U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC

Transcription

1 OFFICE OF PUBLIC AND INDIAN HOUSING Quality Assurance Division U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC Lee Byers, Executive Director Housing Authority of the City of South Bend 501 Alonzo Watson Drive South Bend, IN Dear Mr. Byers: March 10, 2014 Recently, Quality Assurance Division (QAD) staff was on-site at Housing Authority of South Bend (HASB) to conduct a Financial Management Review. The primary goal of our visit was to ensure that Housing Choice Voucher (HCV) Program funds have been expended appropriately. The specific purpose of our visit was to: Determine the Unrestricted Net Assets (UNA) balance as of September Determine Net Restricted Assets (NRA) balances as of September Validate and analyze administrative expenses for September 2012 through August Confirm the availability of cash and/or investments sufficient to support the calculated UNA and NRA balances. The results of our review are presented in the enclosed report. The report contains four findings and one concern for which a formal Corrective Action Plan (CAP) must be prepared and sent to Ms. Cheryl Rush at Cheryl.D.Rush@hud.gov with a copy furnished to Mr. Forrest Jones at Forrest.Jones@hud.gov. Responses must be received within 30 days from the date of this report. We appreciate the cooperation extended to the QAD staff during our visit. Sincerely, MaryAnn Creager Supervisory Program Analyst, Quality Assurance Division Enclosure cc: Forrest Jones, Program Center Coordinator, Office of Public & Indian Housing Roxanne Byers, Division Director, Financial Management Center Miguel Fontanez-Sanchez, Director, Financial Management Division

2 Background: The Indianapolis Program Center requested that the Quality Assurance Division (QAD) conduct a Financial Management Review of the Housing Authority of South Bend (HASB) HCV Program because numerous attempts by the HASB and HUD Program Center to reconcile the NRA and UNA balances had been unsuccessful. Additionally, the Housing Choice Voucher (HCV) Financial Management Division (FMD) expressed concerns regarding a negative UNA balance reported by HASB. The FMD also requested that QAD determine the most recent NRA balance in support of the upcoming NRA conversion. During January 2011, QAD conducted a Net Restricted Assets Review to calculate the December 2009 NRA balance at which time, the QAD arrived at an agreed NRA balance of $0. However, HASB continued to experience difficulties calculating the NRA balance forward from December 31, The prior HASB finance staff failed to follow the instructions provided by QAD for the proper accounting procedures and calculation of equity balances. During the QAD onsite visit in December 2013, we conducted a full financial management review, which included validation of NRA and UNA balances, analysis of administrative expenses and identification of any inappropriate use of HCV program funds. We accomplished the review using source records provided by the PHA, prior Independent Audit Reports, and data submitted to the Financial Assessment Subsystem (FASS) by PHA. Our review revealed financial recording and reporting discrepancies and financial management weaknesses, which are explained in the body of this report. VERIFICATION OF NRA AND UNA BALANCES Note: Net Restricted Assets under GASB Statement No. 63 will now be referred to as Net Restricted Position, Unrestricted Net Assets will be referred to as Unrestricted Net Position, and Deferred Revenue will be referred to as Unearned Revenue. Since PHAs are required to follow GAAP, it is expected that a PHA s financial statements for fiscal years ending on or after 12/31/2012 reflect the changes required by GASB Statement No. 63. However, since most PHAs have not implemented GASB Statement No. 63 and are familiar with the older terminology (i.e., net restricted assets), this report reflects pre-gasb Statement No. 63 language. Verification of the Net Restricted Assets (NRA) balance. The QAD completed an analysis of HASB s NRA balance from January 1, 2010 through September 30, The September 2013 balance was calculated to determine the ending NRA balance as of the most recent closed accounting month at the time of the review. QAD used the monthly and incremental HAP disbursements as listed in HUD s Central Accounting and Program System (HUDCAPS) to determine the total HCV HAP funding provided by HUD to HASB during the review period. Final trial balances from HASB s general ledgers and other financial source documentation provided by HASB staff were used to determine the amount of 2

3 fraud recovery, interest income, and Family Self Sufficiency (FSS) program escrow forfeitures to include as additional HAP-related revenue. These same documents provided by HASB were used to identify the total HAP-related expenses paid during the review period and any adjustments to expenses or revenue. To calculate the NRA, the QAD summed the total validated HAP revenues and then subtracted the total validated HAP expenditures from the total revenue for the given time period to arrive at the three cumulative NRA balances. Table No. 1 shows the QAD-calculated NRA balance. The corresponding NRA balance as reported in the VMS by HASB, and the variance between the reported balance and the QADcalculated balance, is provided as well. Finally, QAD attempted to identify the cash available to back the NRA and UNA balances. Table No. 1 9/30/2013 QAD Validated NRA Balance $1,229,733 NRA Balance Per VMS $1,125,023 Variance $104,710 Cash (from balance sheet) $716,872 Cash Shortage ($512,861) As Table No. 1 demonstrates, there was a significant variance between the NRA balance calculated by the QAD staff and that reported by the HASB in the VMS. The variance between the PHA-calculated and QAD-calculated NRA balance is the result of the PHA paying portability-out (port-out) admin fees with HAP funds, as well as, including the net of portability administered (port-in) HAP expenses and port-in reimbursements in the regular HAP account. Port-in HAP expenses are and administrative expense to the PHA. As noted in Table No. 1, the HASB did not have sufficient cash on hand in the Section 8 revolving fund to cover the NRA balance calculated by the QAD staff. The NRA balance and cash shortfall is further discussed in the Findings section of this report. Verification of the Unrestricted Net Assets (UNA) balance. The Quality Assurance Division (QAD) completed an analysis of the PHA s UNA account balance for the PHA s fiscal year 2007 through September 30, The Administrative Fees (AF) payments listed in HUDCAPS were used to determine the total AF funding provided directly by HUD to HASB during the review period. The general ledgers, and other financial source documentation provided by the HASB staff, were used to determine the amount of 3

4 interest income, fraud recovery, and other income to include as administrative revenue, and to determine the total amount of administrative expenses attributable to the HCV program. The total validated administrative expenditures were deducted from the total administrative revenue for the same time period to arrive at a cumulative UNA balance as of September Table No. 2 shows the QAD-calculated UNA balance. The corresponding UNA balance as reported in the VMS by the PHA, and the variance between the reported balance and the QADcalculated balance, are provided as well. Table No. 2 9/30/2013 QAD Validated UNA Balance ($1,043,589) UNA Balance Per VMS ($542,026) Variance $501,563 (PHA balance sheet) ($199,496) Remaining Cash Balance ($0) As Table No. 2 demonstrates, there was a large variance between the UNA balance calculated by the QAD staff and the balance reported by the PHA in the VMS. The variance noted is a result of the following: 1) During the QAD 2011 review the actual NRA balance was calculated at $(1,524,599) for which QAD instructed the PHA to effect an equity transfer from the administrative reserve to bring the NRA back to zero balance. However, the HASB failed to perform the total equity transfer as instructed 2) the HASB financial records contained adjustments for unexplained HAP write-off in the amount of $116,530 and 3) the Portin expenses were not properly accounted for as an administrative expense, but instead the Port-in transactions were treated as HAP expenses. Further, the PHA overspent its administrative fees earned for several years of the review period as seen below in Table No. 4. Findings and concerns related to the NRA and UNA balances as well as additional financial irregularities are addressed in the Findings and Concerns sections below. 4

5 Findings Finding No 1: The NRA and UNA balances were incorrectly calculated and incorrectly reported in the VMS. Condition: The HASB misreported in the VMS the NRA and UNA balances as noted in Tables No. 1 & 2 above. Criteria: 24 CFR provides that under the Annual Contributions Contract (ACC) the PHA agrees to administer the program in accordance with HUD regulations and requirements. In accordance with 24 CFR , the PHA must maintain complete and accurate accounts and other records for the program in accordance with HUD requirements. The records must be in the form required by HUD, including requirements governing computerized or electronic forms of record keeping. The PHA must furnish to HUD accounts and other records, reports, documents and information as required by HUD. PIH Notice and the VMS User s Manual require PHAs to report NRA, UNA, and cash/investments balances to HUD on a monthly basis in the VMS. NRA as reported in the VMS should consist of the following: - Prior month s ending NRA balance plus (+) - HAP revenues for the month from HUD disbursements and landlord reimbursements for previous overpayment of HAP (does not include fraud or Port-In revenues) plus (+) - Portion of fraud recovery actually collected that goes to the NRA account (usually 50% of the total collected) 1 plus (+) - Interest earned on NRA deposits prior to January 1, 2012 plus (+) - FSS escrow forfeitures minus (-) - HAP expenses for the month (does not include Port-In HAP Expenses) UNA as reported in the VMS should consist of the following: - Prior month s ending UNA balance plus (+) - Portion of fraud recovery actually collected that goes to the UNA account plus (+) - Interest and other income earned on the investment of Admin and UNA funds plus (+) - Unabsorbed Port-In Revenues 2 minus (-) - Unabsorbed Port-In HAP expenses minus (-) 1 See 24 CFR for more on the amounts of fraud recovery a PHA may retain in its UNA and the portion of fraud recovery that must be returned to the HCV Program by inclusion in the NRA balance. 2 In accordance with Accounting Procedures for Recording Portability Transactions for the Housing Choice Voucher (HCV) Program, or ACCOUNTING BRIEF #18, both HAP and Admin Fee reimbursements for unabsorbed Port-Ins run through the UNA account because the management of unabsorbed Port-Ins constitutes an administrative contract between the receiving agency and the initial agency from which the participant ported. As such, HAP and utility expenses for unabsorbed Port-Ins also run through the UNA account. If a Port-In is absorbed into the receiving agency s own HCV Program, they should be treated as a regular voucher that affects the NRA, rather than the UNA. 5

6 - Any expenditures from the UNA account to cover cumulative excess administrative costs that exceed admin fee funding disbursed by HUD for the current fiscal year, excess HAP costs not covered by HAP funding and NRA, etc. For the month to month UNA balance, note that excess Admin Fee disbursements from HUD (that occur when cumulative AF disbursements exceed administrative expenses for the fiscal year) are not added into the UNA on a monthly basis. These amounts are not added in each month because excess administrative fees earned do not become unrestricted assets until the end of the PHA s fiscal year. During the fiscal year, admin fee disbursements from HUD may only be used to cover current year administrative expenses. If cumulative excess admin fee funds remain at the end of the fiscal year, they should be added into the UNA balance at the end of the last month of the fiscal year. Note, however, that if a PHA needs to use any part of the cumulative UNA balance to cover current expenses that exceed current cumulative earned fees, the UNA amount as reported in VMS should be reduced by that amount only. In terms of the reporting of Cash and Investments in the VMS, the VMS User s Manual includes the following when defining what to report on the Cash/Investments as of the last day of the month line: Cash and investments for FSS escrows must not be included, nor should any cash or investments representing other current liabilities to the PHA, such as outstanding checks as these funds are already restricted for specific purposes and are not available for use to pay HAP or other administrative costs. Please note that beginning with January 1, 2012, the interest earned on HAP funds is no longer part of the NRA. Interest earned on cash and investments related to HAP funds will be returned to the treasury. Cause: The HASB failed to properly calculate their UNA and NRA balances (also see Finding No. 2 below for additional details). The HASB general ledger included port-in expenses in the HAP account. Therefore, the Total HAP amounts that were reported in VMS falsely included those administrative expenses attributable to portability-in. Principally, the HASB failed to properly track or account for the Port in HAP expenses and Port In revenues over the entire period of our review. The HASB also failed to perform the proper equity transfer from the NRA to the UNA as instructed during the QAD 2011 NRA review, which also caused incorrect balances to be reported in the VMS. Finally, the HASB staff did not understand that current year administrative fees earned may not be included in the UNA calculation. Effect: By failing to maintain complete and accurate accounts and other records for the HCV Program, the HASB failed to provide HUD with information useful in determining HASB s "should have NRA and UNA balances, meaning the amount of NRA and UNA the HASB should have if the program had been operated in accordance with Department regulations and guidelines. As such, the HASB s actual financial position was not clearly represented to the Department. Corrective Action No. 1: The HASB must immediately correct the September 2013 VMS report to ensure that accurate NRA and UNA balances are reported. HASB should use the September 2013 QAD-calculated NRA balance and the 2013 QAD-calculated UNA balance from Tables 1 and 2 to correct the September 2013 VMS and then calculate the balances forward 6

7 to the current month using the methodology in the Criteria section above.. Appropriate prior month adjustments must be made to the VMS. Corrective Action No 2: In order to accurately reflect the negative UNA balance, the HASB must make the appropriate adjustment in the accounting records that was required as a result of the 2011 QAD review. Any necessary prior period accounting adjustments must be made to the Financial Data Schedule (FDS) as reported in the Financial Assessment Subsystem (FASS) so that the balances reported in the VMS and FDS match as closely as possibly at the HASB fiscal yearend Adjustments may be made to the FDS so long as the audited submission has not been approved. Finding No. 2: HCV Program funds were inappropriately spent, resulting in a cash/investments balance that was insufficient to support the validated NRA balance. Condition: The HASB s available HCV cash and investments were insufficient to support the validated NRA balance, as noted in Table No. 1. Further, QAD noted expenses in the SBHA financial records using Federal appropriated funds to pay for items that may be determined disallowed; such as flowers for various occasions, and coffee for the SBHA staff. Due to the condition of the prior year s financial records however, QAD was unable to determine the exact amount of funds that may have been misappropriated for disallowed expenses. Criteria: 24 CFR provides that under the Annual Contributions Contract (ACC) the PHA agrees that program receipts in excess of current needs must be promptly invested in accordance with HUD requirements. Under 24 CFR , the PHA..must practice good cash management and invest all funds received in excess of current needs. This means that all NRA must be backed by cash or cash equivalents that can be liquidated within 24 hours. Further, Notice PIH communicates that NRA and UNA must be accounted for separately. The Code of Federal Regulations, at 24 CFR , provides that under the Annual Contributions Contract (ACC) the PHA agrees to administer the [HCV] program in accordance with HUD regulations and requirements. Furthermore, 24 CFR stipulates that all [HCV] program receipts must be promptly deposited with a financial institution selected as depositary by the PHA and adds that the PHA may only withdraw deposited program receipts for use in connection with the program in accordance with HUD requirements. HUD s requirements for the use of HCV Program funds have been detailed over the years in several Public and Indian Housing (PIH) notices, most notably in the annual implementation of funding provisions notices. Most recently, Notice PIH states, funds in the HAP NRA account shall only be used for eligible HAP needs in the current and future calendar years. The ACC requires PHAs to use HAP funding to cover rental assistance payments. HAP and/or HAP NRA shall not under any circumstances be used for any other purpose, such as to cover administrative expenses or be loaned, advanced or transferred (referred to as operating transfers due to/due from) to other component units or other programs such as Low Rent Public Housing. Use of HAP for any purpose other than eligible HAP needs is a violation of 7

8 law, and such illegal uses or transfers may result in sanctions and possible declaration of breach of the ACC. Cause: The HASB used $512,861 in HAP funds to cover non-hap expenses. Further, QAD noted expenses in the SBHA financial records that were used to pay for expenses that may be determined disallowed. These were for expenses such as coffee and other food items for staff. Due to the condition of the financial records QAD was unable to determine the exact amount of funds that may have been misappropriated. Effect: The PHA is at risk for breach of the Annual Contributions Contract (ACC) as a result of failing to maintain sufficient cash to back the validated NRA balance. As Notice PIH states, HUD may take action, including suspension and debarment, against a PHA or any party that has used HAP funds and/or the HAP NRA account for non-hap purposes. Notice PIH further holds that If a PHA has not adequately administered its HCV Program, HUD may prohibit use of funds in the UNA account and may direct the PHA to use funds in that account to improve administration of the program, for HCV HAP expenses, or to reimburse ineligible expenses in accordance with the regulation at 24 CFR (b) (3). Further, the misrepresentation of funds failed to provide HUD with information that would allow early intervention to avoid a potential shortfall resulting in possible termination of participants. Corrective Action No. 3: The HASB must immediately identify non-federal resources sufficient to cover the calculated NRA balance and reimburse the HCV program for inappropriate use of HCV NRA funds in the amount of $512,861. Corrective Action No. 4: The HASB must work with the Indianapolis Program Center to develop a repayment agreement if necessary in relation to Corrective Actions No. 2. Corrective Action No. 5: HASB must correct NRA and UNA fund balances in VMS from September 2013 forward. In addition HASB must make any necessary prior period adjustments to the Financial Data Schedule (FDS) as reported in the Financial Assessment Subsystem (FASS). Corrective Action No. 6: To the extent possible, HASB must conduct an internal audit to identify expenditures for disallowed costs and notify the Indianapolis Program Center of audit results. SBHA must ensure repayment to the HCV HAP or administrative account for these amounts; whichever is appropriate. 8

9 Finding No. 3: The Family Self Sufficiency (FSS) Escrow liability balance does not match the SBHC FSS Escrow bank balance or FSS Escrow General Ledger balance. Condition: Both the HASB FSS bank account and the FSS Escrow General Ledger accounts show more funds than reflected on the HASB FSS Program Escrow Report. The HASB FSS bank account shows $39,534 more than the HASB FSS Program Escrow Report and the FSS Escrow General Ledger account shows $64,816 more than the HASB FSS Program Escrow Report which is maintained manually by HASB FSS Coordinator. Criteria: The 24 CFR provides for the establishment of an FSS account directing that a PHA shall deposit into a single depositary account the FSS account funds of all families participating in the PHC FSS program. FSS Escrow deposits are derived from HAP appropriated funds and therefore are restricted in their use to the purpose for which they were intended. Notice PIH and 24 CFR (a) (1) provides that amounts held in the escrow account MUST be invested in HUD approved investments. Finally, the 24 CFR (a) (2) (ii). Provides that any interest earned by the PHC on the amounts in the escrow account must be prorated and credited to each family s escrow account. The credit is based on the balance in each family s escrow account at the end of the interest income period. Cause: The FSS Escrow liability shown in the HASB General Ledgers reflected a balance of $112,355 and the FSS Escrow bank account had a balance of $87,073 as of 9/30/2013. The FSS Escrow balance per the Program Escrow Report, which is maintained by the FSS Escrow Coordinator, reflected a balance of only $47,539. Although, the HASB appears to have sufficient funds in the bank to cover the deposits that should have be made on behalf of participant families, none of these balances can be reconciled. QAD was unable to determine which balance was accurate. Effect: The HASB may be in violation of the Code of Federal Regulations and Annual Contributions Contract (ACC). This could result in sanctions being assessed. Additionally, funds may not have been paid participants that graduated from the program, or that had legitimate need for interim withdrawal in accordance with program rules. Corrective Action No. 7: The HASB must immediately review and reconcile the FSS program documents. A reconciliation of the FSS escrow liability account must be completed and any necessary adjustments made to the financial records. Corrective Action No. 8: After reconciliation is completed, if the FSS escrow liability is higher than funds held in the bank, a deposit to the FSS bank account must be made immediately to cover any deficit. The HASB must ensure appropriate funds are used to cover the FSS escrow account. Finding No. 4: The HASB financial records and internal controls need improvement. Condition: The HASB failed to maintain complete and accurate accounting records for the program, which lead to inaccurate reporting on the HASB s financial data submissions to HUD. 9

10 Criteria: 24 CFR states the PHA must maintain complete and accurate accounts and other records for the program in accordance with HUD requirements. The records must be in the form required by HUD, including requirements governing computerized or electronic forms of record keeping, and in a manner that permits a speedy and effective audit. The PHA must also comply with the financial reporting requirements in 24 CFR Part 5, subpart H. Additionally, the U. S. Government Accountability Office (GAO) provides guidance for internal controls as it relates to management s plans, methods, and procedures used to meet its mission, goals, and objectives. The Department provides numerous guidebooks, PIH Notices and other written guidance to assist the PHA with proper program management. Cause: The PHA s fiscal controls and accounting procedures were inadequate. Specifically, the PHA failed to ensure that it maintained complete and accurate financial records well as other required source documentation. The HASB s prior financial management incorrectly reported many transactions in the general ledgers, on trial balances and balance sheets, and failed to properly annotate journal entries which caused inconsistent reporting in VMS and FDS. The HASB allowed the comingling of federal and non-federal funds in violation of the annual contributions contract and HUD requirements. There is no clear audit trail in place to properly track the separation of the HUD HAP funding and the HUD administrative funding. Even in situations where the pooling of funds in one bank account is allowed, to pay for shared costs for instance, the HASB failed to properly account for the shared accounts and fund transfers in its ledgers. Specifically, the HASB failed to maintain proper documentation for easy tracking of deposits and withdrawals of HCV funds in the general fund account that also holds Low Rent Public Housing (LRPH) and other program funds. QAD and the current HASB finance staff were unable to determine the actual amount of HCV administrative funds still may still be remaining in the pooled account. HUD s guidance has advised that the pooling of HUD program funds in a master account should result in transactions in the Inter-program Due To and Inter-program Due From accounts when shared expenses paid out of the shared account are not immediately reimbursed by a particular program. However, rather than making Due To and Due From accounting entries in its records when a particular program owed money to another program or the central account for shared expenses, the HASB accounting staff reflected these circumstances as accounts payable intercompany transfers. The QAD staff also noted the following specific irregularities: 1. HASB s HAP write off was calculated as UNA expenses, but the PHA was not able to explain these costs due to confusing explanations given for journal voucher entries (JE). 2. The HASB had many inconsistencies in their records and reports. In order for QAD to complete our review, both QAD and HASB staff determined it was necessary to use records from several sources in order to arrive at a comfortable number for several years of port-in HAP expenses and port-in revenue. 3. HASB could not explain the reason for HAP write off listed in the GL under the 4715 account because the HASB could not understand their own explanations found for the JEs. 10

11 4. Records for the FSS Escrow Program balances found in the GL did not match the bank balances nor did it match the records provided by the FSS Coordinator. 5. The balances found on the general ledger for certain accounts were inconsistent with other source documents. The trial balances didn t match the amounts on the audit reports and/or the FDS. 6. The HASB needs improvement on financial oversight and they need to perform quality control over financial reporting. Effect: Financial and program managers must be accountable for program results and fiscally responsible for their resources. They must be able to provide information that is essential to monitor budgets and operating performance, support good financial stewardship, and prevent waste or fraud. To meet these needs, financial systems must process, track, and provide accurate, timely, internally consistent, and readily accessible information on financial activity in the most cost-effective and efficient manner. By failing to maintain complete and accurate financial records for the HCV program, HASB prevented a speedy and effective audit from occurring causing QAD to make a return visit to complete the audit. The HASB also failed to provide HUD with information useful in determining the HASB s actual financial position. Prior HASB staff maintained no clear audit trail of spending and matching GL s to trial balances to other source documents maintained, which made it difficult to arrive at final balances. The current HASB staff and QAD worked together to have arrive at a comfort level that the source documents used were sufficient and fairly accurate. The HASB staff has committed to completing the reconciliation process of the current and previous records, so that they are comfortable with the accuracy of the records and the source documents that will be used in the future. Corrective Action No. 9: The HASB must develop and implement a quality control process for ensuring accuracy in financial recording and reporting. This process would ensure that revenue, expenses and any adjustments are correctly recorded in the general ledger and subsequently on the income statement and balance sheet. Corrective Action No. 10: The HASB must immediately correct their financial records through appropriate adjustments, to include making appropriate prior period adjustments and due to/due from entries in the Financial Data Schedule (FDS). Corrections also need to be made to the VMS to ensure accurate NRA, UNA and cash reporting. Corrections to the VMS submissions need to be made for the September current submissions. Note: The current HASB financial manager is working to clean-up the financial records, and has made considerable progress. 11

12 Concerns Concern No. 1: Port In (PI) HAP Expenses and Port In (PI) Revenues are Incorrectly Tracked and Reported. Condition: The HASB does not maintain accurate financial records or tracking procedures for their PI Vouchers. Cause: In accordance with Accounting Procedures for Recording Portability Transactions for the Housing Choice Voucher (HCV) Program ACCOUNTING BRIEF #18, dated October 2012, both HAP and Admin Fee reimbursements for unabsorbed Port-Ins run through the UNA account because the management of unabsorbed Port-Ins constitutes an administrative contract between the receiving agency and the initial agency from which the participant ported. As such, HAP and utility expenses for unabsorbed Port-Ins also run through the UNA account. If a Port-In is absorbed into the receiving agency s own HCV Program, they should be treated as a regular voucher that affects the NRA, rather than the UNA. In previous years, the HASB recorded port in HAP as regular HAP expenses in the GL, but port in HAP reimbursements and port in administrative fees that were received from the initiating PHA were not recorded in the GL, which made tracking these items difficult. As time progressed, the HASB set up a HAP Port- In Receipts account and a HAP Port- In Expense account for better tracking. The HASB Section 8 staff also kept separate records outside the finance department of the port- in expenses and port- in Receipts. Unfortunately, the records maintain by the Section 8 staff did not match the records maintained by the Finance staff during the period of the QAD review. Effect: By failing to properly track and record PI HAP expenses and PI HAP reimbursements the HASB is unable to properly calculate their NRA and UNA balances. The HASB was also using HAP funds to pay PI HAP expenses which are an administrative expense. The HASB has no ability to determine which port-in expense reimbursements have been paid and which are still outstanding. The Section 8 staff and the Finance staff lack communication in regards to the PI expenses and reimbursements., the QAD determined that the QAD validated and PHA reported NRA variance of $104,710 was primarily due to port-in transactions incorrectly running through the HAP account. Recommended Corrective Action No. 1: The HASB should establish and implement the proper account procedures for PI HAP expenses and reimbursements. NOTE: QAD noted during the course of the review, a vast improvement was seen in the proper account set up in the GL for PIs, so that the PI expenses are truly recognized as an administrative expense. 12

13 Concern No. 2: HCV funds were transferred to the Central Office Cost Center in excess of allowable amounts. Condition: The HASB transferred $92,000 more in HCV administrative funds to the COCC than allowed by regulation. Cause: Supplement to HUD Handbook REV., CHG-1, Financial Management Handbook September 2006 provides for PHAs that elect to use a fee-for-service methodology for its HCV program, the Department will consider a management fee of up to 20 percent of the administrative fee or up to $12 PUM per voucher leased, whichever is higher, as meeting the requirements of the appropriations act.. Under this methodology, PHAs can also charge the HCV program a $7.50 PUM bookkeeping fee for the program accounting function. The HASB chose to use the fee for service methodology meaning the maximum that could be transferred from HCV to the COCC was $19.50 per unit month leased at any given time. However, HASB charged more than $92,000 in excess fees to the HCV program, over and above the maximum allowable amount. Effect: By de-federalizing $92,000 more in HCV funds than was allowed, this prohibited the HCV money from being used for its intended purpose which was to operate the HCV program. Recommended Corrective Action No. 1: In order to administer the HCV program in accordance with published HUD regulations and guidelines, the HASB must ensure that only the allowable amount of HCV funds are sent to the COCC. Within 30 days of the date of this report, please provide a written Corrective Action Plan (CAP) to Cheryl Rush at Cheryl.Rush@hud.gov with a copy furnished Mr. Forrest Jones Mr. Forrest Jones at Forrest.Jones@hud.gov. The CAP must incorporate a detailed and comprehensive plan to correct the finding included in this report. Administrative Expenses Review QAD staff completed an Administrative Expenses Review analyzing HASB s expenses for FY 2007 through September Our objective was to determine if expenses were supported by administrative revenue and if expenses appeared to be reasonable. The QAD staff compared the FDS submissions of two similar size and program type housing authorities to HASB s actual administrative expenses reported on the financial documents. Our analysis revealed that HASB s current administrative expenses were higher than those of the similarly sized authorities by 17% and 5%. A comparison of HASB s administrative fees to administrative expenses for the FY 2007 through September 2013 time period showed that 13

14 administrative expenses were more than the administrative fees earned during several years of the review period as shown on table No. 3 below. Table No. 3 FYE Administrative Funding Operating Expenses Administrative Funding less Operating Expenses Other Operating Revenue Total Surplus/Shortfall 2007 $996,598 $1,435,461 ($438,863) $34,680 ($404,183) 2008 $1,001,175 $1,094,954 ($93,779) $50,939 ($42,840) 2009 $1,085,990 $1,243,248 ($157,258) $33,271 ($123,987) 2010 $1,173,784 $2,879,030 ($1,705,246) $17,740 ($1,687,506) 2011 $1,061,856 $1,220,433 ($158,577) $12,093 ($146,484) 2012 $987,162 $1,232,474 ($245,312) $20,492 ($224,820) 2013 $937,801 $1,189,740 ($251,939) $14,626 ($237,313) Total $2,020,464 $2,173,569 ($153,105) $52,784 ($2,867,133) The HASB should review its administrative expenses and determine additional ways to reduce administrative costs. PIH Notice , Streamlining Administrative Practices in the Housing Choice Voucher Program, includes a variety of cost-saving measures a PHA can utilize to reduce administrative burdens and costs associated with the HCV program. Technical Assistance The QAD provided the HASB staff with technical assistance related to the proper recording and tracking of Port In vouchers payments and receipts. The QAD provide the HASB staff with technical assistance related to the proper accounting of fraud recovery in the NRA and UNA accounts. QAD also provided the HASB with information on the proper accounting for the FSS program, and PIH Notice and PIH Notice