Helena Housing Authority

Finding 2020-001 ? Allowability of Costs ? Ineligible costs ? fraud and misuse of public funds CFDA ? 14.850, Noncompliance & Significant Deficiency Public Housing Operating Subsidy - CFDA # 14.850, Grant Year 2018, 2019 & 2020 Criteria: Title 2, Part 200, Uniform Administrative Requirements, states that the entity should ?establish and maintain effective internal control over the Federal award and provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes.? This requirement also specifies that type of payments allowed and the controls over those payments. Condition & Cause: When conducting our audit for the current year, we were made aware of potential expenditures that might be considered ?fraud, waste or abuse.? Based upon our expanded scope of audit services and upon HUD Inspector General inquiry and interviews we have determined that certain public funds were used for personal benefit by a maintenance employee. The Housing Authority has internal controls in place which require a signature of approval for expenditures both by a maintenance supervisor and project manager. Because of the complexity of items being ordered for both meth remediation, modernization of administrative offices, and ongoing vacancy preparation costs, some of the individuals charged with approval of costs did not always fully understand the use or purpose of expenditures. In some cases, certain items were questioned and referred to administration for review following HHA's regular internal control process, and management initially accepted the purchases after the initial HHA internal review and investigation of the purchases. During these internal control reviews, the maintenance employee took actions to conceal the fraudulent purchases (returning items to HHA etc. when questioned about items, purchased replacement items) or provided seemingly plausible but later discovered to be dishonest explanations regarding fraudulent purchases leading to management's approval of the items identified during HHA's initial internal control review. There existed an environment of trust of a certain long-term employee, when in fact professional skepticism should have been used and certain fraudulent items should have been discovered and investigated. HHA fully cooperated with HUD OIG, Helena Police Department, and its auditors in a subsequent detailed investigation of a pattern of fraudulent purchases made by the HHA maintenance employee. Ultimately, it was determined that during a period from September 2018 through August 2020 there was identified approximately $6,426.35 of items purchased and used for personal use. Most of these items were confirmed as stolen or used for personal use by a certain employee. Most of the items were acquired through a Housing Authority credit card in which the person ordering the items also approved the purchase of the items as part of HHA's internal control process. Most items fraudulently purchased were items similar to items that typically would be purchased for HHA legitimate purposes-tools, materials, and equipment-which helped to conceal the fraudulent purchases. The conversion or use was somewhat gradual over this two-year period and never reached an amount material to the financial statements. Effect: Inadequate internal controls can result in a loss of funds which are restricted by both Federal and State regulations. Inability to effectively manage or approve transactions can result in a loss or theft of items purchased. Recommendation: We recommend that the Housing Authority implement better controls over the approval of maintenance and credit card purchases. The HHA currently prepares a monthly recap of all expenditures and corresponding charge centers for the costs. The Housing Authority should expand this recap to include a description of the items purchased, purpose for acquisition and location of where the items are located. The Housing Authority should also continue to exercise professional skepticism, even with employees who appear to be trustworthy and honest. Questioned Costs: $6,426.35 Repeat Finding: No Views of responsible officials: The PHA agrees with the results of the audit and recommendation.