas State Office, 6AF
Assistant to the Secretary for Field Management, SDI
Audit Liaison Officer, PF
Deputy Assistant Secretary for Native American Programs, PI
Associate General Counsel, Office of Assisted Housing & Community
Development, CD
Chief Financial Officer, F
Deputy Chief Financial Officer for Finance, FF
Director, Housing & Community Development Issue Area,
US GAO, 441 G St. NW, Washington, DC 20548
Hualapai Housing Authority
Audit-Related Memorandum Page 11 97-SF-207-1802
Hualapai HA, Peach Springs, AZ
Published by the Department of Housing and Urban Development, Office of Inspector General on 1996-12-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)