The U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General (OIG) audited the Housing Authority of the City of Terre Haute, IN’s (Authority) Public Housing Capital Fund program (program). We selected the Authority based on our audits of its nonprofit development activities (see OIG audit report #2009-CH-1011, issued July 2009) and as part of OIG’s initiative to evaluate public housing authorities’ capacity to administer the capital funds provided under the American Recovery and Reinvestment Act of 2009 (Recovery Act). Our audit objectives were to determine whether the Authority (1) properly administered its program and (2) had the capacity to administer its Recovery Act funds.
Under the direction of the former executive director, the Authority violated its annual contributions contract (contract) with HUD when it obtained a $2.3 million construction loan and a $2 million line of credit to finance capital improvements without HUD approval. Further, the Authority did not follow HUD’s and its own procurement requirements and failed to pay its maintenance staff and a contractor the appropriate Federal labor standard wage rates as required by the Davis-Bacon Act. The Authority obligated its Recovery Act funds in a timely manner. However, it lacked adequate written policies and procedures and staff knowledgeable of HUD’s and other Federal procurement requirements. Therefore, it lacked sufficient capacity to expend the funds. As a result, the Authority encumbered $2.3 million of its project assets, and HUD lacked assurance that it (1) used more than $1.4 million in program funds for their intended purposes, (2) operated its program in an efficient manner, and (3) had the capability to effectively expend its Recovery Act funding. Further, the Authority owed more than $49,000 in wage restitution.
We recommend that the Acting Director of HUD’s Cleveland Office of Public Housing require the Authority to (1) provide documentation of HUD’s approval of the construction loan, (2) reimburse HUD nearly $800,000 for the interest incurred on the loan from 2000 to 2007 and reimburse its project more than $70,000 for interest incurred on the loan after 2007 from non-Federal funds, (3) provide documentation showing that HUD approved the line of credit and the use of program funds for reimbursement of previously incurred expenses, (4) reimburse its program $129,872 from non-Federal funds for the interest paid on the line of credit, (5) reimburse its current and/or former maintenance employees and contractor $49,532 from non-Federal funds for wage restitution, and (6) implement adequate procedures and controls to address the findings cited in this audit report.
We also recommend that HUD’s Acting Director
Inform the Acting Deputy Assistant Secretary for Field Operations of the Authority’s actions, which may result in a substantial default of its contract.
Consult with HUD’s Office of General Counsel to determine whether the construction loan encumbered and/or pledged the Authority’s project assets. If the loan only encumbered the assets, a determination is needed to conclude whether the loan can be retroactively approved. If the loan cannot be approved, the Authority should be required to reimburse its program more than $1.6 million and its project more than $800,000 from non-Federal funds.
Consult with HUD’s Office of General Counsel to determine the appropriateness of the Authority’s using its fiscal year 2008 program funds to pay for the line of credit expenses that were previously incurred. If the use of the funds was not appropriate and should not be retroactively approved, the Authority should reimburse its program more than $1.4 million from non-Federal funds for its fiscal year 2008 program award.
Acquire capacity to manage its Recovery Act and other similar funding, including, but not limited to, staff persons knowledgeable in Federal procurement requirements or contracting for this expertise, developing specific procedures for financial reporting, management controls, and procurement.
Incorporate the applicable recommendations cited in this audit report into the Authority’s memorandum of agreement with HUD.
Further, we recommend that HUD’s Acting Director, in conjunction with the Director of HUD’s Departmental Enforcement Center, pursue the appropriate administrative sanction(s) against the Authority’s former executive director for failing to enforce HUD’s requirements. We also recommend that HUD’s Associate General Counsel for Program Enforcement determine legal sufficiency and if legally sufficient, pursue remedies under the Program Fraud and Civil Remedies Act against the Authority’s former board chairperson/principals for incorrectly certifying that the information contained in the Authority’s annual plans was true and accurate when it was not.