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We audited the Chelsea, MA, Housing Authority based on a request from the U.S. Department of Housing and Urban Development (HUD), Boston Office of Public and Indian Housing, which was concerned about financial controls at the Authority.  Our audit objectives were to determine whether Authority officials properly implemented financial controls over the allocation of costs, and reasonableness of salaries.

Authority officials did not design their cost allocation plans appropriately and did not assign expenses properly.  This condition occurred because former Authority officials used inappropriate cost categories, made the plans unnecessarily complex, and did not consistently apply expenses in accordance with the plans.  As a result, the improper allocations obscured the true cost of the Authority’s programs, and decision makers did not have proper financial information.  Additionally, Authority officials could not assure HUD and other regulatory agencies that $6.7 million in salaries and $2.7 million in expenses were appropriately assigned to the programs that benefited from those expenses.

The Authority also paid unreasonable wages of $697,471.  These higher wages stemmed from the absence of wage rate ceilings, officials’ misunderstanding of State wage rate requirements, and the former board of commissioners’ approving the former executive director’s high salary.  Therefore, these funds were not available to further the objectives of the Authority’s programs. 

We recommend that the Director of HUD’s Boston Office of Public and Indian Housing instruct Authority officials to develop an acceptable methodology to correctly allocate the 2010, 2011 and 2012 expenditures; allocate the more than $9.4 million in expenses to the benefiting programs; repay any ineligible, unsupported, and unreasonable expenses to the appropriate Federal programs; and implement a policy to annually review the cost allocation plan with the Authority’s board of commissioners.  In addition, reimburse its programs $697,471 for unreasonable salary expenditures; examine its job descriptions to ensure that each job description reflects all of the work that each employee performs; define a pay scale for each job; ensure that each employee has a signed and dated job description; and update these job descriptions regularly.