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REPORT DIGEST ILLINOIS HOUSING DEVELOPMENT AUTHORITY COMPLIANCE
EXAMINATION (In
accordance with the For the Year Ended: June 30, 2007 Summary of Findings: Release Date: May 8, 2008
State of Illinois Office of the Auditor General WILLIAM G. HOLLAND AUDITOR GENERAL
To obtain a copy of the
Report contact: Office of the Auditor
General Iles Park Plaza, 740 E. Ash Street Springfield, IL 62703 (217) 782-6046 or TTY (888) 261-2887 This Report Digest and the
Full Report are available on the worldwide web at |
INTRODUCTION The Financial Statement Audit for the year ended June 30, 2007 was previously released on November 8, 2007. That audit contained four audit findings. All four of those findings pertained to significant deficiencies in internal control over financial reporting. This report addresses
federal and State compliance findings pertaining to the Single Audit and
State Compliance Examination. In total,
this document contains six audit findings.
SYNOPSIS
(Federal and State Compliance Findings) ¨ A recent audit by the U.S. Department of Housing and Urban Development (HUD) indicated the Authority did not comply with numerous HUD regulations for the Section 8 Moderate Rehabilitation Program. ¨ The Authority did not have procedures to ensure information reported to HUD in the annual Section 3 Summary Report was complete and accurate. ¨ The Authority did not have procedures in place to ensure cash draws are in accordance with federal regulations. ¨ The Authority did not obtain required certifications or verify that subrecipients were not suspended or debarred from participation in federal assistance programs. {Financial Information and Activity Measures are summarized on the next page.} |
COMPLIANCE
EXAMINATION
For the Year
Ended June 30, 2007
SELECTED ACCOUNT BALANCES |
6-30-07 |
6-30-06 |
|
Debt
outstanding (net of unamortized discount)
Multi-Family Program Bonds.....................................
Housing Bonds..........................................................
Housing Finance Bonds.............................................
Multi-Family Variable Rate Demand Bonds...............
Multi-Family Housing Revenue Bonds........................
Multi-Family Housing Revenue Bonds
(Marywood)...
Multi-Family Bonds (Turnberry II).............................
Affordable Housing Program Trust Fund
Bonds.........
Residential Mortgage Revenue Bonds........................
Homeowner Mortgage Revenue Bonds......................
Administrative Funds.................................................
Total...................................................................
Cash
and equivalents (proprietary funds)..........................
Investments
(all funds)..................................................... |
$52,600,000
396,400,000
13,900,000
2,800,000
53,100,000
15,600,000
5,200,000
77,100,000
300,000
968,800,000
1,700,000
$1,587,500,000
$17,045,729
$774,886,753 |
$61,900,000
385,200,000
14,200,000
2,900,000
54,000,000
15,800,000
5,300,000
79,500,000
300,000
803,500,000
$1,422,600,000
$46,145,864
$673,175,726 |
|
SUPPLEMENTARY INFORMATION |
FY 2007 |
FY 2006 |
|
Expenditures of Federal
Awards
Section 8 Project-Based Cluster.........................
HOME Investment Partnerships Program............
Interest
Reduction Payments – Rental and Cooperative Housing for Lower Income Families
Program...
Total............................................................
|
$147,131,685
29,019,515
5,288,726
$181,439,926
189 |
$148,455,940
31,248,364
5,233,666
$184,937,970
189 |
SELECTED ACTIVITY MEASURES
|
|
|
Total Number of Bond Issues Outstanding..................
|
86
178,765 |
83
171,087 |
EXECUTIVE DIRECTOR
|
|
|
During Audit Period: Kelly King
Dibble (through 1-18-07), DeShana Forney (eff. 1-19-07)
Currently: DeShana Forney |
||
|
HUD audit noted
noncompliance Authority delegated
activities to subrecipients
Annual report to
HUD not supported Federal funds are
held too long Lack of
certifications or verification that subrecipients were not barred from
participation in federal programs |
FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
INADEQUATE ADMINISTRATION OF THE SECTION 8 MODERATE REHABILITATION PROGRAM The Authority did not
properly administer the Section 8 Moderate Rehabilitation Program. The Section 8 Moderate Rehabilitation (Mod
Rehab) Program assists low income families to obtain decent, safe and
sanitary housing by encouraging property owners to rehabilitate substandard
housing and lease the units with rental subsidies to low income
families. The Mod Rehab program
assistance is considered a project-based subsidy because the assistance is
tied to specific units under an assistance contract with the owner for a
specified term. A family that moves
from a unit with project-based assistance does not have any right to
continued assistance. As provided in
the Authority’s Administrative Plan for the Mod Rehab Program, the Authority
passes through the Mod Rehab subsidies to the developments or the owners of
the property, which the Authority considers to be subrecipients of the
program. The Authority conducts
on-site programmatic and fiscal monitoring as well as desk reviews of audit
reports of the subrecipients to monitor compliance with the Mod Rehab Program
requirements. During fiscal year 2007,
staff from the Illinois Office of Public Housing (a regional office of the
U.S. Department of Housing and Urban Development (HUD)) conducted an audit of
the Authority’s MOD Rehab Program to assess the Authority’s compliance with
HUD regulations. The final audit
report received from the Illinois Office of Public Housing indicated the
Authority did not comply with numerous HUD regulations when the audit team
assessed the Authority’s overall program operation of the Section 8 Mod Rehab
Program. The final audit report
stated the Authority is receiving administrative fees to operate the Section
8 Mod Rehab program, yet it is not performing the major administrative
functions HUD expects it to perform under its contractual obligations with
HUD due to the manner in which the Authority delegates the performance of
programmatic activities to its subrecipients. HUD is concerned that the Authority is not maintaining a
waiting list for the Mod Rehab Program.
Additionally, HUD is concerned that the Authority is not assessing
eligibility, conducting briefings, conducting reexaminations, monitoring the
assignment of appropriate unit sizes, evaluating Utility Schedules or
conducting inspections regularly. The
audit report states that the Authority is overseeing the administration of
these functions by monitoring the properties that receive funding for units
under the Section 8 Mod Rehab program.
However, the entities actually administering the program do not have
contracts with the Authority to administer the program, nor are they
operating it in accordance with the applicable HUD regulations. The audit report further states that there
is no provision in the federal law that would allow the Authority to contract
its oversight functions to the owner.
To allow this to occur would be a conflict of interest. Failure to administer the Mod Rehab
program in accordance with HUD regulations could result in the payment of
ineligible payments, resulting in unallowable costs. (Finding 5, pages 13-15) We recommended the Authority
consult with the U.S. Department of Housing and Urban Development to
interpret the federal laws and regulations relating to the administration of
the Section 8 Moderate Rehabilitation Program and make necessary changes to
conform with those requirements. Authority management
concurred and stated they will consult with HUD and request a waiver to allow
them to continue to administer the program in accordance with their recently
revised administrative plan. UNSUPPORTED ANNUAL PERFORMANCE REPORT We were unable to determine
whether the Authority accurately prepared the “HUD 60002, Section 3
Summary Report, Economic Opportunities for Low and Very Low-Income
Persons” for the HOME Investment Partnerships (HOME) Program. The Authority is required to submit an
annual Section 3 Summary Report to report annual accomplishments regarding
employment and other economic opportunities provided to low and very low
income persons under Section 3 of the Housing and Urban Development Act of
1968. The amounts reported include
Section 3 expenditure data from the subrecipients of the HOME program. During our audit, we noted the Authority
did not have procedures in place to ensure amounts reported on the Section 3
Summary Report for the year ended December 31, 2006 include all Section 3
activities for all of the subrecipients.
We were unable to determine if the amounts reported were complete or
accurate. Effective internal controls
should include procedures in place to ensure performance reports are complete
and accurate. (Finding 6, pages
16-17) We recommended the Authority
implement procedures to ensure information reported in the annual Section 3
Summary Report is complete and accurate. Authority officials
concurred and indicated they recently developed procedures for reviewing the
information received from subrecipients for completeness. INADEQUATE CASH MANAGEMENT PROCEDURES The Authority did not have
procedures in place to ensure cash draws are performed in accordance with
U.S. Treasury Regulations. The
Authority receives its Section 8 program funding during the first week of
each month, based upon a budgeted amount approved at the beginning of the
year by the U.S. Department of Housing and Urban Development (HUD). The Authority receives its Interest
Reduction Program funding during the first week of each month based upon
amounts approved by HUD in the Housing Assistance Payment (HAP)
contracts. The Authority either
applies the amounts received to the loan principal or interest balance or
transfers the amount to the development during the third week of the month.
During our testing we selected sixty Section 8 and 32 Interest Reduction
subsidy payments received and noted that the Authority held funds for six to
ten days before the funds were either applied to the loan balances or
disbursed to the development. U.S.
Treasury Regulations require that the timing and amount of funds transfers
must be as close as is administratively feasible to the Authority’s actual
cash outlay for direct program costs.
This section has been interpreted to mean that funds should be
disbursed within 3 – 5 business days from receipt. Authority management stated
that wire transfers are performed each Thursday. Several days following the date of the receipt of the funds is
needed to reconcile the funds received prior to wiring them to the
subrecipients. Failure to draw funds in
accordance with the U.S. Treasury Regulations could result in HUD sanctioning
the Authority for noncompliance or possibly reducing the funding of the
Section 8 and Interest Reduction Programs.
(Finding 8, pages 20-21) This
finding was first reported in 2004. We recommended the Authority
implement procedures to ensure federal funds are disbursed in accordance with
the U.S. Treasury Regulations. Authority officials
responded that they have accelerated the federal funds disbursement process
and to make further changes would introduce the risk of making inaccurate
transfers. They stated they would
review this with HUD and request that HUD issue a final determination letter
on this matter. (For the previous
Authority response, see Digest footnote #1.) FAILURE TO OBTAIN SUSPENSION AND DEBARMENT CERTIFICATIONS FROM SUBRECIPIENTS During our review of 30
subrecipients of the Section 8 program and 3 subrecipients of the Interest
Reduction program, we noted the Authority did not include a suspension and
debarment certification in its subrecipient agreements. Additionally, the Authority did not
perform a verification with the “Excluded Parties List System” (EPLS)
maintained by the General Services Administration for any of its
subrecipients; however, as a result of our audit test work we noted that none
of these subrecipients were suspended or debarred from participation in Federal
assistance programs. Authority management
indicated the lack of certifications was an oversight. Failure to obtain the
required certifications or perform verification procedures with the EPLS
could result in the awarding of Federal funds to subrecipients that are
suspended or debarred from participation in Federal assistance programs. (Finding 9, pages 22-23) We recommended the Authority
establish procedures to ensure grantees receiving individual awards for
$25,000 or more certify that their organization is not suspended or debarred
or otherwise excluded from participation in Federal assistance programs. Authority officials agreed
with our recommendation, stated they have procedures, and will continue to
require grantees to provide debarment certifications. In addition, they indicated they would
institute a procedure to perform an annual verification check with the EPLS
for existing awards. OTHER FINDINGS
The remaining findings are reportedly being given attention by the Authority. We will review the Authority’s progress toward the implementation of our recommendations in our next engagement. AUDITORS’ OPINION We conducted a compliance examination of the Authority for the year ended June 30, 2007 as required by the Illinois State Auditing Act. A financial audit covering the year ending June 30, 2007 was issued separately. ___________________________________ WILLIAM G. HOLLAND, Auditor General WGH:KMA:pp SPECIAL ASSISTANT AUDITORS KPMG LLP were our special assistant auditors for this engagement. DIGEST FOOTNOTES #1 – INADEQUATE CASH
MANAGEMENT PROCEDURES – Previous Authority Response The Authority concurs
with the recommendation and implemented procedures to ensure federal funds
are disbursed in accordance with the U.S. Treasury Regulations. The Authority examined the feasibility of
accelerating its billing cycle, and, as a result in January 2006 accelerated
its cycle by one week in order to further limit the number of days before it
transfers federal funds. The timing of passing
through Section 8 project funding is performed in conjunction with the
billing cycle, which has been accelerated to the second week of the
month. Through the billing cycle, a
number of reports are generated that document the transfer process. A large portion of the Section 8 funds are
not passed through directly to the recipient, but instead are retained by the
Authority to pay the recipients’ debt service payments and fund escrow
accounts. Any amount in excess of the
debt service and escrow funding requirements are then transferred to the
recipient from the 8th to the 14th day of the
month. These amounts, if any, are
normally nominal in amount. This
process assists recipients to streamline administrative process for the
payment of debt service and escrow funding.
Section 8 project funds to recipients that do not have loans to the
Authority are transferred to these recipients on either the first or second
Thursday of each month. The Authority
will investigate whether the above processes can be further accelerated. |