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We audited the Housing Authority of the City of Eloy (Authority) because the U.S. Department of Housing and Urban Development (HUD) had rated the Authority as troubled for five years. In 2007, the Authority had significant financials problems and terminated its executive director. We determined that the Authority did not have adequate internal controls to safeguard assets and reasonably ensure that HUD funds were used in accordance with program requirements. Because the Authority did not fully implement corrective actions required by HUD, it was not in compliance with HUD rules and regulations with respect to its annual contributions contracts with HUD, program regulations, and Office of Management and Budget circulars. As a result, more than $2 million in federal funds was placed at risk, and the Authority incurred unnecessary expenses and struggled to meet its operating expenses.
We recommend that the Director of HUD’s Los Angeles Office of Public Housing require the Authority to immediately develop and implement effective policies and procedures that include sound internal controls for its operations in all areas and to immediately direct the Authority to negotiate with the Internal Revenue Service (IRS) to abate $81,537 in interest and penalties on employee withholding taxes owed. We further recommend that HUD closely monitor the Authority and its board of commissioners until management weaknesses have been resolved.
In addition, we recommend that the General Deputy Assistant Secretary for Public and Indian Housing issue proposed notices of the Authority’s default of its public housing and Section 8 contracts, and take appropriate actions that will result in better use of more than $700,000 in federal funds.