oversight

HA of the City of San Antonio, TX

Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-09-30.

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

                                                                     Issue Date
                                                                             September 30, 1998
                                                                     Audit Case Number
                                                                             98-FW-202-1005




TO:    Diana Armstrong
       Acting Director
       Office of Public Housing, 6JPH


FROM:      D. Michael Beard, District Inspector General for Audit, 6AGA

SUBJECT:       Housing Authority of the City of San Antonio
               Public Housing Drug Elimination Grant Program
               San Antonio, Texas


As part of a nationwide review of the Public Housing Drug Elimination Grant Program, we
performed an audit of the Housing Authority of the City of San Antonio, Texas. This report
contains two findings.

Although not a part of our audit objectives, the review identified two areas of concern that merit
further study. Therefore, these two areas, involving procurement and indirect cost allocations will
be considered for future audits of the Authority’s administration of HUD funded programs.

Within 60 days, please furnish this office, for each recommendation in this report, a status report
on: (1) corrective action taken; (2) the proposed corrective action and the date to be completed;
or (3) why action is not considered necessary. Also, please furnish us copies of any
correspondence or directives issued related to the audit.

If you or your staff have any questions, please contact Darrel M. Vaught, Assistant District
Inspector General for Audit, at (817) 978-9309.
Management Memorandum




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98-FW-202-1005                  Page ii
Executive Summary
We conducted an audit of the Public Housing Drug Elimination Grant Program administered by
the Housing Authority of the City of San Antonio, Texas (Authority). Our review was to
determine whether the Authority: (1) implemented its drug elimination program awards for Grant
years 1994 through 1996, with satisfactory outcomes and benefits and (2) expended program
funds for only eligible activities and in accordance with program requirements for Grant years
1994, 1995, and 1996.

The Authority did not maintain data or have a system to measure the satisfactory outcomes and
benefits of its programs. Without this data, neither the Authority nor HUD can determine
whether the Drug Elimination Grant Program has provided satisfactory outcomes and benefits.

The Authority spent about 83 percent of its Drug Elimination Program funds on eligible activities
and costs. However, because the Authority management and staff either chose to ignore or did
not understand Grant Program requirements, it spent $899,000 in ineligible or questionable costs
(17 percent of the $5,249,000 expenditures for the 1994, 1995, and 1996 Grants) Also, the
Authority received $28,000 in program income but did not reduce its Grant costs by that amount.

The Authority also did not have a system for coordinated and effective Grant administration. The
Authority had not assigned responsibility to any specific staff member to supervise, monitor, and
coordinate the overall activities. This led to lack of coordination among staff and untimely
reporting of Grant activities to HUD.

We are recommending the Authority strengthen and improve its administration of the Grant;
repay its Grant Program for ineligible costs; and either support the questioned costs or repay the
Grant program.

We discussed the findings and recommendations at an exit conference with Authority officials on
July 9, 1998. Authority officials responded to the draft report in writing on July 31, 1998. The
Executive Director requested another conference and that their response be kept confidential. We
discussed the findings and auditee response at a second exit conference held on August 14, 1998.
The Executive Director, by letter dated August 20, 1998, removed the confidentiality restriction
for including their response in this report. We have summarized the Authority’s response in the
findings and included it without the attached documents as Appendix B.




                                              Page iii                             98-FW-202-1005
Executive Summary




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98-FW-202-1005                  Page iv
Table of Contents

Management Memorandum                                                              i


Executive Summary                                                                 iii


Introduction
1


Findings

1    Authority Needs to Evaluate Grant Effectiveness and                      5
     Improve Grant Administration

2    Authority Needs to Improve its Fiscal Administration of the Program    13



Management Controls
29



Issues Needing Further Consideration                                             31



Appendices
      A Schedule of Ineligible and Unsupported Costs                          33

      B Authority’s Written Response to Draft Audit Report                    35

      C OIG Methodology in Computing Reasonable Security                     59
        Guard Cost
      D Distribution
61

                                      Page v                        98-FW-202-1005
Table of Contents




Abbreviations
       CFR       Code of Federal Regulations
       HUD       U.S. Department of Housing and Urban Development
       OIG       Office of Inspector General
       OMB       Office of Management and Budget




98-FW-202-1005                           Page vi
Introduction
The City of San Antonio established the Housing Authority of San Antonio, Texas, in 1937. The
Mayor appoints a five-member Board of Commissioners to govern the Authority. The Board
hires an Executive Director to manage the Authority’s day-to-day operations. The Board of
Commissioners hired Melvin Braziel as Executive Director on January 27, 1998. The Authority
has 8,116 Low-Rent and 9,602 Section 8 units. The Authority keeps its records at its central
office, 818 South Flores Street, San Antonio, Texas.

Congress authorized the Public Housing Drug Elimination Program in Chapter 2, Subtitle C, Title
V of the Anti-Drug Abuse Act of 1988. Under the Act, HUD makes grants to authorities to
eliminate drug-related crime in Low-Rent developments.

The goals of the Drug Elimination Program are to eliminate drug-related crime and associated
problems in and around the public housing developments. Housing authorities can use grant
funds for administration and conduct of activities related to drug prevention, drug intervention,
law enforcement, and other activities intended to reduce drugs and drug-related crime.

HUD awarded $5,943,474 in Drug Elimination Grants to the Authority for the 1994, 1995, and
1996 grant years. A grant year represents the federal fiscal year. However, the recipient may
obligate and expend a specific grant year funds over the next 2 years and HUD can extend that 6
months. The Authority draws funds periodically from the HUD Line of Credit System. HUD
records show the following authorization and draw down of funds for the Authority’s 1994, 1995,
and 1996 Grants as of June 25, 1998:

      Grant Year       Authorized       Drawn Down              Balance

         1994         $1,948,474         $1,948,474         $       --
         1995          1,981,750          1,875,323            106,427
         1996          2,013,250            292,496          1,720,754
         Totals       $5,943,474         $4,116,293         $1,827,181

The Authority’s general ledgers for these three Grants showed cumulative expenditures at
June 25, 1998, of $5,248,984.


                                     The audit was part of a National review of the Public
 Audit Objectives                    Housing Drug Elimination Program. The objectives of our
                                     audit of the Housing Authority of the City of San Antonio,
                                     Texas, were to determine whether the Authority: (1)
                                     implemented its Drug Elimination Program awards for
                                     Grant years 1994, 1995, and 1996, with satisfactory
                                     outcomes and benefits and (2) expended Program funds for
                                     only eligible activities and in accordance with program
                                     requirements for Grant years 1994, 1995, and 1996.


                                               Page 1                             98-FW-202-1005
Introduction


                         To accomplish these objectives, we obtained background
 Scope and Methodology   information by:

                         •   Reviewing relevant HUD regulations, guidelines, grant
                             agreements, and Notices of Funding Availability;
                         •   Examining records and reports maintained by the HUD
                             San Antonio Public Housing Division and interviewing
                             HUD program staff;
                         •   Scanning the Authority’s accounting records, financial
                             reports, policies, management reports, and interviewing
                             staff; and
                         •   Reviewing independent public accountant audit reports.

                         To determine if the Authority implemented its Drug
                         Elimination Program with satisfactory outcomes and
                         benefits, we:

                         •   Reviewed the Authority’s grant applications and the
                             corresponding Notices of Funding Availability to
                             identify activities, target developments, budgets, and
                             time lines;
                         •   Reviewed the Authority’s Semiannual and Outcome
                             Monitoring Reports for content and timely submission
                             to HUD;
                         •   Requested the Authority provide all available
                             documentation       showing      program   performance
                             information for the period January 1995 through
                             December 1997 and reviewed this documentation to
                             evaluate the effectiveness of the activities to reduce
                             drug-related crime; and
                         •   Interviewed Authority and HUD staff regarding the
                             Authority’s Drug Elimination Program, goals and
                             objectives, activities, and whether they assessed the
                             progress and benefit of the activities.

                         To determine if the Authority expended program funds for
                         only eligible activities and in accordance with program
                         requirements, we:

                         •   Compared the Authority’s activities to its Grant
                             applications, requirements of the Notices of Funding
                             Availability, and governing Regulations to ascertain if
                             the activities were eligible;
                         •   Obtained and reviewed the Authority’s general ledgers
                             for the Grants for the period October 1994 through June

98-FW-202-1005               Page 2
                                                Introduction


     1998 to identify costs and evaluate the adequacy of the
     accounting records for meeting HUD requirements;
•    We judgmentally selected and reviewed 61 transactions
     totaling $694,055 for eligibility and supporting
     documentation (invoices, contracts, canceled checks,
     etc.);
•    Reviewed the Grant general ledgers, payroll, and
     supporting accounting records for the Authority’s
     employee payroll costs to identify the nature of the cost
     (direct or indirect) and reviewed supporting
     documentation for the allocation in accordance with
     federal cost principles; and
•    Interviewed Authority staff on their method of
     allocating direct and indirect costs to the Grant
     Program, reviewed Authority allocation tables, and
     identified and totaled the accounts within the Grant
     general ledgers representing indirect costs totaling
     $133,099.

We conducted the audit from January through June 1998 in
accordance with generally accepted government auditing
standards. The audit covered the Authority’s operations of
the 1994, 1995, and 1996 Grant Programs from October
1994 through June 1998.

We provided a copy of this report to the Executive Director
of the Housing Authority of the City of San Antonio.




    Page 3                            98-FW-202-1005
Introduction




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98-FW-202-1005               Page 4
                                                                                                              Finding 1


              Authority Needs to Evaluate Grant
               Effectiveness and Improve Grant
                        Administration
The Authority could not demonstrate the benefit or results of its drug elimination activities. This
occurred because the Authority had not identified specific project crime statistics or monitored the
results of the various activities it undertook to accomplish its goal. Without a system to measure
the benefits and results of activities, neither HUD nor the Authority know if the activities have a
beneficial impact. Further, the Authority cannot evaluate whether the amount of resources used
for an activity are commensurate with the benefits received, thus allowing it to direct the
resources to the most effective activities. In addition, the Authority did not have a system to
coordinate between staff administering and accounting for Grant activities. Because the Authority
had no system to measure and report grant activities, it did not meet HUD requirements to
monitor and report on effectiveness.


                                               HUD regulations note that grantees are responsible for
    HUD Requirements                           managing the day-to-day operations of the grant and must
                                               monitor each grant funded program, function, or activity to
                                               assure compliance with federal requirements and
                                               achievement of performance goals.1

                                               HUD regulations also require grantees to provide
                                               semiannual reports to HUD setting forth actual
                                               accomplishments in comparison to the objectives established
                                               for the reporting period, including any change or lack of
                                               change in crime statistics, successful completion of strategy
                                               components, problems encountered, and evaluation of the
                                               rate of progress.2

                                               The Authority staff did not have crime statistics related for
    No baseline statistics or                  the developments targeted for Grant activities.          The
    goals.                                     Authority had also not established goals or objectives for
                                               the activities. Authority staff said they could provide
                                               demographic data,3 but had not used the information to
                                               identify target ages or groups for Grant activities.



1
  HUD regulations at 24 CFR §85.40, §961.28 (applicable to 1994 and 1995 Grants) and §971.35 (applicable to 1996 Grant).
2
  HUD regulations at 24 CFR §961.28 (applicable to 1994 and 1995 Grants) and §971.35 (applicable to 1996 Grant).
3
  Number of families by development including data on the make up and ages of children.

                                                           Page 5                                       98-FW-202-1005
Finding 1


                        Without the foregoing data and information, the Authority
 Authority cannot       did not have a baseline upon which to measure the
 demonstrate the        effectiveness of its Drug Elimination Grant funded activities.
 effectiveness of its   In addition, the Authority did not have an adequate system
 activities.            to measure and evaluate the accomplishments of their
                        activities. Therefore, the Authority could not readily obtain
                        and provide information to show the effectiveness and
                        benefit of its various Grant funded activities. Thus, the
                        Authority is carrying out or continuing to carry out the
                        activities without evaluation of their accomplishments and
                        cost effectiveness in reducing drug-related crime in the
                        targeted developments. To illustrate:

                        Security Patrol and Investigative Activity

                        The Authority primarily employs off-duty police officers to
                        provide security patrols for all of its developments and
                        investigation of drug related criminal activity. Although the
                        Authority expended $2.3 million of its Grant funds for these
                        activities over 3 years, the Authority could not demonstrate
                        the extent that the patrol and investigative activity have
                        reduced drug-related crime in the targeted developments.
                        The Authority has incident reports and other detail data, but
                        has not established a management information system to
                        summarize this information to evaluate the activity.

                        Youth Activities for Drug Prevention

                        The Authority spent over $1.1 million over 3 years for
                        several programs as drug prevention activities for the youth
                        in its Low-Rent developments. These programs include
                        various sports and recreation activities targeted to specific
                        age groups. The Authority had copies of participant
                        documents and rosters but did not summarize this and other
                        information to show the results of these activities, such as:
                        (a) the number of children in each development by age
                        group (target population); (b) the number and age group of
                        children participating in the various programs; and (c) any
                        correlation to police/security reported gang and drug-
                        related activity at the targeted developments. Thus, the
                        Authority does not have information to show whether these
                        activities are reaching the target population or are having
                        the desired beneficial impact of providing an alternative to
                        drug- and gang-related activity.


98-FW-202-1005              Page 6
                                                                                                                                  Finding 1


                                                     To further illustrate, the Authority used $135,000 in 1994
                                                     and 1995 Grant funds for its Roving Leader Program. This
                                                     program included nine different activities targeted to youths
                                                     aged 6 to 16 at five of its Low-Rent developments.
                                                     However, the Authority had not developed overall statistics
                                                     to determine the number of youths, by project, that were
                                                     participating in the program. The following chart shows the
                                                     result of OIG’s analysis of the Authority’s available
                                                     information. The chart shows, by development and in total,
                                                     a comparison of the estimated number of the targeted age
                                                     group, the number in the age group participating, and the
                                                     percentage participating to the total target population:4


                                                                Youth Roving Leader Program
                                                                                                                   4,213 1,425
                                          4,500                                                                           34%
                                          4,000
                                          3,500
                                          3,000
                                                  2,047 313
                                 Number




                                          2,500         15%
                                          2,000
                                          1,500               698 265                                  666 329
                                                                  38%       591 261                       49%
                                          1,000                                44%          211 257
                                           500                                                122%
                                              -
                                                                               Springview
                                                    Alazan-



                                                                 Cassiano




                                                                                                        Victoria
                                                    Apache




                                                                                             Wheatly




                                                                                                                        Totals
                                                                                                        Courts
                                                                                             Courts
                                                                  Homes




                                                                                                                      Youths age 6 to 16
                                                                               Development
                                                                                                                      Participating



                                                     The chart shows that overall, the program had about one-
                                                     third participation by the targeted age group. However, a
                                                     per development analysis shows the program reached only
                                                     15 percent of the target group in the development with the
                                                     largest population. Had the Authority done this type of
                                                     analysis, it would indicate a need to investigate the reasons
                                                     the program was not attracting a greater number of the
                                                     target population from its largest Low-Rent development.



4
    The target population is based on Authority property manager estimates. The Authority also permitted non-residents from
    the surrounding neighborhood to participate. Since the Authority did not identify which participants were residents and
    which were non-residents, the actual number of participants from the development would be lower than shown (e.g.,
    participants for Wheatly Courts exceeds the manager’s estimate of youths in the target group).

                                                          Page 7                                               98-FW-202-1005
Finding 1


                 Resident Owned Business Program

                 The Authority expended $325,000 of 1994, 1995, and 1996
                 Drug Elimination Grant funds for the Resident Owned
                 Business Program as a drug prevention activity. The
                 Authority’s noted on its Grant applications that its
                 economic development activity intended to recruit and train
                 tenants to set up and operate their own businesses.
                 However, the Authority had not established any baselines
                 for evaluating and/or measuring the beneficial impact this
                 activity would have in preventing drug activity at the
                 targeted Low-Rent developments. The Authority’s internal
                 auditors completed a review of the activity in April 1997.
                 Although the internal auditors did not specifically review the
                 cost benefit of the program, their report did note a large
                 drop-out rate and recommend better screening of potential
                 resident business owners. The Authority’s semiannual
                 reports to HUD did not identify any problem with this
                 program’s progress. However, the Authority’s report for
                 the period ended December 31, 1997, sent to HUD on April
                 30, 1998, did note that the program had undergone some
                 major restructuring, without explanation as to reason for the
                 changes.

                 The following chart shows the status of the 38 tenants that
                 participated in the programs:



                         Participants in Resident Owned Business Program


                                                      6 Participants
                                                         Started
                                                        Business
                                                          16%
                               17 Participants
                               Dropped out of
                                the Program
                                    45%
                                                        15 Participants
                                                         In Training on
                                                        How to Operate
                                                           a Business
                                                              39%




                 All six residents that started businesses left the program
                 before completing all parts of the training. However, the

98-FW-202-1005       Page 8
                                                                              Finding 1


                           Authority had not established any specific criteria for
                           program completion until it revised its policies in October
                           1997. The Economic Development Coordinator stated that
                           the Authority implemented these revised policies in March
                           1998.

                           As shown, this program, with an average cost of about
                           $8,500 per participant, has a 45 percent drop out rate and
                           an apparent minimal success rate during the past 4 years it
                           has been funded with 1994, 1995, and 1996 Drug
                           Elimination Grants. Although the Authority plans to
                           continue the program under the revised policies, it has not
                           measured the cost benefit of the program with other
                           activities that might be more effective in meeting the goal of
                           preventing drug activity in the targeted developments.


                           The Authority did not provide for effective overall
Authority did not          management and coordination of the staff carrying out Drug
provide for effective      Elimination funded activities. This deficiency led to poor
overall management and     fiscal recordkeeping, poor cash management practices,
coordination of its        ineligible and questionable costs totaling $899,008, and lack
Grant-funded activities.   of budgetary controls over the Grant program (see Finding
                           2).

                           Although the Authority had a Drug Elimination Coordinator
                           position, the assigned individuals indicated that they did not
                           receive top management support for obtaining baseline
                           statistics and records to measure the effectiveness of the
                           activities. Further, they noted that the Authority’s top
                           management decided what activities to include in the Grant
                           applications, which were generally activities that continued
                           from year to year.

                           The Authority has also been chronically late in submitting its
                           semiannual reports to HUD. The days late ranged from 12
                           to 127 days. As a result, HUD sanctioned the Authority by
                           prohibiting draw down of Grant funds until the Authority
                           submitted the delinquent reports.          The Authority’s
                           accountant usually prepared requests for funds without
                           consulting with program managers and did so when he
                           thought the amount expended had reached a significant
                           enough level to justify the paperwork (see Finding 2). On
                           several occasions, when attempting to draw down funds, the
                           accountant discovered that HUD had “locked” the

                             Page 9                             98-FW-202-1005
Finding 1


                       Authority out of the system because the Authority had not
                       timely submitted their semiannual reports.

                       HUD did not accept the Authority’s December 31, 1997
                       semiannual report, received on April 30, 1998, because it
                       lacked sufficient information on the Authority’s
                       accomplishments. HUD expressed a concern because the
                       Authority did not cite any problems with the progress of its
                       $2 million 1996 Drug Elimination Grant when the Authority
                       had drawn down only 15 percent of the Grant due to expire
                       on October 31, 1998.

                       On February 1, 1998, the Authority’s new Program
 Authority plans to    Monitoring Officer assumed the responsibility for
 correct measurement   administering all aspects of the Drug Elimination Program.
 and coordination      As of June 30, 1998, this individual was in process of
 problems.             reviewing HUD’s governing regulations and is reviewing
                       1996 and 1997 activities to ensure they are eligible for
                       Grant funding. She stated she plans to help the program
                       managers define goals, identify target populations, and
                       establish evaluation criteria.



                       The Executive Director’s response generally agreed that the
 Auditee Comments      Authority had not established a management information
                       system to evaluate its activities (see Appendix B). Further,
                       the Executive Director acknowledged that management and
                       coordination of the various activities were lacking. His
                       response notes the recent and planned actions the Authority
                       has taken or will take to improve administration and
                       evaluation of the drug elimination program. The Executive
                       Director also notes that the crime statistics now being kept
                       on an automated “run cops” system along with data on the
                       “one strike, you’re out” policy will provide information on
                       crime and drug activity by site.


                       The actions taken or planned by the Authority will improve
 OIG Evaluation of
                       and strengthen the Authority’s administration of the Grant
 Auditee Comments      Program. In addition to the actions taken and planned, the
                       Authority should develop in their management information
                       system an overall summary and trend analysis of the crime
                       statistics. This will provide Authority management and staff
                       with information to evaluate the beneficial impact of its

98-FW-202-1005             Page 10
                                                                        Finding 1


                  activities. For example, if crime and drug offenses decline
                  at each site, this indicates a positive impact. Also,
                  comparison of the trends by site should provide Authority
                  management with essential information as to the
                  effectiveness of its activities at each site, and in the event of
                  adverse trends, take informed action to correct the
                  problems.



Recommendations   We recommend the San Antonio Public Housing Division
                  require the Authority to:

                  1A.     Obtain and summarize baseline crime statistics to
                          use as a benchmark for measuring the effectiveness
                          of the Drug Elimination Program activities;

                  1B.     Implement a system for measuring the effect of its
                          Drug Elimination Grant funded activities including
                          for each of its targeted developments:              (a)
                          identification of specific goals and objectives; (b)
                          identification of target populations for each activity;
                          (c) preparation of periodic summary of crime
                          incident reports from its own security/investigative
                          efforts and local police department; (d) periodic
                          comparison of the crime statistics to the benchmark
                          figures; and (e) evaluation of the cost benefit of its
                          activities;

                  1C.     Provide timely semiannual reports to HUD
                          describing program progress and accomplishments
                          in sufficient detail to allow HUD to assess the
                          Authority’s effectiveness in administering the Drug
                          Elimination Grant Program; and

                  1D.     Ensure appropriate management of the Drug
                          Elimination Grant Program through effective
                          coordination among and accurate reporting by the
                          program managers and the fiscal department for
                          Program accomplishments and fiscal operations.




                    Page 11                               98-FW-202-1005
                                                                                                                Finding 2


     Fiscal Administration Needs Improvement
The Authority has charged at least $219,631 in ineligible costs, cannot support the propriety of
another $679,377 it charged to the Drug Elimination Grants, and has not reduced recorded costs
by $28,043 in program income. The Authority’s fiscal administration of the Drug Elimination
Grant Program does not meet HUD requirements for ensuring: (a) Grant funds are obtained on a
timely basis; (b) accounting records are accurate and supported by appropriate and complete
source documentation; (c) program expenditures are eligible and are properly allocated; (d)
program income is used to offset costs; and (e) budgetary controls are implemented and followed.
This occurred primarily because Authority management did not ensure that staff assigned to
administer the program are fully familiar with administrative requirements for federally funded
programs and Grant restrictions on the types of cost that are eligible for funding. Consequently,
the Authority cannot readily support costs charged to its Grants and has not obtained Grant funds
timely.


                                                 HUD regulations require the Authority’s Financial
    HUD Requirements                             Management Systems to meet specific standards.5 Further,
                                                 HUD sets forth specific eligibility requirements in the
                                                 Notice of Funds Availability for each Grant funding year.6
                                                 These standards and requirements provide that Grantees
                                                 must:

                                                 •    Establish good cash management procedures. Cash
                                                      Management is the process of managing cash flow to
                                                      optimize its use of funds. This process involves the
                                                      timing of receipts and disbursements to assure the
                                                      availability of funds to meet expenditures. Effective
                                                      cash management calls for organized planning. The
                                                      regulations require grantees to minimize the time
                                                      elapsing between the draw down and disbursement of
                                                      funds.

                                                 •    Compare actual expenditures or outlays with budgeted
                                                      amounts for each Grant. Grantees must relate financial
                                                      information to performance or productivity data.
                                                      Grantee records must ensure that HUD funds
                                                      specifically budgeted and/or received for one program
                                                      are not used to support another.7


5
    HUD regulations at 24 CFR §85.20 Financial Management Standards.
6
    HUD published the Notices in the Federal Register as follows: 1994 - Vol. 59, No. 63, April 1, 1994; 1995 - Vol. 60, No. 3,
    January 5, 1995; 1996 - Vol. 61, No. 68, April 8, 1996.
7
    Drug Elimination Grant Agreement, Article II, Sub-Article A, paragraph 10.

                                                             Page 13                                        98-FW-202-1005
Finding 2


                                             •    Maintain controls to assure Grant funds are used solely
                                                  for authorized purposes.       Grantees must follow
                                                  applicable OMB cost principles, agency program
                                                  regulations, and the term of the grant agreements in
                                                  determining the reasonableness, allowability, and
                                                  allocability of costs. Although cost principles allow
                                                  grantees to charge indirect costs to grant programs,
                                                  some grant awards specifically prohibit such charges.
                                                  HUD’s regulations for the Drug Elimination Grant
                                                  Program do not permit charging indirect costs, as
                                                  defined in OMB Circular A-87, to the Grant.8

                                             •    Adequately identify the source and application of funds
                                                  in their accounting records and financial reporting
                                                  must be accurate, current, and provide complete
                                                  disclosure of financial results. Grantees must support
                                                  costs charged to the grants with adequate source
                                                  documentation including canceled checks, paid bills,
                                                  payrolls, time and attendance records, and contracts.
                                                  Grant program regulations also state that the grantee
                                                  must establish an auditable system to provide adequate
                                                  accountability for funds awarded to the grantee.9

                                             •    Account for and use program income for eligible Drug
                                                  Elimination Program Activities.       Program income
                                                  results from various sources including the use or rental
                                                  of real property acquired with grant funds. The
                                                  regulations state grantees shall use program income,
                                                  which the grantee did not anticipate at the time of the
                                                  award, to reduce the federal agency and grantee
                                                  contributions rather than to increase the funds
                                                  committed to the project.10




8
     HUD regulations at 24 CFR §961.10(c)(2) and 24 CFR §761.15(b) issued in March 1996. The HUD Notices of Funding
     Availability for 1994, 1995, and 1996 also specifically prohibited grantees from charging indirect costs.
9
     HUD regulations at 24 CFR §961.26(c) and 24 CFR §761.30(c) issued in March 1996.
10
     HUD regulations at 24 CFR §961.5, §961.26(f), §761.5, and 24 CFR §85.25.

98-FW-202-1005                                     Page 14
                                                                                                                  Finding 2



                                                  The Authority does not have an effective cash management
     Authority uses Low-                          system to ensure the timely draw down of Grant funds to
     Rent operating funds in                      meet program expenditures. HUD Grant procedures allow
     lieu of timely obtaining                     grantees to obtain funds up to 7 days before their
     Grant funds.                                 disbursement for Grant activities. The Authority generally
                                                  pays all Grant expenditures from its General Fund cash
                                                  account, which includes its Low-Rent operating and other
                                                  HUD grant funds.11 However, the Authority does not make
                                                  corresponding draw down of Grant funds to cover the
                                                  expenditures. Authority’s fiscal staff stated that it was their
                                                  normal practice to accumulate a significant amount of costs
                                                  before requesting funds from HUD for the Drug Elimination
                                                  Program. Authority records show draw down requests
                                                  generally ranged from 1 to 6 months and from a low of
                                                  $16,000 to a high of $866,000. Further, the Authority has
                                                  not drawn down Drug Elimination Grant funds since
                                                  December 30, 1997.12 A comparison, as of June 25, 1998,
                                                  of the cumulative costs the Authority charged to the 1994,
                                                  1995, and 1996 Drug Elimination Grants to the funds drawn
                                                  down from the Grants, shows recorded costs exceed funds
                                                  drawn by $1,132,691.

     Project managers are                         Although HUD requires grantees to have a system to ensure
     not familiar with federal                    costs charged to Grant programs are eligible and allocable
     cost principles and grant                    thereto, the Authority has not ensured that its staff
     eligibility requirements.                    responsible for administering the Drug Elimination Grant
                                                  Programs are familiar with these requirements. The Senior
                                                  Vice President for Housing Operations and other staff
                                                  administering activities were either not familiar with or, in
                                                  the case of purchase of police equipment, chose to ignore
                                                  federal cost principles and the Drug Elimination Grant
                                                  Program requirements for cost eligibility and allocability.
                                                  As a result, the Authority has charged $219,631 for
                                                  ineligible police equipment, youth entertainment, and
                                                  indirect costs, which HUD specifically cites as ineligible
                                                  activities in the Notice of Funding Availability. The
                                                  following summarizes these ineligible costs:




11
     The Authority’s June 30, 1997 financial statements shows the Low-Rent Program has an Operating Reserve Balance over $5
     million which shows the Authority has sufficient cash reserves to fund the Drug Elimination Grant expenditures, prior to
     obtaining funds from HUD.
12
     The Authority has not satisfied HUD reporting requirements, resulting in HUD “locking” the Authority out of being able to
     draw down funds until they provide acceptable reports (see Finding 1).

                                                     Page 15                                     98-FW-202-1005
Finding 2


                                                  Police Equipment

                                                  The HUD Notices of Funding Availability for the 1995 and
                                                  1996 Grants13 contained the following language:

                                                     Funding is not permitted to purchase or lease any
                                                     military or law enforcement clothing or equipment, such
                                                     as vehicles, uniforms, ammunition, firearms/weapons,
                                                     military or police vehicles; including cars, vans, buses,
                                                     protective vests, and any other supportive equipment.

                                                  The Authority charged the following purchases to its 1995
                                                  and 1996 Grants for police equipment:

                           Date           Description                                 Amount
                           11/14/97       Purchase of Police Vehicles                 $36,000
                           1/6/97         Modifications to Police Vehicles               6,840
                           April          Radios for Patrol Cars                         2,744
                           1998
                                          Total                                       $45,584

                                                  The Authority’s Executive Director stated:

                                                     “. . . decision to purchase police supportive equipment
                                                     was not due to a lack of knowledge of grant restrictions,
                                                     but rather on our firm commitment to combat crime and
                                                     the sale of drugs despite the obstacles of current Texas
                                                     legislation, which prohibits the San Antonio Housing
                                                     Authority to be recognized as a full fledged Police
                                                     Department . . . The fact of the matter is that the HUD
                                                     regulations do not address our particular situation..”14

                                                  Youth Entertainment

                                                  The Authority has spent $40,948 for tickets to amusement
                                                  parks, theaters, and professional sports events.     The
                                                  Authority’s Senior Vice President for Housing Operations
                                                  and Youth Sports Manager stated that these events were
                                                  part of the Youth Sports Incentive Reward Program for
                                                  resident youth who participated in the Youth Sports
13
     The 1996 Notice contained an exception for housing authorities with HUD authorized police departments and listed those
     authorities (the San Antonio Authority is not listed as having an authorized police department).
14
     Statement made in July 31, 1998 response to the draft report (Appendix B).

98-FW-202-1005                                        Page 16
                                                                                                             Finding 2


                                                Program as well as rewards for other resident youth for
                                                their academic achievement and good behavior in school.

                                                The HUD Notices of Funding Availability for the 1994,
                                                1995, and 1996 Grants contained the following language:

                                                    Funding is not permitted for costs of entertainment,
                                                    amusements, or social activities, and for the expenses of
                                                    items such as transportation related to these ineligible
                                                    activities.

                                                Section 18, Attachment B, OMB Circular A-87, states:

                                                    Costs of entertainment, including amusement, diversion,
                                                    and social activities and any costs directly associated
                                                    with such costs (such as tickets to shows or sports
                                                    events and transportation) are unallowable.

                                                Therefore, the following charges to the Grants are ineligible:

                                                 Description                                   Amount
                                                 Professional basketball, baseball, and hockey
                                                 games (San Antonio Spurs, Missions, and $26,415
                                                 Dragons)
                                                 Amusement Parks and Theme Parks (Fiesta
                                                 Texas, Splashtown San Antonio, Laser Quest, 13,220
                                                 and a haunted house)
                                                 Theaters and movies                             1,313
                                                 Total                                         $40,948

                                                In addition, the Authority’s Sports Manager said the
                                                Authority paid for transportation costs to these events,
                                                usually by chartered bus. The Authority’s records did not
                                                identify the amounts expended for transportation costs
                                                associated with these events versus transportation cost to
                                                eligible activities.

                                                Indirect Cost

                                                The Authority uses a complex method of allocating indirect
                                                costs to all of its programs, including the Drug Elimination
                                                Grants.15 Both the HUD regulations governing the Drug


15
     OIG did not evaluate the indirect cost methodology for compliance with OMB Circular A-87, Cost Principles for State,
     Local, and Indian Tribal Governments, because indirect costs are not eligible for Drug Elimination Grant funding.

                                                   Page 17                                   98-FW-202-1005
Finding 2


                                                   Elimination Grant Program and the Notices of Funding
                                                   Availability specifically state that grantees may not charge
                                                   indirect cost to the Program. Although the Authority
                                                   initially did not allocate indirect costs to the Drug
                                                   Elimination Grants, the Authority started doing so with its
                                                   fiscal year beginning July 1, 1995.


                                                   The Authority’s Comptroller identified the specific expense
                                                   accounts within the general ledger that contained the
                                                   charges for the Authority’s allocation of indirect salaries and
                                                   other indirect general administrative expenses.16 As of June
                                                   25, 1998, the Authority’s general ledger included indirect
                                                   costs in these accounts totaling $133,099. However, the
                                                   Authority’s Drug Elimination general ledger accounts for
                                                   employee benefits included total costs attributable to both
                                                   direct and indirect salaries. Therefore, total indirect costs
                                                   will exceed the $133,099.17

     The Authority did not                         The Authority generally had source documentation to
     maintain complete and                         support its charges to the Grant program. However, the
     appropriate source                            Authority did not maintain the required documentation for
     documentation to                              allocating employee salaries and to support some of its
     support expenditures.                         contract services. In the case of security guards and
                                                   investigators, the Authority could not properly support the
                                                   propriety of salary costs to the Grant programs. Further,
                                                   OIG estimates that $469,998 of security guard salaries and
                                                   $160,629 of investigator salaries were not allocable or
                                                   allowable costs of the Grant program. The Authority also
                                                   did not have sufficient source documents to support
                                                   payment of $48,750 contract services charged to the
                                                   Grants. Thus, the Authority did not have adequate
                                                   supporting documentation for $679,377 as more fully
                                                   discussed below.

                                                   Salaries for Security and Investigative Staff

                                                   The Authority employs off-duty police officers to provide
                                                   security guard and investigative services for all of its


     However, in accord with government auditing standards, the propriety of the Authority’s indirect cost system is included in
     this report as an issue needing further study and consideration.
16
     The Authority allocates executive, fiscal, purchasing, warehouse, and management information salaries plus general
     administrative expenses such as legal, telephone, data processing, consultants, computer maintenance, etc.
17
     The Authority’s Drug Elimination general ledgers included over 11,000 entries. Numerous line item entries for indirect costs
     were for less than $10. Therefore, OIG did not attempt to identify the indirect cost line items in the employee benefit
     accounts.

98-FW-202-1005                                           Page 18
                                                                                                                    Finding 2


                                                   properties, including apartment properties owned by its
                                                   nonprofit affiliates. The Authority charged $2,278,853 for
                                                   these salaries and benefits to the 1994, 1995, and 1996
                                                   Drug Elimination Grants.

                                                   The Authority allocated $1,701,518 for security guard
                                                   salaries to the Grants based on predetermined percentages
                                                   in a similar manner to its allocation of indirect salary costs.
                                                   The Authority based the percentages on an estimate of the
                                                   amount of time the security guards devoted to Low-Rent
                                                   and other properties. The Authority charged all of its
                                                   Investigator salaries, totaling $577,335, to the Grants.

                                                   To be allowable, OMB Circular A-87 requires the following
                                                   as supporting documentation for compensation of personnel
                                                   services, in addition to normal standards documenting
                                                   payroll costs:

                                                   •    For employees that work solely on a single federal
                                                        award, a periodic certification to that effect, prepared at
                                                        least semiannually and signed by either the employee or
                                                        a supervisory official having first hand knowledge of
                                                        the work performed by the employee.

                                                   •    For employees that work on multiple activities, the
                                                        grantee must support the charges with personnel
                                                        activity reports or equivalent documentation meeting all
                                                        of the following standards: (a) reflect an after-the-fact
                                                        distribution of the actual activity of each employee; (b)
                                                        account for the total activity for which the employee is
                                                        compensated; (c) prepared at least monthly and coincide
                                                        with one or more pay periods; and be signed by the
                                                        employee.

                                                   Further, the cost principles do not allow budget estimates or
                                                   other distribution percentages the grantee establishes before
                                                   the employee performs the services.18

                                                   The Director of Security as well as officers confirmed that
                                                   both security guards and investigators performed duties at
                                                   Low-Rent and other properties.                Further, they
                                                   acknowledged that they did not keep personnel activity
                                                   reports or equivalent documentation to show the amount of
                                                   time/activity involved at the different locations. Therefore,
18
     Grantees may use such methods for interim accounting purposes subject to specific requirements, which include at least
     quarterly comparisons to actual costs on a monthly basis and an adjustment of the accounting records to reflect actual cost.

                                                       Page 19                                     98-FW-202-1005
Finding 2


                                                 the Authority did not maintain the required documentation
                                                 to support the portion of the security guard and investigator
                                                 salaries they charged to the Grants.

                                                 Security Guard Salaries

                                                 Since security guards patrolled all the properties, OIG
                                                 analyzed available information to ascertain the
                                                 reasonableness of the security guard salaries allocated to the
                                                 Drug Elimination Grant Program as shown in Appendix C.
                                                 Based on this analysis, it appears that $469,998 (28 percent)
                                                 of the $1,701,518 allocated to the Drug Elimination Grants
                                                 do not represent an appropriate or reasonable allocation of
                                                 costs attributable to patrolling the Low-Rent properties.19

                                                 Investigator Salaries

                                                 Investigators, unlike the security guards, investigate specific
                                                 incidents rather than patrolling the properties. In May
                                                 1997, the Supervisory Investigator started preparing a
                                                 weekly report on investigative activity. Although the
                                                 activity report did not fully meet federal standards for
                                                 supporting documentation, it did provide some information
                                                 on investigative activity by location and date.           The
                                                 Authority had not summarized this or other information to
                                                 identify the amount of investigator salaries and benefits that
                                                 the Authority should have charged to its nonprofit activities.

                                                 Analysis of these reports showed the investigators spent
                                                 about 70 percent of their activities on incidents at the
                                                 Authority’s Low-Rent housing sites and the remaining 30
                                                 percent on other activities.20 Therefore, the Authority
                                                 should have been allocating investigator salaries and benefits
                                                 on the basis of activity reports, rather than charging all such
                                                 costs to the Drug Elimination Grant Program. Thus,
                                                 applying 30 percent to the total investigative salaries




19
     HUD regulations at 24 CFR §961.1 and §761.1(a) note the purpose of the Grants are to eliminate drug-related crime and
     associated problems in and around the premises of federally assisted low-income housing and public and indian housing
     developments.
20
     Investigations included incidents involving other properties, Section 8 participants, and internal Authority activities.

98-FW-202-1005                                         Page 20
                                                                                                               Finding 2


                                                and benefits of $535,429,21 identifies an overcharge to the
                                                Drug Elimination Grants of $160,629.

                                                Insufficient supporting documents for contract services

                                                The Authority could not provide sufficient source
                                                documents to show that the following costs charged to the
                                                Grants were proper and for eligible activities:



                                                  Date         Vendor            Amount        Remarks

                                                  4/20/95      Boys & Girls $11,794            Advance for first month of
                                                               Club                            cost reimbursable contract --
                                                                                               no evidence of actual cost to
                                                                                               support the advance.

                                                  5/17/95      YMCA              5,700         No contract or other
                                                                                               documentation to show the
                                                                                               activity or scope of services.

                                                  10/9/95      Boys & Girls 8,081              Outside scope of contract
                                                               Club                            without a written modi-
                                                                                               fication as required by the
                                                                                               contract

                                                  2/15/96      S. A. Sports 23,175             Outside scope of contract
                                                               Foundation                      without a written modi-
                                                                                               fication as required by the
                                                                                               contract

                                                               Total             $48,750

                                                The Authority used $52,819 Drug Elimination Grant funds
     Authority did not                          to purchase equipment ($37,819) and software ($15,000)
     properly account for                       for use in the economic development and education
     program income.                            components of its drug prevention activities.

                                                The Authority provided the equipment to participants for
                                                their training and subsequent use in their business. The
                                                Authority required the participants to enter into pay back
                                                agreements for the cost of the equipment. The Authority’s
                                                records, as of June 3, 1998, showed the Authority collected

21
     The Authority assigned some of its investigators to work with HUD OIG in investigating drug activity in and around the
     housing authority’s public housing developments. These investigators’ salaries through 6/25/98 were deducted from the
     total salaries charged before calculating the improper charges.

                                                    Page 21                                    98-FW-202-1005
Finding 2


                                                  $24,593 from the participants. Further, the records show
                                                  the Authority has a receivable from participants of $13,226.

                                                  The Authority also acquired a skills assessment computer
                                                  software package to assist residents in identifying their
                                                  vocational skills. The Authority entered into a contract on
                                                  March 24, 1997, and another on April 14, 1998, to provide
                                                  training for a federally funded organization.22         The
                                                  Authority included in the contracts a per participant charge
                                                  of $115 for assessing the skills of 15 individuals. Thus, a
                                                  total of $3,450 (30 x $115) received from the two contracts
                                                  is attributable to assets acquired with Drug Elimination
                                                  Grant funds (software and associated workbooks). The
                                                  Grant regulations and OMB cost principles require such
                                                  income derived from Grant purchased assets be treated as a
                                                  reduction in Grant costs.

                                                  In both cases, because Authority personnel were unfamiliar
                                                  with Federal requirements for treating program income, the
                                                  Authority did not use the amount it collected to offset the
                                                  costs of the Drug Elimination Grant Program.

     Authority managers do                        Although the Authority has given responsibility to carry out
     not use budget controls                      Drug Elimination Grant funded activities to their Youth
     in administering their                       Sports Manager, Economic Development Coordinator,
     respective activities.                       Drug Education Coordinator, and Director of Security,
                                                  these managers stated that they did not review or compare
                                                  their obligation of funds to the budgets for the activities
                                                  they administer. The operating managers stated that they
                                                  rely on the Fiscal Operations Division to monitor costs in
                                                  relation to their budgeted amounts. An accountant in the
                                                  Authority’s Fiscal Operations Division maintains a record of
                                                  line item amounts per budget compared to cumulative
                                                  expenditures for use in drawing down funds.              The
                                                  accountant stated his schedules will not necessarily coincide
                                                  with the general ledger since he may make adjustments to
                                                  eliminate budget overruns. Further, he generally makes
                                                  these adjustments to reclassify the costs to another Grant at
                                                  the time of Grant close-out.

                                                  A comparison of the 1995 Drug Elimination Grant general
                                                  ledger showed the Authority had continued to charge costs
                                                  after April 30, 1998, the expiration date of the Grant.
                                                  Further, the total costs recorded at May 19, 1998, showed
22
     The April 1998 contract expired June 30, 1998.

98-FW-202-1005                                        Page 22
                                                                       Finding 2


                   $2,357,387 in total costs. Since the total 1995 Grant was
                   $1,981,750, the Authority had exceeded its total budget for
                   1995 by $375,637. On June 25, 1998, the Authority’s
                   accountant recorded adjusting journal entries to move
                   substantially all the excess cost to the 1996 Grant general
                   ledger.

                   Therefore, the Authority is not exercising budgetary control
                   over Drug Elimination Grant activities. Instead, the
                   Authority makes after the fact adjustments to bring
                   expenditures in line with the maximum authorized Grant and
                   the HUD approved budget categories. Although the
                   Authority can charge a particular Grant for costs incurred
                   over a 2-year period, after the fact reclassification from one
                   Grant year to another to agree with the budget negates the
                   purpose of budgetary controls over operations.

                   To ensure good fiscal control over operations, the managers
                   administering the activities as well as upper management
                   should have a comparison of expenditures to budget on a
                   regular basis. The Authority needs such controls to ensure:
                   (a) they operate within the budgets established by Authority
                   management; (b) they do not exceed HUD approved budget
                   categories without first obtaining HUD approval; and (c)
                   subordinates provide information to upper management of
                   any budget changes and the need therefore. Further, as
                   noted in Finding 1, this information coupled with
                   performance data will allow the operating and upper
                   management to analyze the cost effectiveness of their
                   activities.

Auditee Comments   The Executive Director’s response (see Appendix B) noted
                   planned corrective action to ensure the future timely draw
                   down of funds and exercise of budgetary controls. Further,
                   the Authority will identify and offset costs for the program
                   income. However, the Executive Director did not agree
                   that Authority staff were unfamiliar with HUD requirements
                   or that the Authority’s charges were ineligible or
                   questionable. The following summarizes the Executive
                   Director’s disagreement with the finding.

                   Knowledge of HUD Requirements - Housing Authority staff
                   responsible for administering the Grant program have
                   complied with all the federal regulations and OMB Circulars
                   which defined the expenditure of funds for activities,

                      Page 23                            98-FW-202-1005
Finding 2


                 including cost principles governing allocation            and
                 allowability of costs charged to Grant programs.

                 Police Equipment - HUD regulation treats all PHAs as if
                 they have an option to create a police department and
                 therefore be eligible for expenditures for vehicles and other
                 police equipment. HUD should not penalize those housing
                 authorities who have organized and equipped departments,
                 and staffed them with licensed peace officers because states,
                 such as Texas, will not acknowledge housing authorities as
                 candidates for the establishment of police departments.
                 HUD should weigh all these factors, which create the
                 unique situation of the Authority, and grant a waiver from
                 this particular regulation.

                 Youth Entertainment - Drug Elimination funds are permitted
                 for training and education activities directly related to drug
                 prevention programs. The Authority selected children for
                 the events who had perfect attendance and consistently
                 improved their grades. Further, it was not the Authority’s
                 intent to simply provide entertainment or amusement for the
                 children, since it was tied directly to their participation in
                 anti-drug activities and their drug-free behavior.

                 Indirect Cost - HUD’s Drug Elimination Grant
                 requirements do contain language prohibiting the charging
                 of indirect costs. However, the Authority should be able to
                 charge indirect costs since such costs are allowable under
                 federal cost principles.

                 Security Guard Salaries - The Authority did not group
                 Low-Rent and nonprofit projects for security patrols until
                 July 1997. Before July 1997, the Authority used contract
                 security at its nonprofit projects and none of its security
                 guards worked at the projects. The Authority asserts that
                 its method and support for allocating security guard salaries
                 is consistent with federal cost principles and that it is OIG
                 insisting that time sheets should be the supporting
                 documentation.

                 Investigator Salaries - The Authority also states that its
                 investigators should not be restricted to HUD’s definition
                 for “in and around” a Low-Rent project since they are San




98-FW-202-1005       Page 24
                                                                                                                    Finding 2


                                                   Antonio Police Officers, who must pursue a case when it is
                                                   not “in and around” a Low-Rent project.23

                                                   Unsupported Contract Cost - The Authority has developed
                                                   a plan of action to eliminate the occurrence of unsupported
                                                   contract costs in the future, including a tickler system for
                                                   contract renewals. Further, the Authority has located and
                                                   attached the necessary supporting documents.


                                                   The Authority’s planned actions should ensure timely draw
     OIG Evaluation of                             down of funds, use of budgetary controls, and accounting
     Auditee Comments                              for program income. The following sets forth OIG’s
                                                   evaluation of the Executive Director’s disagreement with
                                                   the finding.

                                                   Knowledge of HUD Requirements

                                                   The Authority’s response to specific items of ineligible cost
                                                   and failure to keep the documentation required by federal
                                                   cost principles for allocating salaries further illustrates that
                                                   Authority management and staff do not understand HUD
                                                   requirements governing the allocation and allowability of
                                                   Grant cost.

                                                   Police Equipment - Since the Authority could have
                                                   requested a waiver in advance, but chose to ignore the
                                                   regulatory prohibition, the Authority has incurred ineligible
                                                   cost for the purchase of such equipment.

                                                   Youth Entertainment - The Authority states that its purpose
                                                   in providing youth entertainment was to provide rewards to
                                                   certain children. However, the Authority claims this was
                                                   part of its training and education activities. The Authority
                                                   could not provide any evidence showing how the
                                                   entertainment events were part of a drug prevention
                                                   education activity or that the children selected to attend
                                                   these events were in fact participating in such activities.

                                                   Indirect Cost - The Authority’s response cites the terms and
                                                   conditions for the Drug Elimination Grant award, which

23
     The Authority notes that it has assigned five investigators to work with HUD-OIG in an Operation Safe Home effort.
     Further, that these Safe Home Investigators follow-up on leads and conduct investigations other than on and adjacent to Low-
     Rent projects. However, the Authority does not note that this assignment occurred in early 1998 and that this unit has
     provided the documentation required by federal cost principles to support the allocation.

                                                      Page 25                                      98-FW-202-1005
Finding 2


                                                  state that indirect cost, as permitted under OMB Circular A-
                                                  87, cannot be charged to the Grant. The Authority then
                                                  notes that such costs are permissible under OMB Circular
                                                  A-87, and therefore, should be considered allowable indirect
                                                  cost. As stated in the finding, the Circular notes that to be
                                                  allowable, costs must conform to any limitations or
                                                  exclusions set forth in the terms and conditions of the
                                                  federal award.

                                                  Security Guard Salaries - Contrary to the Authority’s
                                                  assertion that only contract security was used at its
                                                  nonprofit projects prior to July 1997, the general ledgers for
                                                  13 nonprofit projects show that in addition to contract
                                                  security, the Authority charged salary cost for at least 26 of
                                                  its security guards to those projects from July 1996 to June
                                                  1997. OIG interviews with 14 security guards confirmed
                                                  they worked at or patrolled nonprofit projects before July
                                                  1997; one noted they had been assigned to a nonprofit
                                                  project as their home base for the past 5 years and another
                                                  similarly noted they had been assigned to a nonprofit project
                                                  for the past 3 years. A third noted that they had two
                                                  nonprofit projects added to their patrol route in December
                                                  1996. Further, as noted in the finding, federal cost
                                                  principles, not OIG, requires time activity reports to support
                                                  allocation of salaries to more than one cost objective. 24

                                                  Investigator Salaries - During the audit, investigators, their
                                                  supervisors, and the Authority’s Senior Vice President for
                                                  Housing Operations, all stated that the investigators
                                                  conducted investigations at Low-Rent projects, nonprofit
                                                  projects, Section 8 housing units, and some internal
                                                  investigations, such as employee theft.         Further, the
                                                  investigators and their supervisors confirmed that their
                                                  investigations did not always arise from complaints that
                                                  originated in or around the Low-Rent projects. They cited
                                                  Section 8 tenant cases as an example. HUD regulations
                                                  governing the Drug Elimination Program note that Grant-
                                                  funded activities cannot involve the Section 8 Program.

                                                  Unsupported Contract Cost - The Authority’s attached
                                                  support consisted of copies of contract agreements with the
                                                  entities. The Authority did not submit any evidence of the
                                                  reimbursable cost for the advance or a contract that covered

24
     OMB Circular A-87 states: “Cost objective” means a function, organizational subdivision, contract, grant, or other activity
     for which cost data are needed and for which costs are incurred.

98-FW-202-1005                                          Page 26
                                                                    Finding 2


                  the payment to the YMCA. As noted in the finding, the
                  other two questioned payments involved services outside
                  the time (scope) of the written contracts. The contracts the
                  Authority provided for these two payments did not cover
                  the time period for which the Authority made the payments.



Recommendations   We recommend the San Antonio Public Housing Division
                  require the Authority to:

                  2A.    Provide appropriate training to its program
                         managers and fiscal staff administering the Drug
                         Elimination Grant Program to ensure they are
                         knowledgeable of eligible Grant activities and
                         requirements of the federal cost principles;

                  2B.    Cease using other HUD funds to pay for Drug
                         Elimination Grant activities and to establish an
                         effective cash management system for the timely
                         draw down of Grant funds to meet expenditures;

                  2C.    Cease charging indirect costs        to   the   Drug
                         Elimination Grant Program;

                  2D.    Repay to the Drug Elimination Grant Program
                         $219,631 used for police equipment, youth
                         entertainment, cash awards, and indirect costs;

                  2E.    Identify amounts of transportation cost for youth
                         entertainment and indirect costs for employee
                         benefits and repay the Drug Elimination Grant for
                         that amount;

                  2F.    Review and repay to the Drug Elimination Grant
                         Program any other ineligible expenditures made
                         subsequent to June 25, 1998;

                  2G.    Cease charging the Drug Elimination Grant Program
                         for direct salaries that are not supported in
                         accordance with the documentation standards of
                         federal cost principles;




                    Page 27                            98-FW-202-1005
Finding 2


                 2H.     Either satisfactorily demonstrate and support the
                         reasonableness of the security and investigative
                         salaries and benefits charged to the Drug Elimination
                         Grant Program or repay the Grant Program
                         $630,627 ($469,998 and $160,629, respectively);

                 2I.     Provide      satisfactory    documentation     and/or
                         justification to support the propriety of the $48,750
                         paid for contract services;

                 2J.     Establish an appropriate financial management
                         system that identifies and properly accounts for
                         Drug Elimination Program income;

                 2K.     Reduce Grant costs by the $24,593 of program
                         income collected and any subsequent collections
                         from participants in the Resident Owned Business
                         Program;

                 2L.     Reduce Grant costs by the $3,450 the Authority
                         charged for use of assets purchased with Drug
                         Elimination Grant funds; and

                 2M.     Establish an effective system of budgetary control
                         over Drug Elimination Grant funded activities.




98-FW-202-1005         Page 28
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit. Management is responsible for establishing effective management
controls. Management controls, in the broadest sense, include the plan of organization, methods,
and procedures adopted by management to ensure that its goals are met. Management controls
include the processes for planning, organizing, directing, and controlling program operations.
They include the systems for measuring, reporting, and monitoring program performance.


                                    We determined the following management controls were
 Relevant Management                relevant to our audit objectives:
 Controls
                                    •   Performance evaluation system
                                    •   Reporting program performance
                                    •   Activity and cost eligibility
                                    •   Fiscal management system

                                    We assessed all of the relevant control categories identified
                                    above, to the extent they impacted on our audit objectives.

 Significant Weaknesses             A significant weakness exists if management controls do not
                                    give reasonable assurance that resource use is consistent
                                    with laws, regulations, and policies; that resources are
                                    safeguarded against waste, loss, and misuse; and that
                                    reliable data are obtained, maintained, and fairly disclosed in
                                    reports. Based on our review, we believe the following
                                    items are significant weaknesses:

                                    •   The Authority has not established well-defined goals or
                                        objectives for its activities or implemented a system to
                                        measure their effectiveness (see Finding 1).

                                    •   The Authority did not have a system to ensure proper
                                        cash management, use of budgetary control over
                                        expenditures, and appropriate accounting for program
                                        income (see Finding 2).

                                    •   The Authority did not have a system to ensure costs
                                        incurred were for eligible activities, properly supported
                                        by appropriate source documentation, and were
                                        allocable as Grant expenditures (see Finding 2).




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Issues Needing Further Consideration
In conducting the audit, we identified two issues, which were not within the specific objectives of
our review, needing consideration for future audit of Authority operations. Primarily:

Procurement of Goods and Services

In reviewing supporting documents for contract services, it appears the Authority may not be
following the provisions of 24 CFR §85.36, which requires free and open competition in the
award of contacts for goods and services and certain specific contract clauses.

Allocation of Indirect Cost

HUD requires for most of its federal grant awards that public housing authorities follow the
requirements of OMB Circular A-87, Cost Principles for State, Local and Indian Tribal
Governments. This Circular prescribes certain standards for the identification and allocation of
indirect costs. The Authority’s system is not sufficiently well documented to show the Authority
fully conforms to these standards.




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                                                                                                               Appendix A


Schedule of Ineligible and Unsupported Costs



                        Recommendation
                            Number                         Ineligible 1           Unsupported 2

                                   2D                       $219,631

                                   2H                                                $630,627

                                    2I                                                   48,750

                                   2K                                                    24,593

                                   2L                                                     3,450

                     TOTALS                                 $219,631                 $707,420




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.

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                               Appendix B


Auditee Comments




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                                                                                                               Appendix
C

OIG Methodology in Computing Reasonable
Security Guard Cost
OIG obtained the total salaries and benefits from the Authority’s payroll records and then
computed an allocation based on the percentage of low-rent and other units patrolled by the
Security Guards, with the following results:



        Calendar           Total              Low-Rent          Other         Percent             Allocable Salary
         Year           Compensation            Units           Units        Low-Rent

           199525          $ 210,592             7,938          3,476            69.5                $ 146,361

           1996               510,314            7,938          3,520            69.3                   353,648

           1997               722,408            7,569          3,516            68.3                   493,405

           199826             348,108            7,628          3,516            68.4                   238,106

          Totals          $1,791,422                                                                 $1,231,520

OIG then compared this computation to the total $1,701,518 the Authority charged to the Drug
Elimination Grants, resulting in an apparent over-allocation of $469,998 to the Grants.




25
     The Authority Security Guard salaries and benefits for 1995 totaled $421,184. However, the Authority did not begin
     allocating Security Guard salaries to the Grants until July 1, 1995. OIG used ½ of the 1995 total, since the Authority’s
     Payroll Accountant noted there was low-turnover and the salaries were paid uniformly throughout the year.
26
     Through June 25, 1998

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                                                                                    Appendix
D

Distribution
Secretary's Representative, 6AS
State Coordinator, 6JS
Comptroller, 6AF
Director, Accounting, 6AAF
Director, Public Housing, 6JPH (4)
Saul N. Ramirez, Jr., Deputy Secretary, SD (Room 10100)
Hal C. DeCell III, A/S for Congressional and Intergovernmental Relations, J (Room 10120)
Karen Hinton, A/S for Public Affairs, W (Room 10132)
Jon Cowan, Chief of Staff, S (Room 10000)
Jacquie Lawing, Deputy Chief of Staff for Programs & Policy, S (Room 10226)
Robert Hickmott, Counselor to the Secretary, S (Room 10234)
Patricia Enright, Sr Advisor to the Secretary for Communication Policy, S (Room 10222)
Gail W. Laster, General Counsel, C (Room 10214)
Saul N. Ramirez, Jr., Acting Assistant Secretary for CPD, D (Room 7100)
Joseph Smith, Acting Assistant Secretary for Administration, A (Room 10110)
David Gibbons, Director, Office of Budget, ARB (Room 3270)
Art Agnos, Acting Assistant Secretary for Housing, H (Room 9100)
Director, HUD Enforcement Center, 1240 Maryland Ave., Ste. 200, Wash.D.C. 20024
Deborah Vincent, Acting General A/S for Public & Indian Housing, P (Room 4100)
Assistant to the Deputy Secretary for Field Management, SDF (Room 7106)
Assistant to the Secretary for Labor Relations (Acting), SL (Room 7118)
Public Housing ALO, PF (Room 5156) (3)
Acquisitions Librarian, Library, AS (Room 8141)
Chief Financial Officer, F (Room 10164) (2)
Deputy Chief Financial Officer for Operations, FF (Room 10166) (2)
Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2474
 Washington, DC 20548 Attn: Judy England-Joseph
Mr. Pete Sessions, Govt Reform & Oversight Comm., U.S. Congress,
 House of Rep., Washington, D.C. 20510-6250
The Honorable Fred Thompson, Chairman, Comm. on Govt Affairs,
 U.S. Senate, Washington, D.C. 20515-4305
The Honorable John Glenn, Ranking Member, Comm. on Govt Affairs,
        U.S. Senate, Washington, D.C. 20515-4305
Cindy Sprunger, Subcomm. on Gen. Oversight & Invest., Room 212,
        O'Neill House Ofc. Bldg., Washington, D.C. 20515
The Honorable Dan Burton, Chairman, Comm. on Govt Reform & Oversight,
        House of Representatives, Washington, D.C. 20515-6143
Inspector General, G
Housing Authority of the City of San Antonio




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