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We audited the financial and procurement operations of the Housing Authority of the City of Port Arthur, TX. We conducted this audit due to deficiencies identified in a prior audit. Our objectives were to determine whether the Authority had sufficient financial and procurement controls to ensure it used U. S. Department of Housing and Urban Development (HUD) funds in accordance with laws, regulations, and policies. This review included assessing whether the internal control environment was designed to provide reasonable assurance about the achievement of the Authority’s mission, goals, and objectives. Also, as part of the assessment of financial controls, we reviewed the Authority’s capital funds to determine whether the Authority complied with its consolidated annual contributions contract.

The Authority’s management and board of commissioners failed to establish a control environment designed to provide reasonable assurance about the achievement of its mission, goals, and objectives. They failed to enact policies and procedures to ensure the integrity of financial operations and compliance with procurement requirements, even after repeated findings regarding financial and procurement weaknesses. Instead, they abused the Authority’s charge card accounts and received ineligible and unsupported compensation. Also, the Authority’s resident commissioner was not eligible according to HUD and State rules. These conditions occurred because the Authority’s management and board failed to exercise their fiduciary responsibilities.

The Authority also improperly administered its public housing Capital Fund program and drew down $469,359 in unused funds that it had not expended. These conditions occurred because management had no clear plan for how it would spend its capital funds. In addition, management and the Authority’s attorneys imposed a scope limitation on the audit, which limited our ability to completely assess the Authority’s operations.

As a result of these conditions, the Authority incurred questioned costs of more than $5.9 million and was in violation of its annual contributions contract. Also, the Authority’s lack of controls put it at substantial risk for fraud, errors, and financial misstatements.

We recommend that HUD determine if the Authority was in substantial default of its annual contributions contract and take appropriate administrative actions against its executive director and commissioners. We also recommend that HUD require the Authority to adopt and implement policies and procedures to control its financial and procurement operations, repay $462,274 in ineligible costs, and support or repay almost $5 million in unsupported costs to HUD. We further recommend that HUD recapture $469,359 in capital funds.