oversight

HA of the Town of Bloomfield, Bloomfield, In

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-05-06.

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

                                                                       Issue Date
                                                                               May 6, 1998
                                                                       Audit Case Number
                                                                               98-CH-202-1003




TO:          Thomas S. Marshall, Director, Public Housing Hub, Cleveland Area Office
             Forrest D. Jones, Director, Public Housing Program Center, Indiana State Office


FROM:        Dale L. Chouteau, District Inspector General for Audit, Midwest

SUBJECT: Housing Authority of the Town of Bloomfield
         Safeguarding Monetary Assets and Inventory
         Bloomfield, Indiana

We completed an audit of the Housing Authority of the Town of Bloomfield at the request of HUD’s
Indiana State Office. The objectives of our audit were to: (1) determine whether the Housing
Authority had adequate management controls for safeguarding cash and other monetary assets and
inventory; (2) review for indicators of possible waste, loss and misuse of cash or other monetary assets
and inventory; and (3) establish, if appropriate, the amount of any misappropriation, the cause, and the
individuals involved.

We concluded that the Housing Authority’s management controls were weak, and offered an
opportunity for its employees to misuse or divert Authority funds; however, we did not find that
employees diverted funds. We found that the Authority did not effectively manage its rental units;
had inadequate cash management controls; did not disclose conflicts of interest; and had not established
a cost allocation plan.

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

Should you or your staff have any questions, please contact me at (312)353-7832.
Management Memorandum




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98-CH-202-1003                 Page ii
Executive Summary
We completed an audit of the Housing Authority of the Town of Bloomfield at the request of HUD’s
Indiana State Office. Our audit objectives were to: (1) determine whether the Housing Authority had
adequate management controls for safeguarding cash and other monetary assets and inventory; (2)
review for indicators of possible waste, loss and misuse of cash or other monetary assets and inventory;
and (3) establish, if appropriate, the amount of any misappropriation, the cause, and the individuals
involved.

We concluded that the Housing Authority’s management controls were weak, and offered opportunity
for its employees to misuse or divert Authority funds; however, we did not find that employees
diverted funds.


                                       The Housing Authority did not follow HUD’s requirements
   The Authority’s                     regarding the rental of commercial and residential units. The
   Management Controls                 Authority did not: (1) seek HUD’s approval for the conversion
   Were Weak and                       of the dwelling units to commercial units; (2) execute leases
   Requirements Were Not               with its commercial tenants and its Resident Custodian; (3)
   Followed                            charge rent for two commercial units, and paid for the
                                       commercial tenants’ use of utilities; and (4) amend its Low-
                                       Income Housing lease forms to include the provisions of the
                                       Housing Opportunity Program Extension Act of 1996. The
                                       Authority also inappropriately used $4,352 in Comprehensive
                                       Improvement Assistance Program funds to remodel and furnish
                                       a unit as a beauty shop. As a result, the Authority did not:
                                       maximize its income, adequately protect the rights of its
                                       tenants, and effectively use resources.

                                       The Housing Authority did not maintain an effective system of
                                       controls over cash management. The Authority did not: (1)
                                       adequately segregate the duties of its employees; (2) safeguard
                                       cash funds; (3) follow its Internal Monitoring Policy or HUD’s
                                       requirements regarding cash; and (4) properly maintain records
                                       for a checking account. The weaknesses existed because the
                                       Authority’s Board of Commissioners and its top management
                                       did not exercise their responsibilities to implement effective
                                       cash management controls. Their failure to do so increased the
                                       risk of loss or misuse of funds.

                                       The Housing Authority did not follow its Procurement Policy,
                                       HUD’s requirements, and the State of Indiana’s Code
                                       regarding conflicts of interest. The Authority did not: (1)
                                       disclose conflicts of interest to the public via board meeting
                                       minutes; (2) obtain a waiver from HUD for conflicts of interest;

                                             Page iii                                   98-CH-202-1003
Executive Summary


                    and (3) require its contractors to insert a provision prohibiting
                    conflicts of interest in each subcontract. The Executive
                    Director was not aware of HUD’s or the State of Indiana’s
                    requirements regarding conflicts of interest and did not
                    understand the importance of the Authority’s conflict of
                    interest requirements. Rules that require the avoidance and
                    reporting of conflicts of interest are necessary to eliminate
                    situations that could easily result in the misuse of funds, impede
                    free and open competition, and reduce public confidence in the
                    Authority.

                    The Housing Authority did not have a plan to allocate indirect
                    costs among its programs. The Authority allocated all
                    employees’ salary costs and non-salary costs, with the
                    exception of phone costs, to the Low-Income Housing
                    Program. Twenty dollars of phone costs per month were
                    arbitrarily charged to the Section 8 Program. The Low-
                    Income Housing Program was not reimbursed by the other
                    programs. While the Housing Authority was cited by HUD
                    during its July 1997 review for failing to establish a cost
                    allocation plan, the Authority had not established a plan since
                    they were concentrating on correcting other issues cited in
                    HUD’s review. As a result, the Authority’s Low-Income
                    Housing Program was overcharged, and HUD lacks proper
                    visibility over the cost of its programs.

                    We recommend that the Public Housing Hub Director in
 Recommendations    Cleveland assures that the Housing Authority of the Town of
                    Bloomfield implements controls to correct the weaknesses
                    cited in this report.

                    We presented our draft findings to the Authority's Executive
                    Director and HUD's staff during the audit. We held an exit
                    conference with the Authority's Board Chairman and Executive
                    Director on April 13, 1998. The Authority provided written
                    comments to our findings. The complete text of the comments
                    are included in Appendix B with the exception of two exhibits
                    that were not necessary for understanding the Authority’s
                    comments. A complete copy of the Authority’s responses with
                    exhibits was provided to HUD’s Office of Public Housing.




98-CH-202-1003          Page iv
Table of Contents

Management Memorandum                                            i


Executive Summary                                             iii


Introduction                                                     1


Findings

1    The Housing Authority Did Not Effectively
     Manage Its Units                                            3


2    The Authority Lacked Adequate Cash
     Management Controls                                      11


3    Conflicts Of Interest Were Not Disclosed                19


4    The Authority Lacked A Cost Allocation Plan             25


Follow Up On Prior Audits                                    29

Appendices
      A Schedule of Questioned Costs                         31

      B Audit Comments                                      33

      C Distribution                                        47




                                Page v             98-CH-202-1003
Table of Contents




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98-CH-202-1003                   Page vi
Introduction
The Housing Authority of the Town of Bloomfield was established on April 5, 1966 under the
laws of the State of Indiana. The Housing Authority contracts with HUD to provide housing to
low income individuals. A five member Board of Commissioners governs the Authority. The
Chairman of the Board is James Miller. The Executive Director is responsible for the Authority’s
day to day operations. The Authority’s Executive Director is Lavon Yoho. The Authority has
been on HUD’s troubled housing list since 1995. The official records for the Authority are at 100
West Main Street, Bloomfield, Indiana.

The Housing Authority operates three programs: (1) a Low-Income Housing Program consisting
of 92 units; (2) a Section 8 Voucher Program consisting of 50 vouchers; and (3) a Comprehensive
Improvement Assistance Program.


                                     The audit objectives were to: (1) determine whether the
 Audit Objectives                    Housing Authority had adequate management controls for
                                     safeguarding cash and other monetary assets and inventory; (2)
                                     review for indicators of possible waste, loss and misuse of cash
                                     or other monetary assets and inventory; and (3) establish, if
                                     appropriate, the amount of any misappropriation, the cause,
                                     and the individuals involved.

                                     The Housing Authority is responsible for establishing a
 Management Controls                 system of management controls. Management controls
                                     include: the plan of organization, methods, and procedures
                                     adopted by management to ensure that its goals are met;
                                     processes for planning, organizing, directing, and
                                     controlling program operations; and systems for measuring,
                                     reporting, and monitoring program performance.

                                     We determined that the following management controls
                                     were relevant to our audit objectives:

                                     .   Program Operations - Policies and procedures that
                                         management has implemented to reasonably ensure that
                                         a program meets its objectives.

                                     .   Validity and Reliability of Data - Policies and
                                         procedures that management has implemented to
                                         reasonably ensure that valid and reliable data are
                                         obtained, maintained, and fairly disclosed in reports.

                                     .   Compliance with Laws and Regulations - Policies and
                                         procedures that management has implemented to

                                           Page 1                                    98-CH-202-1003
Introduction


                       reasonably ensure that resource use is consistent with
                       laws and regulations.

                   .   Safeguarding Resources - Policies and procedures that
                       management has implemented to reasonably ensure that
                       resources are safeguarded against waste, loss, and
                       misuse.

                   We performed our on-site audit work at the Housing
 Audit Scope And   Authority between July and September 1997 and January
 Methodology       and March 1998. To assess the Housing Authority’s
                   relevant management controls and obtain information
                   relating to the Authority’s operations, we interviewed
                   HUD’s and the Housing Authority’s staff. We analyzed the
                   Low-Rent, Comprehensive Improvement Assistance, and
                   Section 8 Programs’ general ledgers, cash receipts, and cash
                   disbursements ledgers to verify the accuracy of receipts and
                   disbursements. We reviewed bank statements and canceled
                   checks to assure that all sources of cash were properly
                   accounted for. We reviewed Board meeting minutes to
                   evaluate the Authority’s policies. We performed a cash
                   count and confirmed the Authority’s bank balances to
                   evaluate cash controls.      Additionally, to confirm the
                   accuracy of accounts receivable balances, we sent
                   confirmations to six current and vacated tenants.

                   The audit covered the period January 1, 1996 through June
                   30, 1997. This period was extended as necessary. We
                   conducted the audit in accordance with generally accepted
                   government auditing standards.

                   We provided a copy of this report to the Housing
                   Authority's Executive Director and the Chairman of the
                   Board.




98-CH-202-1003           Page 2
                                                                                              Finding 1


     The Housing Authority Did Not Effectively
                Manage Its Units
The Housing Authority of the Town of Bloomfield did not follow HUD's requirements regarding the
lease of commercial and residential units. The Housing Authority did not: (1) seek HUD's approval for
the conversion of dwelling units to commercial units; (2) execute leases with its commercial tenants
and its Resident Custodian; (3) charge rent for two commercial units, and paid for the commercial
tenants' use of utilities; and (4) amend its Low-Income Housing lease forms to include the provisions of
the Housing Opportunity Program Extension Act of 1996. The Housing Authority also
inappropriately used $4,352 in Comprehensive Improvement Assistance Program funds to remodel and
furnish a unit as a beauty shop. As a result, the Housing Authority did not maximize its income,
adequately protect the rights of its tenants, and effectively use resources.


                                       The Annual Contributions Contract, Section 4, says in part that
 HUD’s Requirements
                                       the Housing Authority should operate each project
                                       economically and efficiently.

                                       HUD Handbook 7486.1, The Public Housing Demolition,
                                       Disposition and Conversion Handbook, page 8-1, states that
                                       vacant units approved by HUD for conversion shall be
                                       deprogrammed as soon as possible, but no later than two
                                       months after the Authority's receipt of HUD's approval. Page
                                       7-3 states that written approval by HUD is required before the
                                       Authority can undertake any actions involving the conversion
                                       of units.

                                       HUD Handbook 7510.1, Low-Rent Housing Accounting
                                       Handbook, Chapter 3, Section 12, states that rent, including
                                       charges for utilities and equipment, will be charged to lessees of
                                       dwelling units rented for non-dwelling purposes.

                                       PIH Notice 96-27 issued on May 15, 1996, page 1, states that
                                       housing authorities should implement the provisions of the
                                       Housing Opportunity Program Extension Act of 1996 without
                                       awaiting HUD regulations. Page 5 of the Notice says public
                                       housing lease forms must be amended promptly to establish
                                       that drug-related criminal activity on or off a housing
                                       authority's premises and alcohol abuse that interferes with the
                                       health, safety, or right to peaceful enjoyment of the premises by
                                       other residents are grounds for termination of tenancy.


                                              Page 3                                     98-CH-202-1003
Finding 1


                           The responsibilities of a housing authority’s Executive Director
 Executive Directors’      include collecting rent, enforcing lease terms, and maintaining
 Responsibilities          overall compliance with Federal, State, and local laws, as well
                           as the authority's policies and procedures.

                           The Housing Authority did not seek HUD's approval for the
 The Authority Did Not     conversion of dwelling units to commercial units.
 Seek HUD’s Approval To    Consequently, the Housing Authority inappropriately received
 Convert Units             $1,199 in subsidy for its commercial units. The Housing
                           Authority allowed the Bloomington Hospital and a beauty shop
                           to occupy two units starting in December 1996 and April 1997,
                           respectively, but did not advise HUD to deprogram the units in
                           order to stop the subsidy payments. The Hospital used its unit
                           as a hospice.

                           The Executive Director said he was not aware of HUD's
                           requirements regarding the deprogramming of units until
                           September 1997 when he received the results of HUD's July
                           1997 review. The Authority requested HUD's approval to
                           deprogram the units in January 1998, and HUD approved the
                           units to be taken off line in March 1998. HUD was in the
                           process of calculating the excess subsidy for the commercial
                           units. The Executive Director could not provide an adequate
                           explanation of why it took five months to request the
                           deprogramming. We believe the Executive Director should
                           have been aware of the requirement to obtain HUD’s approval
                           before it deprogrammed units and of the fact that subsidy
                           payments stop for units no longer than two months after
                           HUD’s approval to deprogram is received. Since the Authority
                           did not request HUD’s approval before it deprogrammed the
                           units, we believe the Authority was not entitled to receive
                           subsidy payments for more than two months after it unilaterally
                           deprogrammed the units. Therefore subsidy payments should
                           have stopped in February and June 1997.

                           The Housing Authority did not promptly execute a lease with
 No Leases Were Executed
                           two commercial tenants and the Resident Custodian. The
                           Executive Director allowed the Bloomington Hospital to
                           occupy a unit for one year without a lease. A lease was
                           executed with the Hospital effective January 1, 1998. The
                           Director also allowed a beauty shop to occupy a unit without a
                           lease from April 1997 to at least February 27, 1998. Further,
                           the Director did not execute a lease with the Authority's
                           Resident Custodian who was required to live on the premises.


98-CH-202-1003                    Page 4
                                                                                Finding 1


                        The Resident Custodian moved into a Low-Income Housing
                        unit in September 1991, and received a reduced rent rate of
                        $100 per month in exchange for special duties he was to
                        perform, such as responding to emergency maintenance
                        requests after normal business hours. The Executive Director
                        said he was not aware of HUD's requirement for a lease with
                        the Resident Custodian. He also said initially the Hospital was
                        to move after approximately two months, so he felt a lease was
                        not necessary. The Executive Director said it was an oversight
                        that a lease was not executed with the beauty shop. Leases
                        protect HUD's and the Housing Authority's interests by
                        providing a legal basis to take appropriate action if the terms of
                        the lease arrangements are not complied with.

                        The Housing Authority did not charge the Hospital and beauty
The Authority Did Not   shop rent and paid for their use of utilities. Effective January 1,
Charge Commercial       1998, the Bloomington Hospital signed a one year lease to rent
Tenants Rent            the unit initially occupied in December 1996 and a second unit.
                        The Hospital's lease required a payment of $500 a month in
                        rent for both units. The Executive Director waived the
                        payment of any back rent for the unit occupied in December
                        1996. As of February 27, 1998, the Authority had not
                        executed a lease with the beauty shop and no rent had been
                        collected.

                        The Executive Director said he should have completed a lease
                        with the Bloomington Hospital earlier. However, he said the
                        Board of Commissioners was aware that the Hospital was not
                        paying rent and did not have a written lease. The January 1998
                        Board meeting minutes contained a letter from the Hospital
                        thanking the Authority for a year's free rent. The Executive
                        Director also said that there was a need for the beauty shop and
                        that it served elderly tenants at a reasonable price. He said he
                        needed direction in establishing a rental amount since the shop
                        was only open one day a week.

                        We believe the Authority set an inappropriate rent amount for
                        the lease negotiated with the Bloomington Hospital. The
                        Executive Director said he determined that the average rent
                        paid by the Authority's tenants was $186 per month. He said
                        he believed the $250 per month rent from the Hospital would
                        cover the average tenants' payment plus the cost of utilities.
                        However, there was no way to estimate the cost of the
                        commercial units use of utilities since the units did not have a
                        separate meter. Additionally, the Authority's maximum rent

                                Page 5                                    98-CH-202-1003
Finding 1


                   amount is $350, and 26 percent of the Authority's tenants pay
                   more than the $250 a month rent charged to the Hospital. The
                   Executive Director said he was not aware of the percentage of
                   tenants that paid more in monthly rent than the Hospital. He
                   said that if he was aware of this, he would have adjusted the
                   Hospital's monthly rent. Since the Hospital uses the units as a
                   hospice that does not benefit low and moderate income tenants,
                   we believe it should, at a minimum, have been charged $350
                   per month for each unit.

                   Based on the Authority's maximum rent of $350 per month, we
                   determined that the Authority lost $4,200 in rent between
                   December 1996 and December 1997 from the Bloomington
                   Hospital. Since a lease had not been executed with the beauty
                   shop and the Authority said the shop was intended to benefit
                   low and moderate income tenants, we did not have a basis for
                   what constituted a fair rent. Therefore, we did not calculate
                   the past rent that should have been collected from the beauty
                   shop. Additionally, since the commercial units were not
                   metered, we could not determine how much the Authority paid
                   for the commercial units’ utility costs. By not charging
                   commercial tenants for rent and utilities, the Authority missed
                   the opportunity to collect income that could have been used for
                   its Low-Income Housing Program.

                   The Housing Authority did not amend its Low-Income
 Leases Were Not   Housing lease forms to include the provisions of the Housing
 Amended           Opportunity Program Extension Act of 1996. The Act was
                   signed into law on March 28, 1996 and contained the One
                   Strike and You're Out policy. The Act provides for
                   termination of tenancy and prohibited admittance for any
                   criminal activity or alcohol abuse in Public Housing.

                   The Executive Director and the Board of Commissioners were
                   aware of HUD's requirement regarding the amending of the
                   Low-Income Housing lease forms to include the One Strike
                   policy. However, the Executive Director said he delayed
                   amending the lease forms in order to perform priority work
                   regarding the Comprehensive Improvement Assistance
                   Program. As a result, the Housing Authority did not ensure
                   that the tenants' health, safety, and right to peaceful enjoyment
                   was fully protected.




98-CH-202-1003            Page 6
                                                                              Finding 1


                         The Housing Authority inappropriately used $4,352 in
Comprehensive            Comprehensive Improvement Assistance Program funds to
Improvement Assistance   remodel and furnish a beauty shop. The Authority spent
Program Funds Were Not   $1,253 in construction rehabilitation, and $3,099 for furniture
Properly Used            and mirrors for the beauty shop. The beauty shop was not
                         approved by HUD.

                         HUD Handbook 7485.3 G, Comprehensive Grant Program
                         Guidebook, page 2-1, says that, with the exception of an
                         emergency, a housing authority should only expend funds on
                         activities identified in the Comprehensive Plan that will
                         reasonably ensure the long-term physical and social viability of
                         the development at a reasonable cost. Eligible and ineligible
                         costs of the Comprehensive Grant Program are the same as
                         under the Comprehensive Improvement Assistance Program.

                         The Executive Director said HUD was aware of the beauty
                         shop since HUD reviewed the Comprehensive Plans and
                         blueprints. He also said the Plans were submitted to HUD by
                         the architect. However, the beauty shop was not identified in
                         the Comprehensive Plan. The Construction Analyst for HUD's
                         Indiana State Office said HUD did not review the blueprints for
                         eligible activities, but only for compliance with Section 504 of
                         the Disabilities Act. Further, the Program Analyst for HUD's
                         Indiana State Office said HUD would have required a needs
                         assessment of the beauty shop by the Authority prior to
                         approving the use of any Comprehensive Improvement
                         Assistance Program funds. As a result, HUD lacks assurance
                         that the Authority effectively used Comprehensive
                         Improvement Assistance Program funds.


                         Excerpts paraphrased from the Authority’s comments on our
Auditee Comments         draft finding follow. Appendix B contains the complete text of
                         the comments.

                         The Authority agrees with the finding and recommendations
                         and will ensure HUD’s guidelines and policies are followed.

                         The Authority will: collect the cost of utilities for all
                         commercial units; reimburse HUD $1,199 for excess subsidy
                         received; reimburse HUD $3,600 from non-Federal funds for
                         the lost rent; negotiate a new lease for $350 per month with the
                         Bloomington Hospital for the two units they are using; submit
                         the beauty shop lease to HUD, and upon reply from HUD

                                 Page 7                                  98-CH-202-1003
Finding 1


                     reimburse the Low-Income Housing Program for any amount
                     undercharged since April 1997; and reimburse the
                     Comprehensive Improvement Assistance Program $4,352 from
                     non-Federal funds, if a needs assessment does not support the
                     use of Comprehensive Improvement Assistance Program funds
                     for the beauty shop.

                     The Authority has completed a lease with the Resident
                     Custodian and has proposed Board resolutions that require the
                     Authority to comply with HUD’s requirements and the
                     Housing Opportunity Program Extension Act.


                     The actions the Authority has taken and plans should help to
 OIG Evaluation of   correct the problems identified in the finding; however, in
 Auditee Comments    addition to passing Board resolutions, the Authority needs to
                     develop procedures to follow HUD’s requirements and
                     implement the Housing Opportunity Program Extension Act.
                     The Authority did not provide any documentation to show that
                     a lease has been executed with the Resident Custodian.



 Recommendations     We recommend that the Director of the Public Housing Hub in
                     Cleveland assures that the Housing Authority of the Town of
                     Bloomfield:

                     1A.    Collects the cost of utilities on all commercial units.

                     1B.    Reimburses HUD $1,199 from non-Federal funds for
                            the excess subsidy received between December 1996
                            and December 1997.

                     1C.    Executes a lease with the management of the beauty
                            shop showing the amount of monthly rent and other
                            terms required by HUD.

                     1D.    Executed a lease with its Resident Custodian that
                            showed the amount of the monthly rent and the special
                            duties required to be performed.

                     1E.    Establishes procedures and controls to follow its Public
                            Housing Occupancy Policy and HUD's requirements
                            regarding the execution of commercial and residential
                            leases.


98-CH-202-1003             Page 8
                                                  Finding 1


1F.   Establishes procedures and controls to follow HUD's
      requirements, including but not limited to, obtaining
      written approval from HUD prior to undertaking any
      actions to convert dwelling units.

1G.   Reimburses its Low-Income Housing Program $4,200
      from non-Federal funds for the lost rent that occurred
      between December 1996 and December 1997 on the
      unit occupied by the Bloomington Hospital.

1H.   Increases the rent on the Bloomington Hospital’s units
      to $350 per unit per month.

1I.   Obtains HUD's approval on the rental rate for the
      beauty shop.

1J.   From non-Federal funds, reimburses its Low-Income
      Housing Program for the amount of rent that should
      have been collected from the beauty shop between
      April 1997 and the date a lease is signed.

1K.   Amends its Low-Income Housing lease forms to
      comply with the requirements of the Housing
      Opportunity Program Extension Act of 1996.

1L.   Performs a needs assessment of the beauty shop. If the
      assessment does not support the use of Comprehensive
      Improvement Assistance Program funds for the beauty
      shop's furnishings and rehabilitation, reimburse $4,352
      to its Comprehensive Improvement Assistance
      Program from non-Federal funds.




      Page 9                                 98-CH-202-1003
Finding 1




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98-CH-202-1003                 Page 10
                                                                                             Finding 2


 The Authority Lacked Adequate Cash Controls
The Housing Authority of the Town of Bloomfield did not maintain an effective system of controls
over cash management. The Housing Authority did not: (1) adequately segregate the duties of its
employees; (2) safeguard cash funds; (3) follow its Internal Monitoring Policy or HUD's requirements
regarding cash; and (4) properly maintain records for a checking account. The weaknesses existed
because the Authority's Board of Commissioners and its top management did not exercise their
responsibilities to implement effective cash management controls, and their failure to do so increased
the risk of loss or misuse of funds.


                                       Controls over cash management comprise the plan of
 Cash Control                          organization, methods, and procedures adopted by
 Requirements                          management to ensure resources are guarded against waste,
                                       loss, and misuse. The important features of an adequate
                                       control system are:

                                       ·   Control should be established early in a transaction and
                                           carried through to 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; and

                                       ·   Record keeping should be separate from operations of
                                           handling and custody of assets. For example, the
                                           bookkeeping function should be separate from 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.

                                       Public housing authority Commissioners have a responsibility
 Board of Commissioners’               to HUD to ensure national housing policies are carried out, and
 Responsibilities                      to the Executive Director and staff to provide sound and
                                       manageable directives. The Commissioners are accountable to
                                       their locality and best serve it by monitoring operations to be
                                       certain that housing programs are carried out in an efficient and
                                       economical manner.




                                            Page 11                                     98-CH-202-1003
Finding 2


                         The Housing Authority did not properly segregate employees’
 The Authority Did Not   duties concerning cash receipts and disbursements. The
 Adequately Segregate    Authority's former Office Assistant performed various activities
 Employees’ Duties       without adequate internal checks and balances. Therefore, the
                         Authority unnecessarily increased its susceptibility to program
                         abuses. Although the Authority only had four full-time
                         employees, four employees was an adequate number to
                         segregate duties so that no one individual had complete control
                         of a transaction.

                         The Authority's former Office Assistant collected and issued
                         receipts for in-person rental payments; posted payments and
                         adjustments to the tenants' accounts; and prepared bank
                         deposits. Thus, the former Assistant effectively had complete
                         control over all phases of the rent collection process and the
                         record keeping. Although we did not find that the former
                         Office Assistant took advantage of the opportunity to
                         divert rent collections, the opportunity existed to do so.

                         The former Office Assistant also prepared payments to
                         contractors for the Authority's Comprehensive Improvement
                         Assistance Program. Once an invoice was received, the former
                         Assistant prepared a check for the signature of the Chairman of
                         the Board and the Executive Director. After the check was
                         signed, it was returned to the former Assistant for payment.
                         Consequently, the former Office Assistant could have diverted
                         the payment without detection. We did not find that the
                         Assistant took advantage of the opportunity to divert the
                         Authority's assets.

                         The Housing Authority did not safeguard its cash funds. The
 The Authority Did Not
                         Authority did not maintain a current General Depository
 Safeguard Cash Funds
                         Agreement with its bank, only required one signature to
                         withdraw funds from the High Rise Social account, and did not
                         limit access to cash collections and the petty cash fund.
                         Depository Agreements, requiring at least two signatures to
                         withdraw cash from the Authority's bank accounts, and limiting
                         employees access to cash help protect funds against
                         unauthorized use.

                         The Authority did not maintain a current General Depository
                         Agreement with its financial institution.     The previous
                         Agreement expired on December 1, 1996. Section 9(A) of the
                         Annual Contributions Contract requires the Housing Authority
                         to have a General Depository Agreement. The Executive

98-CH-202-1003                  Page 12
                                                                              Finding 2


                        Director said he was not aware that the Agreement had
                        expired. He said the Housing Authority would execute a new
                        Depository Agreement with its bank.

                        The Authority's High Rise Social account only required one
                        signature to withdraw funds. Although we did not find that
                        any funds had been inappropriately withdrawn, two
                        signatures should be required on each check to help ensure
                        withdrawals are authorized and necessary.

                        The Authority did not limit employees’ access to cash
                        collections and the petty cash fund. All of the Authority's staff
                        had access to cash collected from the laundry machines, and
                        the petty cash fund. The funds were maintained at the
                        Authority's office. Cash collections were kept in an unlocked
                        box and the petty cash fund was kept in a filing cabinet that
                        was unlocked during the business day. The Authority did not
                        have a petty cash custodian. As a result, the Authority created
                        a situation where funds could have been diverted without
                        detection. We did not find that the Authority's employees
                        took advantage of the opportunity to divert project funds.

                        The Housing Authority did not follow its Internal Monitoring
The Authority Did Not
                        Policy and HUD's requirements over cash. The Monitoring
Follow Adequate Cash
                        Policy says cash collections should be reconciled daily; cash
Controls
                        collections should be deposited in the bank intact;
                        disbursements should never be made from cash receipts; and
                        the Chairman of the Board or the Executive Director should
                        make periodic audits of cash collections. HUD Handbook
                        7511.1, Low-Rent Housing Guide, Chapter 3, Section 1, page
                        4, also states that cash receipts should be deposited in the bank
                        intact and disbursements should never be made from cash
                        receipts.

                        The Housing Authority's Assistant Executive Director and the
                        former Office Assistant said cash was not reconciled daily, and
                        the Chairman of the Board or Executive Director never audited
                        cash collections. We found the Authority did not deposit cash
                        collected from the laundry machines intact. The Authority kept
                        some of the cash from the laundry machines to make change
                        for tenants and to cash tenants' personal checks. Further, no
                        one from the Housing Authority was present when company
                        representatives and telephone company personnel collected and
                        counted cash from the Authority's vending machines and pay
                        telephone. Since no one from the Authority was present when

                               Page 13                                   98-CH-202-1003
Finding 2


                    cash was collected and counted, the Authority lacks assurance
                    as to the accuracy of the amount it received. The Executive
                    Director said, since the Housing Authority is small, he did not
                    believe any cash-related problems existed. However, HUD's
                    requirements over cash should be enforced to help reduce the
                    potential for cash related problems. The Executive Director
                    said the Authority would start following its Monitoring Policy
                    and HUD's requirements for cash collections.

                    The Housing Authority did not properly maintain records for
 Checking Account   its High Rise Social checking account. Specifically, the
 Records Were Not   Authority did not: (1) maintain adequate records identifying the
 Adequate           source of the proceeds deposited into the checking account;
                    and (2) report the account on its general ledger and audited
                    financial statements to HUD.

                    Section 9(B) of the Annual Contributions Contract says all
                    monies and investment securities received by or held for the
                    account of the Housing Authority in connection with the
                    development, operation and improvement of its projects
                    constitute the General Fund. Section 9(C) of the Contract says
                    the Authority will maintain records that identify the source and
                    application of funds in such a manner as to allow HUD to
                    determine that all funds are and have been expended in
                    accordance with each specific program regulation and
                    requirement. The Authority may withdraw funds from the
                    General Fund only for: (1) the payment of the costs of
                    development and operation of the projects; and (2) the
                    purchase of investment securities as approved by HUD.

                    Further, Section 15(A) of the Annual Contributions Contract
                    states that the Authority must maintain complete and accurate
                    books of account for the projects. Section 15(B) of the
                    Contract says the Authority must furnish financial and project
                    reports as required by HUD.

                    The Authority did not maintain adequate records identifying
                    the source of the proceeds in its High Rise Social checking
                    account. The Authority established the account in 1980. The
                    Assistant Executive Director said proceeds for the account
                    came from donations by tenants and private organizations such
                    as the local Lions Club, and receipts from the Authority's
                    vending machines. However, the Authority did not maintain
                    adequate records to identify the source of the proceeds in the
                    account. Without adequate records identifying the source of

98-CH-202-1003             Page 14
                                                                        Finding 2


                   funds in the High Rise Social account, HUD lacks the ability to
                   determine whether proceeds were used for reasonable and
                   necessary project expenses. The account was used to pay for
                   such items as flowers for sick tenants, resident dinner parties,
                   and holiday decorations. The use of the funds for these
                   purposes would be appropriate if the source of funds was not
                   from the Authority’s operations.

                   The Authority did not report the High Rise Social account on
                   its general ledger and audited financial statements to HUD. As
                   of January 5, 1998, the account had a balance of over $1,800.
                   The Executive Director said he was not aware that the account
                   was not properly reported. As a result, the Authority created a
                   situation where funds could have been diverted without
                   detection. We did not find that any funds were diverted;
                   however, since the source of funds was not identified, we could
                   not verify that the use of the funds was reasonable and
                   necessary.


                   Excerpts paraphrased from the Authority’s comments on our
Auditee Comments   draft finding follow. Appendix B contains the complete text of
                   the comments.

                   The Authority will segregate duties. Diana Imes will receive
                   collections and issue receipts. Pat Byers will record payments
                   and adjustments to tenant accounts. Diana Imes will prepare
                   bank deposit slips and Lavon Yoho will check and approve
                   them. Deposits will be made by Pat Byers. For the
                   Comprehensive Improvement Assistance Program, Diana Imes
                   will receive invoices and prepare checks for the Chairman of
                   the Board and the Executive Director’s signatures. Pat Byers
                   will mail completed documents.

                   A new Depository Agreement was completed on February 4,
                   1998.

                   Two signatures are now required on the High Rise Social Fund
                   account. We are in the process of determining what funds
                   belong to the Authority and will deposit the monies in the
                   General Fund.

                   Diana Imes will be the petty cash custodian.



                          Page 15                                  98-CH-202-1003
Finding 2


                     The Chairman of the Board or the Executive Director will
                     make periodic audits of cash collections. The Authority will
                     operate under HUD Handbook 7511.1, Low Rent Housing
                     Guide, Chapter 3, Section 1.

                     Money collected from the laundry is now deposited intact.
                     Funds from company vending machines will be counted,
                     correctly reported, and deposited intact.

                     Records of deposits and receipts for the High Rise Social
                     account are current from 1980 to date. The funds received are
                     from donations and were used for various functions for the
                     tenants. All such funds will be reported according to Section
                     9(B) of the Annual Contribution Contract.


                     The Authority has taken or plans actions that should correct
 OIG Evaluation of   the problems identified in the finding; however, the Authority
 Auditee Comments    needs to establish procedures and controls to ensure the actions
                     taken or planned are enforced in the future. Only monies in the
                     High Rise Social Fund that came from HUD’s resources need
                     to be deposited in the General Fund.



 Recommendations     We recommend that the Director of the Public Housing Hub in
                     Cleveland assures the Housing Authority of the Town of
                     Bloomfield:

                     2A.    Segregated the duties of its employees to the extent
                            practical. No employee should have complete control
                            over a significant transaction. The duties should be
                            segregated to provide checks and balances on all work.

                     2B.    Establishes procedures and controls to: (1) maintain a
                            current General Depository Agreement with its
                            financial institution; (2) require two signatures to
                            withdraw cash from the High Rise Social account; (3)
                            appoint a custodian for the petty cash fund; and (4)
                            restrict employees’ access to cash collections and petty
                            cash.

                     2C .   Establishes procedures and controls to follow its
                            Internal Monitoring Policy and HUD's requirements
                            regarding cash including, but not limited to: (1)
                            reconciling collections daily; (2) assigning an Authority

98-CH-202-1003              Page 16
                                                 Finding 2


      employee to participate in collecting and counting
      funds from vending machines and the pay telephone;
      (3) depositing collections intact; (4) stopping
      disbursements from cash receipts; and (5) conducting
      periodic audits of collections.

2D.   Deposits the proceeds from the High Rise Social
      checking account into the General Fund, unless the
      Authority can support that the source of the funds was
      not from the Authority's operations.

2E.   Deposits all proceeds from the Authority's operations
      into the General Fund.

2F.   Reports the High Rise Social account on the
      Authority's general ledger and audited financial
      statements to HUD.




      Page 17                                98-CH-202-1003
Finding 2




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98-CH-202-1003                 Page 18
                                                                                                Finding 3


        Conflicts Of Interest Were Not Disclosed
The Housing Authority of the Town of Bloomfield did not follow its Procurement Policy, HUD's
requirements, and the State of Indiana's Code regarding conflicts of interest. The Housing Authority
did not: (1) disclose conflicts of interest to the public via Board meeting minutes; (2) obtain a waiver
from HUD for conflicts of interest; and (3) require its contractors to insert a provision prohibiting
conflicts of interest in each subcontract. The Executive Director was not aware of HUD's or the State
of Indiana's requirements regarding conflicts of interest and did not understand the importance of the
Authority's conflict of interest requirements. Rules that require the avoidance and reporting of conflicts
of interest are necessary to eliminate situations that could easily result in the misuse of funds, impede
free and open competition, and reduce public confidence in the Authority.


                                        Section 515(A) of the Annual Contributions Contract states in
 HUD’s Requirements                     part that the Local Authority shall not enter into any contract,
                                        subcontract, or arrangement, in connection with any Project or
                                        any property included or planned to be included in any Project,
                                        in which any employee or officer of the Local Authority who
                                        exercises any responsibilities or functions with respect to the
                                        Project during his/her tenure or for one year thereafter has any
                                        interest, direct or indirect. If any employee or officer
                                        involuntarily acquires such an interest, and the interest is
                                        immediately disclosed to the Local Authority and disclosure is
                                        entered upon the minutes of the Local Authority, the Local
                                        Authority, with prior approval of the Government may waive
                                        the prohibition contained in the subsection: Provided, the
                                        employee or officer of the Local Authority does not participate
                                        in any action by the Authority relating to the contract,
                                        subcontract, or arrangement.

                                        HUD Handbook 7460.8 REV-1, Procurement Handbook for
                                        Public Housing Agencies and Indian Housing Authorities, page
                                        6-7, says clauses that should be included in housing authority
                                        contracts are described in Appendix 28. Appendix 28 of the
                                        Handbook, paragraph 9(d), states in part that a housing
                                        authority will require its contractors to include in each
                                        subcontract and consulting agreement provisions to eliminate
                                        or neutralize conflicts of interest.

                                        The Housing Authority's Procurement Policy dated March 31,
 Housing Authority’s
                                        1992, page 15, says that no employee, officer or agent of the
 Requirements
                                        Authority shall participate directly or indirectly in the selection,
                                        award, or the administration of any contract if a conflict, real or

                                              Page 19                                      98-CH-202-1003
Finding 3


                         apparent, would be involved. Such a conflict would arise when
                         a financial or other interest in a firm selected for award is held
                         by: (1) an employee, officer or agent involved in making the
                         award; and (2) his/her relatives which include brothers-in-law.

                         The Indiana Code, Title 36, Chapter 18, Section 11(a)(3),
 State of Indiana’s      states in part that a commissioner or employee of a housing
 Requirements            authority may not acquire or have any direct or indirect interest
                         in a contract or proposed contract for materials or services to
                         be furnished or used in connection with any housing project.
                         Further, Section 11(c) of the Code says if a commissioner or an
                         employee of a housing authority owns or controls a direct or an
                         indirect interest in any property included or planned to be
                         included in a housing project, he/she shall immediately disclose
                         the interest in writing to the authority. The disclosure shall be
                         entered upon the minutes of the authority. Failure to disclose
                         such an interest constitutes misconduct in office.

                         The Housing Authority did not follow its Procurement Policy,
 Conflict of Interest    HUD's requirements, or the State of Indiana's Code regarding
 Requirements Were Not   conflicts of interest. Specifically, the Housing Authority did
 Followed                not: (1) disclose conflicts of interest to the public via Board
                         meeting minutes; (2) obtain a waiver from HUD for conflicts of
                         interest; and (3) require its contractors to insert a provision
                         prohibiting conflicts of interest in each subcontract.

                         Conflicts of interest existed with the Assistant Executive
                         Director's brother-in-law and spouse, both of whom were
                         contractors for the Housing Authority.        The Assistant
                         Director's brother-in-law is the owner of Byers Electric,
                         Heating and Cooling. The spouse of the Assistant Executive
                         Director owns DB Electric and Byers Trucking.

                         On May 2, 1996, the Authority awarded Byers Electric,
                         Heating and Cooling a contract for $229,854. The contract
                         related to electrical work on phase II of the high rise renovation
                         project funded by the Comprehensive Improvement Assistance
                         Program. The Housing Authority used a competitive process
                         to award the contract. Byers Electric, Heating and Cooling
                         was the lowest responsible bidder; however, the conflict was
                         not disclosed in the Board meeting minutes and a request for a
                         waiver was not submitted to HUD. Based on the Authority’s
                         architect's estimate and the other bid received, we determined
                         $229,854 was a reasonable cost for the work.


98-CH-202-1003                  Page 20
                                                       Finding 3


The Housing Authority also used Byers Electric, Heating and
Cooling for three small purchases totaling $2,629. The
purchases were made between March 1994 and November
1997, related to electrical work, and did not require a contract.
The conflict of interest was not disclosed in the Board meeting
minutes and no waivers were requested. We determined two
of the purchases were reasonable; however, the Authority had
no documentation to show the reasonableness or necessity of
the third purchase for $860 from the Low-Income Housing
Program.

The Housing Authority paid DB Electric and Byers Trucking a
total of $6,374 between February 1994 and July 1997.
Electrical services at the Housing Authority's family project
accounted for $3,761 of the $6,374, and small jobs ranging
between $37 to $450 accounted for the rest ($2,613). Again,
the conflict was not disclosed in Board meeting minutes and no
waivers were requested from HUD. The work at the family
project totaling $3,761 was a result of a proposal requested by
the Authority's architect.         However, there was no
documentation to support the reasonableness of the payment
made from the Comprehensive Improvement Assistance
Program.

The Housing Authority did not require its contractors to insert
a provision prohibiting conflicts of interest in each subcontract.
We reviewed four contracts awarded by the Housing Authority
between February 1994 and May 1997. None of the contracts
contained the required conflict of interest provision. The
provision is intended to eliminate or neutralize any potential
conflict of interest.

The Executive Director said he was not aware of HUD's or the
State of Indiana's requirements regarding conflicts of interest.
He said he was aware of the Housing Authority's Procurement
Policy regarding conflicts of interests; however, he believed the
Authority paid a reasonable price for the materials and services
received. Conflict of interest requirements were created to
eliminate the potential for misuse of funds and the appearance
of favoritism. Because of the relationships between the
Assistant Executive Director and several contractors, there was
an appearance of favoritism. Additionally, HUD lacks
assurance all funds were used for reasonable and necessary
expenses.      There were no records to support the


       Page 21                                    98-CH-202-1003
Finding 3


                     reasonableness and necessity for $4,621 expended on two
                     purchases involving identity of interests.


                     Excerpts paraphrased from the Authority’s comments on our
 Auditee Comments    draft finding follow. Appendix B contains the complete text of
                     the comments.

                     Future contracts will comply with the Annual Contribution
                     Contract, HUD Handbook 7460.8, The Procurement
                     Handbook for Public Housing Agencies, and the procurement
                     standards in 24 CFR Part 85.36. The Housing Authority
                     requires its contractors to publicly disclose conflicts of interest
                     in the minutes of the Board of Commissioners meetings.

                     In the future, the Authority will not contract with Byers
                     Electric, Heating and Cooling, D.B. Electric, and Byers
                     Trucking unless HUD’s approval is requested and confirmation
                     obtained.

                     The $860 payment to Byers Electric, Heating and Cooling was
                     for an emergency. The Authority believes the costs charged
                     were reasonable. The Authority’s architect believes the $3,761
                     charged by D.B. Electric for work on the family housing
                     project was reasonable.


                     If the Authority follows through on its plan to comply with all
 OIG Evaluation of   requirements for future contracts, it will reduce the
 Auditee Comments    procurement problems we identified. However, the Authority
                     also needs to ensure it complies with all requirements for
                     procurement actions that do not require a contract.

                     Our review determined that the Authority did not have
                     adequate procedures to publicly disclose conflicts of interest in
                     its Board meeting minutes.

                     Although the Authority believes the $860 payment to Byers
                     Electric, Heating and Cooling and the $3,761 payment to DB
                     Electric were reasonable, it did not provide documentation to
                     show how it arrived at that determination. The purchases were
                     not competitive and no cost estimates were prepared.




98-CH-202-1003              Page 22
                                                                        Finding 3



Recommendations   We recommend that the Director of the Public Housing Hub in
                  Cleveland assures that the Housing Authority of the Town of
                  Bloomfield:

                  3A.    Establishes and implements procedures and controls to
                         publicly disclose conflicts of interest via Board meeting
                         minutes.

                  3B.    Discontinues any future purchases and contracts with
                         Byers Electric, Heating and Cooling, DB Electric, and
                         Byers Trucking unless HUD’s approval is requested
                         and obtained.

                  3C.    Provides documentation to support the reasonableness
                         of the $860 payment to Byers Electric, Heating and
                         Cooling and the $3,761 payment to DB Electric; or
                         reimburses the appropriate Programs for the amounts
                         that cannot be supported.

                  3D.    Establishes and implements procedures and controls to
                         ensure that the Housing Authority requires its
                         contractors to insert a provision prohibiting conflicts of
                         interest in each subcontract.




                        Page 23                                    98-CH-202-1003
Finding 3




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98-CH-202-1003                 Page 24
                                                                                                Finding 4


   The Authority Lacked A Cost Allocation Plan
The Housing Authority of the Town of Bloomfield did not have a plan to allocate indirect costs among
its programs. The Housing Authority allocated all employees' salary costs and non-salary costs, with
the exception of phone costs, to the Low-Income Housing Program. Twenty dollars of phone costs
per month were arbitrarily charged to the Section 8 Program. The Low-Income Housing Program was
not reimbursed by the other programs. While the Housing Authority was cited by HUD during its July
1997 review for failing to establish a cost allocation plan, the Authority had not established a plan since
they were concentrating on correcting other issues cited in the review. As a result, the Housing
Authority's Low-Income Housing Program was overcharged and HUD lacks proper visibility over the
cost of its programs.


                                         24 CFR Part 85.22(b) requires State, local, and Indian tribal
 HUD’s Requirements                      governments to follow Office of Management and Budget
                                         Circular A-87, Cost Principles for State and local governments.
                                         According to 24 CFR Part 85.3, a local government includes
                                         any public housing agency.

                                         Office of Management and Budget Circular A-87, Attachment
 Office of Management                    C, says State, local, and Federally-recognized Indian tribal
 And Budget Circular                     governments shall establish a process to assign costs to
 Requirements                            benefited activities on a reasonable and consistent basis. The
                                         cost allocation plan provides that process. All costs and other
                                         data used to distribute the costs included in the plan should be
                                         supported by formal accounting and other records that support
                                         the propriety of the costs assigned to Federal awards.

                                         The Housing Authority lacked a plan to allocate indirect costs
 A Cost Allocation Plan
                                         to its programs. The Authority operates three HUD programs.
 Was Not Established
                                         The programs are Low-Income Housing, Section 8, and
                                         Comprehensive Improvement Assistance.              The Housing
                                         Authority allocated all of its employees' salaries to the Low-
                                         Income Housing Program even though employees spent time
                                         related to the Authority's other programs. Additionally, the
                                         Authority applied all of its non-salary indirect costs to the Low-
                                         Income Housing Program with the exception of $20 dollars per
                                         month that was arbitrarily charged to the Section 8 Program.
                                         According to Office of Budget and Management Circular A-
                                         87, housing authorities must establish a cost allocation plan to
                                         allocate indirect costs. As a result, the Authority did not have
                                         an accurate accounting for the cost of its programs.


                                              Page 25                                      98-CH-202-1003
Finding 4


                 For example, we selected three Housing Authority employees
                 to determine the time they spent related to the various
                 programs in 1997. The three employees were the Executive
                 Director, Assistant Executive Director, and the Resident
                 Custodian. The Executive Director estimated he spent 50
                 percent of his time on the Comprehensive Improvement
                 Assistance Program, 47 percent on Low-Income Housing, and
                 three percent on the Section 8 Program. The Assistant
                 Executive Director estimated she spent about 75 to 85 percent
                 of her time on Section 8, with the remaining 15 to 25 percent
                 on the Low-Income Housing Program. Finally, the Resident
                 Custodian estimated he spent 95 percent of his time on Low-
                 Income Housing and five percent on the Comprehensive
                 Improvement Assistance Program.

                 The Authority incurred non-salary costs for insurance, utilities,
                 and trash collection for its administrative office. As previously
                 mentioned, all of the costs were charged to Low-Income
                 Housing with the exception of $20 per month in phone costs.
                 The Section 8 and the Comprehensive Improvement Assistance
                 Programs share the same office space with the Low-Income
                 Housing Program. Since the Section 8 and the Comprehensive
                 Improvement Assistance Programs benefit from the office
                 space, they are required to bear their share of the costs.

                 The Housing Authority was cited by HUD's Indiana State
                 Office of Public Housing during its July 1997 review for failing
                 to establish a cost allocation plan. HUD's finding has not been
                 closed. The Assistant Executive Director said she was unsure
                 of how to develop a cost allocation plan. The Housing
                 Authority had not requested assistance from HUD in
                 establishing a cost allocation plan because the Authority was
                 first concentrating on addressing other issues cited in HUD's
                 1997 review. We provided the Housing Authority with a copy
                 of Office of Management and Budget Circular A-87. The
                 Circular provides guidance on developing cost allocation plans.
                 The Assistant Executive Director said the Housing Authority
                 can have an acceptable plan by June 30, 1998.




98-CH-202-1003          Page 26
                                                                        Finding 4



                    Excerpts paraphrased from the Authority’s comments on our
Auditee Comments    draft finding follow. Appendix B contains the complete text of
                    the comments.

                    The Authority requested a plan for cost allocation from its fee
                    accountant. On February 23, 1998, Hawkins, Ash, Baptie &
                    Company was asked for recommendations to correct the
                    allocation of funds between Low Income and Section 8
                    Programs.


                    After the Authority has developed a cost allocation plan, it
OIG Evaluation of   needs to reimburse the Low Income Housing Program for any
Auditee Comments    excessive costs charged during 1997.



Recommendations     We recommend that the Director of the Public Housing Hub in
                    Cleveland assures the Housing Authority of the Town of
                    Bloomfield:

                    4A.    Develops a cost allocation plan in accordance with
                           Office Management and Budget Circular A-87 by June
                           30, 1998.

                    4B.    Reimburses the Low Income Housing Program for any
                           excessive costs charged during 1997 once the cost
                           allocation plan is developed.




                           Page 27                                 98-CH-202-1003
Finding 4




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98-CH-202-1003                 Page 28
Follow Up On Prior Audits
The was the first Office of Inspector General audit of the Housing Authority. The latest single audit
for the Housing Authority covered the fiscal year ended December 31, 1995. The report contained
three findings. None of the three findings are repeated in this report.




                                            Page 29                                   98-CH-202-1003
Follow Up On Prior Audits




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98-CH-202-1003                     Page 30
                                                                                    Appendix A


Schedule Of Questioned Costs
         Recommendation                   Type of Questioned Costs
           Number                       Ineligible 1/ Unsupported 2/


            1B                           $1,199
            1G                            4,200
            1L                                             $4,352
            3C                                              4,621
           Total                         $5,399            $8,973




1/   Ineligible costs are costs charged to a HUD-financed or insured program or activity that
     the auditor believes are not allowable by law, contract, or Federal, State, or local policies
     or regulations.

2/   Unsupported costs are costs charged to a HUD-financed or insured program or activity
     and eligibility cannot be determined at the time of 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 cost. 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 31                                   98-CH-250-1003
Schedule Of Questioned Costs




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98-CH-202-1003                     Page 32
                                                                                      Appendix B


Auditee Comments
             HOUSING AUTHORITY of the TOWN of BLOOMFIELD, INDIANA
                        100 WEST MAIN STREET, BOX 801
                          BLOOMFIELD, INDIANA 47424
                      PHONE (812) 384-8866 - FAX (812) 384-8010


April 10, 1998

Heath Wolfe, Senior Auditor
Dept. Housing and Urban Development
Office of Inspector General
200 North High Street, Room 334
Columbus, OH 43215



Dear Mr. Wolfe,

In response to your letter dated March 26, 1998, with regards to the final audit findings,
I am submitting our reply for your review. Also, I agree with your audit findings and assure the Office
of the Inspector General that the finding will be corrected to meet H.U.D. guidelines and policies.

Sincerely,


Lavon Yoho
Executive Director

Enclosure




                                                 Page 33                                98-CH-250-1003
Appendix B



THE HOUSING AUTHORITY DID NOT EFFECTIVELY MANAGE ITS UNITS

H.U.D. Requirements

The Bloomfield Housing Authority will adhere to H.U.D. Handbook 7486.1, the Public
Housing Demolition, Disposition and Conversion Handbook. Also, as stated in H.U.D.
Handbook 7510.1, Low-Rent Housing Accounting Handbook, Chapter 3, Section 12.

Resolution No. 98-4 has been submitted to H.U.D. for review for PIH Notice 96-27 for
addendum on Administrative Plan and Admission and Continued Occupancy Polilcy.

The Bloomfield Housing Authority agrees to the following recommendations:

A. Collect the cost of utilities on all commercial units determined by average usage
   from project furnished utilities report.

B. Reimburse H.U.D. $1,199 for excess subsidy received between December 1996
   And December 1997.

C. Lease with Beauty Shop was effective March 1, 1997. As per Board of
   Commissioner's recommendation of 15% of gross sales is paid to B.H.A.
   A copy of said contract will be sent to H.U.D. for approval.

D. Lease with Resident Custodian was completed. The Resident Custodian lease
   states $100 per month for rent. The Resident Custodian is subject to call 24
   hours a day. He responds to any and all emergencies.

E. As per Resolution 98-8
   The Public Housing Low Rent Accounting Handbook (7510.1)

F. As per Resolution 98-9
   The Public Housing Demolition Disposition and Conversion Policy (7486.1)

G. Reimburse public housing program $3600 from non-federal funds for lost rent
   from Bloomington Hospital between December 1996 and December 1997.

H. The present lease will expire on December 31, 1998. A thirty day notice is
   required by both parties on any change in lease. With Board of Commissioners
   approval, a recommendation to negotiate a new lease effective July 1, 1998 for
   $350 per unit.




98-CH-202-1003                              Page 34
                                                                                   Appendix B



1. A copy of lease has been submitted to H.U.D. for Beauty Shop for review on rental
   rate.

J. Upon reply from H.U.D. with regard to rental rate, the Housing Authority will
   reimburse the public housing program.

K. Resolution 98-4 was sent to H.U.D. for review and approval. Housing 0pportunity
   Extension Act of 1996.

L. A needs assessment for the Beauty Shop will be conducted to show support by the
   tenants and feasibility for the service the Beauty Shop performs for our tenants.
   When completed, if the assessment does not support the use of Comprehensive
   Improvement Assistant Program, the Housing Authority will reimburse 4352 to its
   C.I.A.P. from non-federal funds.




                                                Page 35                                98-CH-202-1003
Appendix B

BLOOMFIELD HOUSING AUTHORITY                                                                     RESOLUTION 98-4

ADDENDUM to both Administrative Plan and the Admission and Continued Occupancy Policy.

WHEREAS, the Board of Commissioners of the Bloomfield Housing Authority is charged with establishing policies and
overseeing the fiscal administration and accounting practices of the Authority and,

THEREFORE, are adopting this policy to be added to the Administrative Plan and the
Admission and Continued Occupancy Policy.

POLICY, is to prohibit the admission to the Section 8 or Public Housing programs, any person who is illegally using a
controlled substance, the ineligibility if evicted for drug-related activity and terminating assistance to illegal drug users
and alcohol abusers.

     A. Screening out illegal drug users and alcohol abusers.
        The BHA has established standards that
        prohibit the admission to Section 8 or Public Housing programs of any person who
        the BHA determines is illegally using a controlled substance.

          The BHA has established policies and procedures that prohibit admitting any person
          in cases where the BHA determines that there is reasonable cause to believe that the
          person abuses alcohol in a way that may interfere with the health, safety, or right to
          peaceful enjoyment of the premises by other residents.

          BHA may waive the policies prohibiting admission in these circumstances if the
          person is no longer engaging in illegal use of a controlled substance or abuse of
          alcohol and has successfully completed a supervised drug or alcohol rehabilitation
          program.

     B. Ineligibility if evicted for drug related activity.
        Drug-related criminal activity is the illegal manufacture, sale, distribution, use or
        possession with intent to manufacture, sell, distribute or use a controlled substance.
        Persons evicted from any Public Housing or Section 8 programs because of drug-
        related criminal activity are ineligible for admission to either Public Housing or the
        Section 8 program for a three year period beginning on the date of such eviction.

          The BHA may waive this requirement if:
          The person demonstrates successful completion of a rehabilitation program
          approved by the BHA, or the circumstances leading to the eviction no longer exist.
          For example, the individual involved in drugs is no longer in the household because
          the person is incarcerated.

     C. Terminating assistance to illegal drug users and alcohol abusers.
        The BHA has established standards that allow for the termination of Section 8
        assistance or termination of the tenancy of any person who the BHA determines is
        illegally using a controlled substance.

          The BHA may terminate Section 8 assistance or terminate tenancy of any person if
          the BHA determines that the person's abuse of alcohol interferes with the health,
          safety or right to peaceful enjoyment of the premises by other residents.

     D. Lease Provision
        Public Housing lease forms and Section 8 dwelling lease must be amended to
        provide that the following activities by a resident or participant are grounds for
        termination of tenancy or assistance.

98-CH-202-1003                                        Page 36
                                                                                                  Appendix B

BLOOMFIELD HOUSING AUTHORITY                                                                 RESOLUTION 98-4

      Drug related criminal activity on or off the premises, not just on or near the
      premises, and alcohol abuse that the BHA determines interferes with the health,
      safety or right to peaceful enjoyment of the premises by other residents.

       In amending the lease form, the BHA has provided the tenants with notice and
       opportunity to comment, according to the provision in 24 CFR 966.3. The
       modification may be either in the body of the lease or in a lease addendum. Tenants
       must be required to execute the new lease / addendum no later than their next re-
       examination.

   E. Grievance Procedures
      Instates where HUD has determined that a court provides the elements of due
      process, the BHA will bypass the grievance procedure in cases involving termination
      of tenancy for any activity, not just on or near such premises.

   F. Availability of Criminal Records
      The law states that, not withstanding any other provision of law, the National Crime
      Information Center, Police Departments, and other law enforcement agencies shall,
      upon request, provide the BHA information regarding the criminal conviction
      records of adult applicants for, or tenants of Public Housing for purposes of
      applicant screening, lease enforcement and eviction.

       This information must be provided for persons 18 years of age or older, or for those
       convicted of a crime as an adult.

       The provision of this paragraph (27) pre-empt any contrary provision in state, local
       or tribal laws, and prevail over any contrary federal requirement. These provisions
       do not pre-empt or limit any laws or Authority that permit broader access to records.

       On request, the BHA must be provided the same information for juveniles, on to the
       extent that the release of such information is authorized by state, local or tribal law.

       While not addressed by the statute, the BHA must pay reasonable fees charged by
       law enforcement agencies that provide the information. The applicant or tenant may
       not be charged.

       The BHA has established a system to ensure that any criminal record received be
       maintained confidentially, not misused or improperly disseminated, and destroyed
       once the purpose for which was requested is accomplished.

       Before the BHA takes adverse action based on a criminal conviction record, the BHA
       must provide the applicant or tenant with a copy of the criminal record and an
       opportunity to dispute the accuracy or relevancy of the record, the opportunity to
       dispute the record can be at an informal hearing for rejected applicants or at the
       court hearing in the case of evictions.

   G. Nondiscrimination
      Nothing in this RESOLUTION relieves the BHA from complying with federal
      requirements prohibiting unlawful discrimination. In particular, in implementing the
      provisions described in this notice, the BHA must abide by federal laws prohibiting
      discrimination on the basis of race, religion, sex color, national origin, age,
      disability and family status.


                                                         Page 37                                    98-CH-202-1003
Appendix B


BLOOMFIELD HOUSING AUTHORITY                                                RESOLUTION 98-4



       The BHA must apply its procedures objectively in dealing with both applicants and
       participants. Only and individual's particular behavior may be considered, not traits
       that might be attributed to a specific group or category of people. The BHA should
       carefully document the rationale for their decisions.

SAID RESOLUTION is hereby adopted on motion duly made, seconded and carried, and is a
part of the official records in the minutes of the Board of Commissioners of said Authority on
this      day of        1998.

IN WITNESS WHEREOF, we have hereunto set our hands as Commission Members of the
Housing Authority of the Town of Bloomfield, on this day of 1998.



James Miller, Chairman                                 Reba Street, Vice Chairman



Lowell Sparks, Member                                   James Pearson, Member



John Allen, Member




98-CH-202-1003                              Page 38
                                                                                      Appendix B



BLOOMFIELD HOUSING AUTHORITY                                                 RESOLUTION 98-8



The Public Housing Low Rent Accounting Handbook (7510.1)

Non-Dwelling Rental

This account shall be credited with the rent, including charges for utilities and equipment billed to
lessee of non-dwelling facilities and of dwelling units rented for non-dwelling purposes. This account
shall not be credited with charge to other projects or programs for central office management and
maintenance space.

SAID RESOLUTION is hereby adopted on motion duly made, seconded and carried, and is a part of
the official records in the minutes of the Board of Commissioners of said Authority on this day of
1998.

IN WITNESS WHEREOF, we have hereunto set our hands as Commission Members of the Housing
Authority of the Town of Bloomfield, on this day of   1998.




James Miller, Chairman                                 Reba Street, Vice Chairman



Lowell Sparks, Member                                      James Pearson, Member



John Allen, Member




                                                 Page 39                                98-CH-202-1003
Appendix B


BLOOMFIELD HOUSING AUTHORITY                                                  RESOLUTION 98-9



The Public Housing Demolition, Disposition and Conversion Policy, (7486.1)

Written approval by H.U.D. shall be required before the BHA may undertake any conversion action.
To request such approval, the BHA shall submit a request to the field office for guidance on the
essential elements of the request. The PHA may cross-reference its C.I.A.P. application for
supporting documentation. The request shall include the following documentation.


A. A description of the property involves, including the following pertinent data:

    1   Project name and number.


    2   The total number of units in the project and the specific units and buildings for which
        conversion is proposed.

    3. The age of the project from the day of full availability.

    4. Where appropriate, rehabilitation estimates, maintenance reports and other supporting
       documentation.

SAID RESOLUTION is hereby adopted on motion duly made, seconded and carried, and is a part of
the official records in the minutes of the Board of Commissioners of said Authority on this day of
1998.

IN WITNESS WHEREOF, we have hereunto set our hands as Commission Members of the Housing
Authority of the Town of Bloomfield, on this day of 1998.




James Miller, Chairman                                  Reba Street, Vice Chairman



Lowell Sparks, Member                                    James Pearson, Member



John Allen, Member



98-CH-202-1003                               Page 40
                                                                                    Appendix B



                  Housing Authority of Town of Bloomfield
                          100 West Main Box 801
                           Bloomfield, IN 47424
                    Phone (812) 384-8866 Fax 384-8010

March 9, 1998

Dept. of Housing and Urban Development
Heath Wolfe, Senior Auditor
Office of Inspector General
200 North High Street, Room 334
Columbus, OH 43215



Dear Mr. Wolfe,

I am responding to your second draft audit findings dated March 2, 1998.



The Authority lacked adequate cash management controls.

1.   Segregation of duties for employees.

     A. Diana Imes will receive collections and issue receipts. Pat Byers will record payment
        and adjustments to tenant accounts. Bank deposit slips will be made by Diana Imes and
        checked and approved by Lavon Yoho. Deposit will be made at bank by Pat Byers. In
        the absence of an employee, the remaining employees will segregate duties.

     B. The Comprehensive, Improvement Assistance Program
        Diana Imes receives billing invoices and prepares check for signatures of James Miller,
        Chairman of the Board, and Lavon Yoho, Executive Director. When completed, Pat
        Byers will mail to proper receipient.

The Authority did not safeguard cash funds.

1. The general depository expired December 1, 1996. Upon information received of the
   expiration, a new depository agreement was completed on February 4, 1998. A new
   depository will be requested before due date.



                                                Page 41                                98-CH-202-1003
Appendix B


2. Hi-rise Social Fund account

   A. As per your request, two signatures are required on this account. Also, we are in the
      process of establishing what disbursement of this fund belongs to the Authority. When
      completed, the Authority's money will be deposited in the General Fund.

3. Petty Cash

   A. The petty cash fund was increased from $25.00 to $50.00. By increasing this fund, the
      cash collections has been eliminated. Also, the petty cash will be under the control of
      Diana Imes, the petty cash Custodian.

The Authority did not follow adequate cash controls.

1. The Housing Authority’s internal monitoring policy states that cash collections should be
   reconciled daily, deposited in the bank intact and disbursements should never be made from
   cash receipts. Also, the Chairman or Executive Director will make periodic audits of cash
   collections. The Housing Authority will operate under HUD Handbook 7511.1, Low Rent
   Housing Guide, Chapter 3, Section 1.

2. Money collected from laundry is now deposited intact. Money from company vending
   machines will be counted and and correctly reported and deposited intact.

Checking account records were not adequate.

1. Records of deposits and receipts for the Hi-rise Social account are current from 1980 to date.
   The funds received are from donations and are used for various functions for the tenants.
   Any disbursement made was for items for the Improvement of service for the tenants. All
   such funds will be reported as per Section 9B of the Annual Contributions Contract.

Conclusion

The Bloomfield Housing Authority will abide by our Internal Monitoring Policy and HUD
Handbook 7511.1, Low Rent Housing Guide, Chapter 3, Section 1.

If you have any questions or require further information, please contact me.


Yours truly,


Levon Yoho
Executive Director




98-CH-202-1003                              Page 42
                                                                                   Appendix B


             HOUSING AUTHORITY of the TOWN of BLOOMFIFLD, INDIANA
                        100 WEST MAIN STREET, BOX 801
                          BLOOMFIELD, INDIANA 47424
                      PHONE (812) 384-8866 " FAX (812) 384-8010


March 24, 1988

Heath Wolfe, Senior Auditor
Department of Housing and Urban Development
Office of Inspector General
200 North High Street Room 334
Columbus, OH 43215


Dear Mr. Wolfe,

I am responding to our third draft finding dated March 10, 1998.

CONFLICTS OF INTEREST WERE NOT DISCLOSED

A. Any future contracts will be conducted by the Procurement Policy that complies with
   HUD's Annual Contribution Contract, HUD Handbook 7460.8, Procurement
   Handbook for Public Housing Agencies, and the Procurement Standards of 24 CFR
   85.36. Also, the Housing Authority requires its contractors to publicly disclose
   conflicts of interest in the minutes of the Board of Commissioners meetings.

B. The Housing Authority has discontinued any future contracts and purchases with
   Byers Electric, Heating and Cooling, D.B. Electric, and Byers Trucking unless HUD
   approval is requested and confirmation is obtained,

C. Byers electric, Heating and Cooling total cost $860.25.
   On March 10, 1994 at approximately 10:30 p.m. I received a call from Gerald
   Hamlin, our Resident Custodian, regarding a power outage. Upon arrival it was
   determined that a breaker and box had blown. This caused power failure for the air
   handler circuit and system. Due to the emergency that existed, the repair needed to
   be made. I decided to call Byers Electric at 7:30 a.m. the following morning. Mr.
   Byers stated he would call Valley Electric at Vincennes to check on inventory for a
   breaker. After calling, he drove to Vincennes to get breaker switch item (QMB323 ID
   100A). Upon his return, the breaker switch was installed. When the power was
   switched on we discovered the motor for our air handler system evidently had
   overheated and was not operating. Mr. Byers and Gerald Hamlin checked and
   found the motor was destroyed. Mr. Byers drove to Bloomington to get a motor
   (M3157T Balton) and returned to install it.




                                                Page 43                              98-CH-202-1003
Appendix B


I have attached his bill for the switch, the motor, his cost and markup, and labor.
Due to the emergency that existed for this repair, I feel the cost was reasonable.

D.B. Electric work performed on electric contract for $3761.00.

I have reviewed from invoices furnished by Mr. Byers on material used for the Family
Housing Project.

Also, I have attached a letter dated February 6, 1998 from Mr. Larry W. Donovan,
our architect and engineer for this contract. Mr. Donovan explained the request for
bidders for electrical work for Contract number 4. No bids were received at the
September 6, 1995 bid awards. As stated in his letter after no bids were received,
he proceeded to get proposals for other contractors. As stated in the attached letter,
he received only one bid. This bid was from D.B. Electric for $3761.00. After
meeting with Mr. Donovan, we discussed his estimated cost for this contract. We
agreed to proceed with the D.B. Electric bid for this project. In Mr. Donovan's
opinion, the bid was reasonable.

In conclusion, I agreed to the third draft finding and assure you, as stated in this
response, that the conflict of interest will be corrected.

Respectfully Submitted,


Lavon Yaho
Executive Director




98-CH-202-1003                                Page 44
                                                                                      Appendix B




             HOUSING AUTHORITY of the TOWN of BLOOMFIELD, INDIANA
                        100 WEST MAIN STREET, BOX 801
                          BLOOMFIELD, INDIANA 47424
                     PHONE (812) 394-8866 * FAX (812) 384-8010



March 4, 1998


Heath Wolfe, Senior Auditor
Dept. Housing and Urban Development
Office of Inspector General
200 North High Street Room 334
Columbus, OH 43215

Dear Mr. Wolfe,

In response to your letter dated February 19, 1998, with regards to an audit finding for
cost allocations, I have requested a plan for cost allocation from our fee accountant.

I contacted Audrie Neal of Hawkins, Ash, Baptie & Co. on February 23, 1998 and asked
for recommendation to correct the allocation of funds between Low Income and Section
8 Programs.


I will forward this information when we receive it from our accountant.

Sincerely,


Lavon Yoho
Executive Director




                                                  Page 45                                  98-CH-202-1003
Appendix B




                 (THIS PAGE LEFT BLANK INTENTIONALLY)




98-CH-202-1003                Page 46
                                                                                  Appendix C


Distribution
Acting Secretary's Representative, Midwest
Senior Community Builder, Indiana State Office (2)
Director of Public Housing Hub, Cleveland Area Office (2)
Director of Public Housing Program Center, Indiana State Office (2)
Director of Field Accounting, Midwest
Deputy Secretary, SD
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Deputy Assistant Secretary for Public Affairs, W (Room 10220)
Chief of Staff, S (Room 10000)
Counselor to the Secretary, S (Room 10234)
Senior Advisor to the Secretary for Communications and Policy, S (Room 10222)
Field Comptroller, Midwest
Assistant General Counsel, Midwest
Director, Office of Budget, ARB (Room 3270)
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Director of Administrative Service Center 1, New York State Office
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Comptroller/Audit Liaison Officer for Public and Indian Housing, PF (Room 5156) (3)
Director of Troubled Agency Recovery, PB (Room 4148)
Director of Administration and Maintenance Division, PHMM (Room 4214)
Assistant to the Secretary for Labor Relations, (Acting), SL (Room 7118)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10164) (2)
Deputy Chief Financial Officer for Finance, FF (Room 10164) (2)
General Counsel, C (Room 10214)
Associate General Counsel, Office of Assisted Housing and Community Development, CD
    (Room 8162)
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W.,
    Room 2474, Washington DC 20548
The Honorable John Glenn, Ranking Member, Committee on Governmental Affairs, United
    States Senate, Washington DC 20515-4305
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, United
    States Senate, Washington DC 20515-4305
Mr. Pete Sessions, Government Reform and Oversight Committee, Congress of the United
    States, House of Representatives, Washington, DC 20510-6250
Ms. Cindy Sprunger, Subcommittee on General Oversight and Investigations, Room 212,
    O'Neil Office Building, Washington DC 20515
Executive Director, Housing Authority of the Town of Bloomfield
Chairman of the Board of Commissioners, Housing Authority of the Town of Bloomfield




                                              Page 47                               98-CH-250-1003