Finding 1140529 (2023-004)

2023-004 Activities Allowed or Unallowed – Interprogram Activity Public and Indian Housing – CFDA Number 14.850 Other Matters, Questioned Costs Condition: The Authority has loaned monies from the Public and Indian Housing Program to the COCC. As of September 30, 2023 these loans totaled $349,352. Criteria: The Public Housing Operating Fund was established for the purpose of making assistance available to PHAs for the operation and management of public housing. Transfers out of the Operating Fund can only occur in very limited circumstances. This would preclude PHAs from using Operating Funds to provide temporary loans to other programs within the PHA. Inappropriate use of funds, even a temporary loan, are ineligible costs resulting in non-compliance. The AMPs, under current laws, cannot loan the COCC any funds. Questioned Costs: $349,352. Effect: The Authority is not in compliance with applicable HUD regulations regarding eligible use of federal funds. Cause: The Central Office Cost Center (COCC) borrowed funds to offset operating losses, primarily due to financial mismanagement and structural weaknesses in budget planning and oversight. Contributing factors included: • Financial Mismanagement of LIHTC Property: The Authority attempted to cover operating losses at the underperforming Matthews Garden Gilmore (MGG) development, a troubled RAD PBV LIHTC project. The development suffered from low lease-up rates, debt obligations, and poor financial planning. The agency left the utility bills and other day-to-day management services in the Authority’s name instead of transferring them to the nonprofit instrumentality, the Central Carolina Strategic Developers. • Lack of Budget Accountability: The Authority did not operate with an accurate, balanced budget for the COCC or the MGG development. Budget assumptions failed to account for the complexities of managing RAD PBV and LIHTC properties, including layered compliance and funding restrictions. • Insufficient Financial Capacity: The Authority lacked the financial infrastructure and expertise to manage a multifaceted PHA portfolio, including RAD, LIHTC, and traditional public housing programs. Staff turnover and limited experience further weakened financial oversight. • Improper Salary Allocations: Salaries and day-to-day operational spending were not allocated adequately across departments and programs, contributing to COCC operating losses and noncompliance with HUD cost allocation requirements. Recommendation: The Authority should develop a plan based on budgeting and monitoring of COCC expenses to have the ability to reimburse funds to the Public and Indian Housing Program. Views of Responsible Officials of the Auditee: We concur with the recommendation and are formulating a plan to repay these funds.