oversight

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)

                           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:




                                                                             iii
98-SE-202-1002



     •   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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98-SE-202-1002



                              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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98-SE-202-1002



                  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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                                                           98-SE-202-1002


                     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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        98-SE-202-1002



                                   (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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98-SE-202-1002




                      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.




8
                                    98-SE-202-1002


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



                                                  9
98-SE-202-1002



                     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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                                                           98-SE-202-1002


                    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:



                                                                          11
98-SE-202-1002




                             • 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




12
                                                          98-SE-202-1002


      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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14
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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):




                                                                         15
98-SE-202-1002



                     •   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.




16
                                                          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



                                                                      17
98-SE-202-1002



                 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.




18
                                                                     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.




                                                                           21
98-SE-202-1002




                 THIS PAGE INTENTIONALLY LEFT BLANK




22
                                                              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




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