Audit Report
District Inspector General for Audit
Northwest/Alaska District
Report: 98-SE-202-1002 Issued: May 29, 1998
TO: Elizabeth J. Santone, Director, Office of Public Housing, OEPH
FROM: A. George Tilley, District Inspector General for Audit, OAGA
SUBJECT: Request for Assistance
Nampa Housing Authority
Indian Creek Child Care Center
Use of Operating Funds to Pay For Child Care Expenses
Nampa, Idaho
At your request for assistance, we reviewed the Nampa Housing Authority’s (Housing
Authority) operation of the Indian Creek Child Care Center (Center). We also reviewed
HUD’s review and approval process for the Housing Authority’s 1993 applications for
Comprehensive Improvement Assistance Program (CIAP) funds. Our review resulted
in two findings.
Within 60 days please give us, for each recommendation in this report, a status report
on: (1) the corrective action taken; (2) the proposed corrective action and the date to be
completed; or (3) why action is considered unnecessary. Also, please furnish us
copies of any correspondence or directives issued because of the audit.
If you have any questions please contact Robert Woodard or Wayne Rivers at (206)
220-5360.
98-SE-202-1002
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Executive Summary
The Nampa Housing Authority (Housing Authority) completed construction of
the Indian Creek Child Care Center (Center) through the use of 1993
Comprehensive Improvement Assistance Program funds (CIAP) in 1994.
After taking over the Center’s operations in August 1997, the Housing
Authority used operating funds to pay for child care expenses, the majority of
which were ineligible. The Housing Authority took over the Center without a
plan, procedures, or adequate controls to properly operate the Center. As a
result,
• the Housing Authority used over $70,000 of its operating funds for
child care expenses, primarily for nonresident children,
• payments from parents were unaccounted for, and
• some parents stopped using the facility due to its poor management
and record keeping.
Prior to taking over the Center, the Housing Authority leased the Center to
Head Start at no cost. The takeover occurred because the former Executive
Director convinced the Board that the Housing Authority would make money
and better serve its residents. Convinced the takeover was in the Housing
Authority’s best interests, the Board relied on the former Executive Director’s
overly optimistic financial projections and assumed she had adequate plans
to properly manage and operate the Center.
In addition, the Housing Authority did not fully justify and document its need
for a 7,700 square foot child care center and HUD’s Portland Office did not
do a thorough enough review to find this out before approving 1993 CIAP
funds for its construction. As a result, CIAP funds totaling over $552,000
were used to construct a child care facility which may have been in excess of
resident needs and is currently underutilized by Housing Authority residents.
HUD officials approved CIAP funds to construct the facility because they
relied on the Housing Authority’s assertions and Head Start’s commitment to
use the facility without determining what the residents’ child care needs were,
relative to the size of the facility proposed.
We are recommending that the Housing Authority cease its operation of the
Center and contract with a qualified provider to operate the Center. Also, the
Housing Authority Board needs:
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• to determine a reasonable allocation of the funds they expended for
the Center, and
• to replenish its reserves by the amount paid for nonresident
expenses.
We held an exit conference at the Housing Authority’s office on
April 30, 1998. On May 1, 1998, we provided a draft of the findings to the
Board for their comments. The Housing Authority Board Chairman provided
us his comments on May 15, 1998, and concurred with Finding 1, with no
comments on Finding 2. We incorporated portions of his comments into this
report as we determined appropriate along with our evaluation. The Housing
Authority Board Chairman’s comments are included in their entirety in
Appendix 1.
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Table of Contents
Management Memorandum ..........................................................i
Executive Summary..................................................................... iii
Table of Contents .........................................................................v
Introduction ...................................................................................1
Findings and Recommendations
1. The Housing Authority Used Operating
Funds to Pay For Ineligible Child Care
Expenses........................................................................3
2. The Housing Authority Did Not Fully
Document Its Need For A Child Care
Facility.......................................................................... 15
Management Controls ............................................................... 23
Appendices
1. Auditee Comments ..................................................... 25
2. Distribution................................................................... 27
Abbreviations:
HUD Department of Housing and Urban Development
CIAP Comprehensive Improvement Assistance Program
ACC Annual Contributions Contract
CFR Code of Federal Regulations
HHS Department of Health and Human Services
NOFA Notice of Fund Availability
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Introduction
The Nampa Housing Authority (Housing Authority) currently manages 142
federally assisted low income housing units in Nampa, Idaho. The Board of
Commissioners oversees the Housing Authority, with an Executive Director
hired to run the day-to-day operations. In 1994, the Housing Authority
completed construction of the Indian Creek Child Care Center (Center),
designed to help its residents obtain affordable child care. Prior to August
15, 1997, the Housing Authority used a contractor to operate the Center. On
August 15th, the Housing Authority took over the operations of the Center and
was still operating it as of May 1998.
On December 12, 1997, due to mismanagement of the Center, financial
mismanagement, insubordination, and inappropriate behavior, the Housing
Authority’s Board terminated the Executive Director. She had been hired by
the Housing Authority on August 19, 1996. The HUD Portland Office
contacted our office and requested our assistance after learning of the
Executive Director’s termination and having concerns with the Housing
Authority’s operation of the Center and the Housing Authority’s financial
position.
We performed audit work at the Housing Authority
Audit Objectives to determine: (1) whether the Housing Authority
used its operating funds to pay for the Center’s
expenses in accordance with HUD requirements,
(2) whether the Housing Authority properly
followed the application process for obtaining
1993 CIAP funds including funds for the
construction of a child care facility, and (3)
whether HUD’s approval was consistent with
CIAP rules and regulations.
To accomplish our objectives, we:
• reviewed HUD rules and regulations to
Audit Methodology
obtain an understanding of the criteria
related to the CIAP application, review
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and approval process and the use of
operating funds.
• interviewed appropriate Housing Authority
staff (previous and current) to obtain an
understanding of the Housing Authority’s
CIAP application process and the Housing
Authority’s use of operating funds.
• interviewed HUD officials to obtain an
understanding of its review and approval
process of the Housing Authority’s 1992
and 1993 CIAP applications.
• reviewed the 1992 and 1993 CIAP
application and related documents.
• reviewed records and documents to
determine whether the Housing Authority
properly used its operating funds to pay for
the Center’s expenses.
Our review period for the Center’s operations
was from September 1994 through February
Audit Period 1998; and from 1992 through 1993 for the CIAP
application and approval process. We extended
our review period as necessary to fully respond to
our audit objectives. We performed our audit
field work at the Housing Authority and the
Portland Office from January through April 1998.
We conducted our audit in accordance with generally accepted
government auditing standards.
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Findings
FINDING 1: THE HOUSING AUTHORITY USED OPERATING
FUNDS TO PAY FOR INELIGIBLE CHILD CARE
EXPENSES
After taking over the Center’s operations in August 1997, the
Housing Authority used operating funds to pay for child care
expenses, the majority of which were ineligible. The Housing
Authority took over the Center without a plan, procedures, or
adequate controls to properly operate the Center. As a result,
• the Housing Authority used over $70,000 of its operating
funds for child care expenses, primarily for nonresident
children,
• payments from parents were unaccounted for, and
• some parents stopped using the facility due to its poor
management and record keeping.
Prior to taking over the Center, the Housing Authority had leased
the Center to Head Start at no cost. The takeover occurred
because the former Executive Director convinced the Board that
the Housing Authority would make money and better serve its
residents. Convinced the takeover was in the Housing Authority’s
best interests, the Board relied on the former Executive Director’s
overly optimistic financial projections and assumed she had
adequate plans to properly manage and operate the Center.
The Annual
Contributions
Contract restricts In its Annual Contributions Contract (ACC) with
the use of HUD and its amendments, the Housing Authority
operating funds. agreed to develop and manage housing in
accordance with the ACC and HUD
requirements.
Part A, Section 2, of the Housing Authority’s ACC
states that operating expenditures are all costs
necessary for the operation of its projects. In
addition, Section 4 of the same Part states that
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the Housing Authority shall at all times develop
and operate each project solely for the benefit of
eligible families to promote the economic and
social well-being of the tenants. In accordance
with these sections, the Housing Authority is
limited in its use of operating funds to pay for
expenses related to services for residents, such
as a child care facility. In that regard, HUD’s
Director of Public Housing in the Portland Office
agreed that the Housing Authority can only use its
funds for child care expenses that are directly
related to Housing Authority residents.
Housing Authorities are also required to ensure
that effective controls are in place for all
operations. OMB Circular A-123 states that the
proper stewardship of federal resources is a
fundamental responsibility of agency managers
and staff. The agency head must establish
controls that reasonably ensure that:
• assets are safeguarded against waste, loss,
unauthorized use or misappropriation; and
• revenues and expenditures are properly
recorded and accounted for.
The Standards for Financial Management
Systems at 24 CFR 85.20 require an agency that
receives federal funds to maintain effective
control and accountability for all of its grants and
other assets and to adequately safeguard all such
property.
In PIH Notice 90-51, HUD and HHS encouraged
interagency cooperation to promote self-
sufficiency of families receiving welfare in public
HUD and the
housing. On January 24, 1990, the Secretaries of
Department of
HUD and HHS signed a Memorandum of
Health and
Understanding pledging to develop and
Human Services
implement joint initiatives to more effectively help
(HHS) encourage
low-income families and individuals move toward
communities to
independent living and economic self-sufficiency.
integrate
Included in the examples of activities encouraged
assistance
programs.
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under the Memorandum of Understanding was
conversion of public housing units to provide
onsite facilities for delivering supportive services
such as Head Start and child care services.
Head Start, one of HHS’s programs, serves
children of low-income families who may or may
not receive housing assistance from HUD.
On August 3, 1993, HUD approved $500,000 in
CIAP funds for the Housing Authority to construct
a 7,700 square foot child care facility. In 1994,
the Housing Authority completed construction of
The Housing the facility at a cost of approximately $552,000.
Authority used its Construction of this child care facility was
operating funds to consistent with the principles of HUD’s
pay for ineligible Memorandum of Understanding with HHS.
child care
expenses of The Housing Authority then entered into a 20 year
nonresidents. lease with Head Start. Under the lease dated
September 29, 1994, Head Start agreed to
operate and maintain the Center at no cost to the
Housing Authority while the Housing Authority
received no income from Head Start. Head Start
was solely responsible for operating the entire
Center and did so for about three years. Head
Start ran four Head Start classes during the
school year and subleased two rooms of the
Center to a local day care operator who provided
year-round day care services.
On August 15, 1997, the Housing Authority
terminated its 20 year lease with Head Start and
locked the day care provider out of the Center.
The Housing Authority had hired its own child care
Director in mid-July 1997 who started operating
the facility on August 15th. The Housing Authority’s
takeover was in accordance with plans set forth in
its June 18, 1997 Board meeting. In that meeting,
the Board gave the former Executive Director
approval to proceed with the “day care facility
project” with the following steps:
(1) Void the existing lease with Head
Start/Day Care;
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(2) Proceed with the establishment of the
new Child Care facility; and
(3) Survey the resident files for the number of
children in Housing Authority units and
their ages.
At the July 16, 1997 Board meeting, the former
Executive Director presented budgets she had
developed assuming the Center was operated at full
enrollment. Her budget projections showed the Housing
Authority would make about $4,900 per month after five
months of operation; however this did not occur. When
presenting the budget, the former Executive Director
included the use of teachers funded by Americorps (the
domestic side of Peace Corps). She anticipated that
the Housing Authority would be able to use the
volunteers under Americorps as teachers to run the
Center. However, under the agreement with
Americorps, although volunteers could be used to help
operate the Center, they could not displace any staff
normally needed. This arrangement did not lower the
Housing Authority’s expenses, but actually increased
expenses because of non-reimbursable costs incurred
by the Housing Authority for these volunteers.
From August 1997 through February 1998, the
Housing Authority used its operating funds to
subsidize the Center since the income generated
by the Center was far less than its expenses. The
following table shows the Center’s monthly
income and expenses in addition to
reimbursements and expenses related to the
Americorps program.
Income & Re- Amount
Month imbursements Expenses Expenses
Exceeded
Income
Daycare Americorps Daycare Americorps
August $0 $0 ($1,191) ($423) ($1,614)
September $3,280 0 (17,573) (4,261) ($18,554)
October 5,310 0 (17,167) (6,986) ($18,843)
November 4,530 4,450 (20,006) (6,243) ($17,269)
December 6,053 0 (11,528) (5,726) ($11,201)
January 9,895 14,558 (15,545) (7,318) $1,590
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February 6,816 5,760 (8,779) (8,420) ($4,623)
Totals $35,884 $24,768 ($91,789) ($39,377) ($70,514)
Contrary to HUD requirements, the Housing
Authority expended the majority of these operating
funds on nonresident children. The Center’s current
Director has only recently started to keep track of
which children are resident children and which are
not. These records show that, as of March 1998,
the Center served 61 children and only 24 (39
percent) are residents’ children. In addition, for the
week of March 23 to 27, 1998, an average of 31
children used the Center each day; 8 (26 percent)
were residents’ children and 23 (74 percent) were
nonresidents’ children. Our interview with the local
daycare provider who leased space at the Center
from Head Start supports a similar percentage of
use by residents. He estimated that of the 25 to 30
children served by the daycare, only about 5 (or
about 20 percent) were residents’ children.
When the Housing Authority took over operation
of the Center, the former Executive Director
expected the Center’s former Director, who she
had hired, to manage the Center and maintain its
accounting records. However, the Center’s
former Director told us that when she was hired,
she was led to believe that the Housing Authority
would take care of all billings and accounting.
After a few weeks, it was apparent the Housing
The Housing Authority was not taking care of the billings and
Authority did not accounting, so the Center’s former Director tried
establish to develop her own system to bill and receive
adequate payments from parents. However, the Center’s
management former Director told us that she was not qualified
controls after the to do accounting work and had limited experience
takeover. in bookkeeping. Apparently due to her
inexperience, there were not adequate financial
records on what transactions occurred at the
Center from August to December 1997. We
concluded that the Housing Authority had not
established a system of internal controls to
properly safeguard receipts and to account for
funds.
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Also, the Board’s Vice Chairman conducted a
review of the Center’s operations due to the
termination of a Center employee. Her
November 5, 1997 report included the following
determinations: (1) any employees could receive
payments from child care patrons; (2) payments
received were not delivered to the Housing
Authority in a timely manner; (3) parents
complained about inaccurate bills and late
billings; and (4) no Cash Receipts, Accounts
Receivable, and Accounts Payable records were
maintained. During our review, we found that the
Vice Chairman’s determinations were accurate.
In addition, the Center’s current Director told us
that when she took over in October 1997, she
found that sign-in sheets, ledger cards, and
receipt books were missing or located in a
number of places throughout the facility (including
classrooms). She also found that receipts were
not numbered and had not been given to parents.
The Housing Authority used over $70,000 (as of
February 28, 1998) of its operating funds for the
Center’s child care expenses, the majority of
which were ineligible because they were for
nonresident children. The Housing Authority paid
for child care expenses such as salaries,
benefits, and training. With the former Executive
Director’s knowledge, the Housing Authority’s
Accountant decided to use operating reserves to
pay the Center’s expenses because, as she
explained to us, the Housing Authority really had
no choice. The amounts were owed and were
liabilities to the Housing Authority.
Due to the poor condition of the Center’s records
The Housing
for the three months following the takeover, we
Authority used
were unable to determine the following: (1) how
over $70,000 of its
many children were served, whether resident or
operating funds
nonresident; (2) if and when parents were billed;
for the Center’s
(3) how much money was taken in by the facility;
expenses.
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and (4) what amounts may still be owed the
facility.
However, we did estimate that up to
approximately $25,000 may be unaccounted for
or still owed. To calculate this amount, we
determined the average monthly income earned
by the Center in January and February 1998 and
projected that amount over the previous four
months. Based on this projection, the Center may
have earned approximately $61,000 for those six
months. However, the Center only collected
$35,883, leaving a difference of approximately
$25,000. The Center’s current Director agreed
with our method of estimating the amount of funds
unaccounted for. The poor condition of the
records and lack of adequate controls prevented
us from definitively determining why the funds
could not be accounted for. We believe the
majority could not be accounted for primarily due
to poor management.
In addition, we found that parents who used the
Center objected to some billing charges. For
example:
• A parent was billed for more hours than the
child was at the Center,
• A parent was charged when the child was
never at the Center,
• In some cases, payments made by parents
were neither credited nor reflected in their
statements, and
• There were mathematical errors in the
billings provided to parents.
The Housing Authority’s Occupancy Clerk has
been working with the Center’s current Director
and parents to resolve these complaints.
Due to the Center’s poor management and
record keeping, some parents stopped using the
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Center for daycare. The Center’s current Director
told us that she knows the Center lost a lot of
children and parents because of the way it was
operated. In addition, one parent told us that she
quit using the Center because there was usually
no one at the Center to receive payments, she
never received a receipt for payment, and her last
billing included time that her child wasn’t
attending the Center. She also stated that one
check she wrote to the Center was found by a
man at a local ski resort who mailed it back to
her. Another parent told us that initially she was
happy with the Center, but when the Housing
Authority took over its operations, service started
a downward spiral that never stopped. She said
she finally had to leave because the daycare
operations were not stable.
The Housing Authority took over the Center’s
operations because the former Executive
Director convinced the Board that the Housing
Authority would make money and would better
serve their residents by doing so. However, the
former Executive Director’s financial projections
were overly optimistic and not realistic, forcing the
Housing Authority to use operating funds to keep
the Center open.
The Board Chairman told us that at Board
meetings prior to the take over, the former
Executive Director persuaded the Board that: (1)
Head Start was not adequately serving Housing
Authority residents, was not providing quality child
care, and was not meeting its commitments under
the lease, and (2) the Housing Authority would
make money if it took over the operation of the
Center.
The former
Executive Director In Board meetings, the former Executive Director
convinced the stressed that Head Start was not meeting the
Board that the terms of the 20 year lease. Specifically, she
Housing Authority emphasized that Head Start had agreed that 51
would make percent of the child care slots were to go to
money and would Housing Authority residents’ children. However,
better serve the
residents.
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Head Start’s Director interpreted the wording of
the lease differently. She believed that residents’
children should be given preference, but they
would not have to make up 51 percent of the
children served by the Center unless it was at
capacity.
Convinced that taking over the Center was in the
Housing Authority’s best interests, the Board then
relied on the former Executive Director to do the
takeover. They assumed it would not require
Housing Authority resources based on the former
Executive Director’s financial projections. The
Board also assumed the former Executive
Director had sufficient plans, procedures, and
controls in place to take over the Center.
According to the Board Chairman, the Board
relied solely on the Executive Director’s
representations and financial projections related
to the Housing Authority’s taking over the
Center’s operations. The Board also relied on
the conditions they had required when the
takeover was approved being followed, including
having established policies and procedures in
place. The Board did not realize their conditions
were not being met until November 1997 when
the Board’s Vice Chairman did her review.
The Board Chairman commented that the Board
did not verify the accuracy of the former Executive
The Board relied
Director’s representations and financial
on the former
projections. He stated that a combination of
Executive
things prevented the Board from getting a clear
Director’s overly
picture of the financial events. Financial reports
optimistic
prepared by the former Executive Director
representations
presented a very rosy picture according to the
and financial
Chairman. We contacted the former Executive
projections.
Director by telephone to discuss the issues
related to the Housing Authority’s takeover of the
Center, but she declined to discuss specific
issues.
The Housing Authority Board Chairman agreed
with the Finding, stating that it is apparent that:
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• The former Executive Director did not
furnish the Board with valid information.
OIG Evaluation of• The former Executive Director totally
Auditee Comments disregarded or was unconcerned about
HUD rules and regulations.
• The manner in which the Day Care was
taken over doomed it to failure.
• The former Executive Director was not
able to establish critical priorities.
The Chairman indicated that all
recommendations are being addressed. For
Recommendation 1B, he stated the Board is
looking at a quarterly checklist for the
Executive Director which states all rules and
regulations have been complied with.
Our work verifies that the Board Chairman’s
Auditee Comments statements are substantially correct. As we
state in the Finding, the Board relied on the
former Executive Director and her
representations in taking over the Day Care.
However, for Recommendation 1B, we want
to emphasize that a checklist by itself will not
enable the Board to ensure the HUD assisted
projects are properly managed. But we are
encouraged that the Board will be more
proactive in their monitoring.
Recommendations
We recommend that you:
1A. Require the Housing Authority to stop operating the Center and
contract with a qualified provider to operate the facility.
1B. Require the Board to more closely monitor the Executive
Director’s and the Housing Authority’s activities to ensure that
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HUD assisted projects are properly managed and to prevent
the use of funds for expenditures not benefiting the residents.
1C. Require the Housing Authority to determine a reasonable
allocation of the costs paid for child care expenses between
residents and nonresidents.
1D. Require the Housing Authority to replenish its reserves by the
amount paid for nonresident expenses incurred in its operations
of the Center.
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FINDING 2: THE HOUSING AUTHORITY DID NOT FULLY
DOCUMENT ITS NEED FOR A CHILD CARE FACILITY
The Housing Authority did not fully justify and document its need
for a 7,700 square foot child care center and HUD’s Portland Office
did not do a thorough enough review to find this out before
approving 1993 Comprehensive Improvement Assistance
Program (CIAP) funds for construction. As a result, CIAP funds
totaling over $552,000 were used to construct a child care facility
which may have been in excess of resident needs and is currently
underutilized by Housing Authority residents. HUD officials
approved CIAP funds to construct the facility because they relied
on the Housing Authority’s assertions and Head Start’s
commitment to use the facility without determining what the
residents’ child care needs were, relative to the size of the facility
proposed.
Non-dwelling
additions such as 24 CFR 968.210(b) identifies non-dwelling
child care facilities additions as an eligible cost for CIAP
are eligible for funding. HUD Handbook 7485.2 REV-1,
CIAP funding. Public Housing Modernization Standards,
identifies child care facilities as a non-
dwelling addition.
Under the Notice of Fund Availability (NOFA) for
the CIAP dated March 15, 1993, to be eligible for
processing, the Field Office must determine if the
work items appear to be eligible and needed.
Under the NOFA’s Rating and Ranking criteria,
the Field Office shall identify the estimated dollar
value of all proposed modernization
recommended for funding, subject to confirmation
of need and cost at the Field Office’s Joint
Review.
Per HUD’s Public and Indian Housing
Comprehensive Improvement Assistance
Program Handbook (7485.1 REV-4):
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• Paragraph 3-18 states the Joint Review
shall include review of the PHA’s physical
needs assessment which should include
eligibility, need, and appropriateness of
the physical work items as measured
against mandatory standards and the
project specific work items.
• Paragraph 3-15 specifies that the PHA
shall complete the detailed physical and
management needs assessments and,
during Joint Review, the Field Office shall
document that the PHA has completed the
physical needs assessment and that it is
of acceptable quality using the Joint
Review Checklist.
Section 2-8B of HUD’s Public Housing
Modernization Standards Handbook (7485.2
REV-1) states that the need for community
service facilities (which include child care
facilities) where space requirements are within
permissible allowances shall be fully justified.
This justification shall address the amount of
space being requested, use of space, cost of
constructing the facility, identification of an
organization or group who will operate the facility,
daily operational hours, and estimated annual
cost to the housing authority (operating costs).
In PIH Notice 90-51, HUD and HHS encouraged
interagency cooperation to promote self-
sufficiency of families receiving welfare in public
housing through a Memorandum of
HUD and the
Understanding dated January 24, 1990. Included
Department of
as examples of encouraged activities were
Health and
conversion of public housing units to provide
Human Services
onsite facilities for delivering supportive services
(HHS) encourage
such as Head Start and child care services.
communities to
Head Start, one of HHS’s programs, serves
integrate
children of low-income families who may or may
assistance
not receive housing assistance from HUD.
programs.
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98-SE-202-1002
PHA Resident Initiatives Circular Number W90-5
HUD’s Portland issued by the Seattle HUD office to all Public
Office did not Housing Agencies and all Resident Councils
require the pertained to Head Start programs in public
Housing housing communities. This Circular refers to PIH
Authority to fully Notice 90-51 and states that one step toward
justify and self-sufficiency would be the provision of on-site
document its facilities for a Head Start program. In addition,
need for a child PHA Circular Number 91-12, issued by the
care facility Seattle HUD office to all Public Housing
Authorities, discussed CIAP provisions for
economic development activities - Head
Start/Child Care. The Circular states the Housing
Authority should be prepared to show a need for
an onsite Head Start program or demonstrate a
need for expanding an existing program to be
accessible to residents.
The Housing Authority applied for funds to
construct a child care facility in its 1992 and 1993
CIAP applications. This was consistent with HUD
initiatives such as its Memorandum of
Understanding with HHS and with requests from
some residents. Although HUD approved
$215,800 in 1992 CIAP funds to construct a
6,667 square foot “Head Start Daycare Center”,
those funds were used for other, higher priority
purposes that year. In 1993, the Housing
Authority applied for $425,000 of CIAP funds to
construct a 7,740 square foot “Head Start
Daycare Center”. In both its 1992 and 1993
CIAP applications, the Housing Authority included
narratives expressing a need for child care
facilities for its residents. On August 3, 1993,
HUD approved $500,000 in CIAP funds for the
Housing Authority to construct the Head Start Day
Care Center.
We interviewed appropriate HUD officials and
reviewed appropriate CIAP files to determine
how HUD processed the Housing Authority’s
applications. We found that HUD officials
followed the NOFA and handbook processes
when these CIAP applications were reviewed and
approved. However, they did not determine: (1) if
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such a facility was not otherwise available in the
community or if existing facilities were inadequate
for current needs of the residents as prescribed in
HUD’s Modernization Handbook 7485.2 REV-1
and (2) if the size of the proposed day care facility
was proportional to the residents’ child care
needs at that time.
The Housing Authority’s former Executive
Director who was involved with the 1992 and
1993 CIAP applications told us that there was a
great need for a child care facility in the Nampa
area. To support his position, the former
Executive Director identified resident surveys, the
local Head Start’s commitment to use the facility
for its programs, and the community’s interest as
expressed by Nampa’s Mayor.
We reviewed the Housing Authority’s files and
found 19 resident survey forms completed in
1991and 3 resident survey forms completed in
1993. The resident survey forms showed that all
22 residents checked the “yes” box indicating
they agreed that a new child care facility would
benefit the children and improve the appearance
of the vacant property. The surveys did not
include any other information such as the number
of children in the resident’s household or whether
the resident would use the facility. These surveys
represented about 18 percent of the 120 units
under Housing Authority management at the time.
A letter from Nampa’s Mayor urged HUD to fund
the Housing Authority’s 1993 CIAP application,
but did not directly address the need for a child
care facility. In addition, Head Start sent a letter
to the Housing Authority on March 30, 1992,
which expressed great interest in using a facility
that the Housing Authority would construct with its
CIAP funds, and said they were committed to
provide all needed equipment and furnishings for
the facility.
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98-SE-202-1002
In both HUD’s files and the Housing Authority’s
files, we did not find any evaluation of other child
care facilities available to residents in the Nampa
area or an evaluation of how many residents with
children would use the child care facility. The
former Executive Director confirmed that the
HUD relied on the resident surveys were the only information he had
Housing obtained related to the residents’ need for the
Authority’s facility.
assertions and
Head Start’s As a result, the Housing Authority was able to use
commitment to CIAP funds totaling over $552,000 to construct a
use the facility. child care facility which may have been in excess
of resident needs. It currently serves primarily
nonresidents, and is underutilized by Housing
Authority residents. Due to the poor condition of
the Center’s records, we were not able to
determine how many resident and nonresident
children were served by the Center after the
Housing Authority took over the Center in August
1997.
However, we were able to determine how many
The Housing children used the Center while we were onsite.
Authority used For the week of March 23 to 27, 1998, an
over $552,000 of average of 31 children used the child care
CIAP funds to Center; 8 (26 percent) of which were residents’
construct its child children and 23 (74 percent) of which were
care facility. nonresidents’ children. Also, according to the
Center’s records, as of March 27, 1998, 61
children are registered for the daycare and only
24 (39 percent) are residents’ children. We did
not specifically determine why residents did or
did not use the Center.
HUD officials approved CIAP funds for the
Housing Authority to construct the child care
facility because they relied on Housing Authority
assertions and Head Start’s commitment to use
the facility. Because of this reliance, HUD did not
require the Housing Authority to determine and
document the residents’ child care needs relative
to the size of the facility proposed.
19
98-SE-202-1002
Prior to approval, HUD performed joint reviews of
the Housing Authority’s 1992 and 1993 CIAP
applications in which HUD was required to
assess the need for the child care facility. In
Conclusionapproving the Housing Authority’s 1992 and 1993
CIAP applications, HUD officials indicated that
they were satisfied that there was a need for the
child care facility. HUD officials told us that they
reviewed the resident surveys obtained by the
Housing Authority during an onsite review, and
relied on (1) the Housing Authority’s assertions in
its applications, (2) discussions with Housing
Authority officials, and (3) letters from Head Start
showing a commitment to use and operate the
day care facility.
During our review, we found that no thorough
evaluation of the residents’ need for a 7,700
square foot child care facility was ever performed
at any time. Based on our observations of the
Center, the number of children served by the
Center is far less than the Center’s capacity.
Auditee Comments
According to Nampa Fire Department records,
and OIG Evaluation
the Center has a capacity of 120 children for its
six classrooms. During our review, we found that
Head Start serves 18 children in one classroom
and the daycare uses three class rooms serving
an average of 31 children per day.
While HUD encouraged housing authorities to
provide space for Head Start and child care to
enable residents to find jobs and improve their
economic situations, the need for such facilities
should be thoroughly evaluated and fully justified
prior to approving CIAP funds for construction.
The Housing Authority had the responsibility to
fully justify the need for a child care facility to
serve its residents prior to receiving funds for
construction. As the oversight agency, HUD has
the responsibility to ensure that CIAP funds are
efficiently used for the primary benefit of low-
income residents. Based on our review, we
concluded that the child care facility built with
20
98-SE-202-1002
CIAP funds may have been overbuilt and is
currently under utilized by the residents.
The Board Chairman provided no comments on
Finding 2.
Recommendations:
We recommend that you:
2A. Require a thorough review to ensure the need for a non-
dwelling structure such as a child care center is fully justified
and comparable to the size of the facility proposed prior to
approving funding.
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98-SE-202-1002
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98-SE-202-1002
Management Controls
In planning and performing our review, we considered the Housing
Authority’s management controls relating to our objectives to determine
our procedures and not to provide assurance on internal controls.
Management controls over program operations include policies and
procedures that management has implemented to reasonably ensure that
a program meets its objectives. The components of internal control are
interrelated and include integrity, ethical values, competence, and the
control environment which includes establishing objectives, risk
assessment, information systems, control procedures, communication,
managing change, and monitoring. The entity’s management is
responsible for establishing and maintaining adequate systems of
management controls.
For the purpose of our review, we determined the
Relevant controls management controls relevant to our objectives
were the Housing Authority's policies,
procedures, and practices relative to:
• its use of operating funds consistent with
program rules;
• adequate safeguarding of funds received,
and
• management’s philosophy and strategies.
We evaluated the categories listed above by
assessing control design, implementation, and
effectiveness.
Scope of work
A significant control weakness exists if the
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 is obtained, maintained, and fairly disclosed
in reports.
23
98-SE-202-1002
Based on our review, we identified the following
significant control weaknesses in the Housing
Authority’s management controls:
Assessment
Results • The Housing Authority used operating funds
for ineligible expenses for nonresidents,
and
• The Housing Authority did not properly
safeguard and account for funds received
at the Indian Creek Child Care Center.
24
98-SE-202-1002
Appendices
Appendix 1
Auditee Comments
25
98-SE-202-1002
26
98-SE-202-1002
Appendix 2
Distribution
Secretary’s Representative, 0AS
Office of the Comptroller, 9AF
Director, Administrative Service Center, ASC3
Director, Field Accounting Division, 0AAF
Director, Portland Office of Public Housing, 0EPH (2)
Assistant to the Deputy Secretary for Field Policy and Management,
SDF (Rm. 7106)
Audit Liaison Officer, PF, (Rm. 8202) (3)
Acquisitions Librarian, Library, AS (Rm. 8141)
Chief Financial Officer, F (Rm. 10164) (2)
Deputy Chief Financial Officer for Finance, FF (Rm. 10164) (2)
Deputy Assistant Secretary for Operations, Office of Operations, AR
(Rm. 10110)
Director, Office of Budget, ARB (Rm. 3270)
Assistant to the Secretary for Labor Relations (Acting), SL
Director, Housing and Community Development Issue Area
US GAO
441 G Street, NW, Room 2474
Washington, DC 20548
Attn: Judy England-Joseph
Honorable John Glenn, Ranking Member
Committee on Governmental Affairs
United States Senate
Washington, DC 20515-4305
Honorable Fred Thompson, Chairman
Committee on Governmental Affairs
United States Senate
Washington, DC 20515-4305
Mr. Pete Sessions
Government Reform and Oversight Committee
Congress of the United States
House of Representatives
Washington, DC 20510-6250
27
98-SE-202-1002
Honorable Dan Burton
Chairman, Committee on Government Reform and Oversight
House of Representatives
Washington, DC 20515-6143
Ms. Cindy Sprunger
Subcommittee on General Oversight and Investigations
Room 212
O’Neill House Office Building
Washington, DC 20515
Nampa Housing Authority
1705 Third Street North
Nampa, Idaho 83651
28
98-SE-202-1002
(THIS DISTRIBUTION NOT INCLUDED IN THE FINAL DOCUMENT)
OIG Distribution
Inspector General, G, (Rm. 8256)
Public Affairs Officer, G (Rm. 8256)
Counsel to the IG, GC (Rm. 8260)
Assistant Inspector General for Audit, GA (Rm. 8286)
Deputy Assistant Inspector General for Audit, GA (Rm. 8286) (2)
Director, Program Research & Planning Division, GAP (Rm. 8180)
Director, Financial Audits Division, GAF (Rm. 8286)
Central Records, GF (Rm. 8266) (4)
Semi-Annual Report Coordinator, GF (Rm. 8254)
Assistant Inspector General for Investigation, GI (Rm. 8274)
Deputy Assistant Inspector General for Investigations, GI (Rm. 8274)
Special Agent in Charge, 0AGI
HUD OIG Webmaster via Email - Morris_F._Grissom@HUD.GOV
29
Nampa Housing Authority Indian Creek Child Care Center Use of Operating Funds to Pay for Child Care Expenses, Nampa, ID
Published by the Department of Housing and Urban Development, Office of Inspector General on 1998-05-29.
Below is a raw (and likely hideous) rendition of the original report. (PDF)