Finding Text
FINDING NO. 2023-002: ALLEGED USE OF FEDERAL FUNDS IN FRAUDULENT MANNER
Condition: On August 11, 2023, the Organization’s Chief Executive Officer and Chief Financial Officer
received electronic communication from an anonymous email account alleging that the Organization’s
Interim Assistant Client Services (CS) Manager was engaged in illegal and dishonest activities. Based
upon this initial predication, the Organization put together a Fraud Investigative Team who reviewed
relevant financial records, studied case file documents, and interviewed CS personnel. The Investigative
Team discovered that two (2) employees, the Interim CS Assistant Manager and a Quality Assurance
(QA) Specialist, colluded to defraud the Organization of approximately $56,680, over the course of six
(6) months. Their actions consisted of, but was not limited to the formation of fake management
companies to receive rental assistance payments from non-existent and former clients; the manipulation
of leases and pay statements to secure job placement and Transition Out of Poverty incentives; the
circumvention of established procedures and protocols to obtain rental assistance payments for their
friends and family members; and the re-creation and dissemination of the Organization’s communication
notifications to unsuspecting applicants luring them to send their personal information to a fake email
address.
Criteria: Title 2 U.S. Code of Federal Regulations Part 200, Subpart D, Section §200.302 (4), Financial
Management, communicate expectation for effective control over, and accountability for, all federal
funds, property, and other assets. The non-Federal entity must adequately safeguard all assets and assure
that they are used solely for authorized purposes.
Cause: Personnel involved in fraudulent activities were part of CSBG program management who
colluded with others to override controls for personal financial gains.
Perspective Information: The Organization took initial steps to mitigate the fraud by terminating the
persons responsible for improper conduct. However, emergence of evidence by a forensic review of
client files housed internally and in the NewGen Case Management System indicated patterns of behavior
of additional schemers who were not employees of the Organization. Formal reports have been filed with
the Federal Bureau of Investigation, Houston Police Department, and Harris County District Atorney’s
office to pursue all parties complicit in the misappropriation of funds.
Questioned Costs: Per the initial assessment made by the Investigative Team, it was estimated that the
Organization was defrauded for $56,680 ($50,680-CSBG funds, $6,000 Unrestricted funds), over the
course of six (6) months. The Organization submitted insurance claims for $55,680, the amount
determined to be fraudulent rental assistance payments based on documentation reviewed by the
Investigative Team. The Organization repaid $50,680 to Texas Department of Housing and Community Affairs (TDHCA), the Organization’s pass-through entity for CSBG grant, on April 30, 2024.
Additionally, the investigation is still ongoing with local and federal law enforcement agencies.
Effect or Potential Effect: Misappropriation of grant funds provided under CSBG Program.
Identification of Repeat Finding: Not applicable since this is a new finding.
Recommendation: We recommend that management monitor results of ongoing investigation with local
and federal law enforcement agencies, closely coordinate with TDHCA for additional guidelines, and
implement mitigating operating controls to strengthen compliance for adherence with pre-established
policies and procedures related to conflict of interest and seek to minimize opportunities for employees
to engage in fraudulent activities.
Views of Responsible Officials: The Organization is aware that fraud poses a significant risk to the integrity of the federal programs it administers as well as erodes public trust. In the wake of discovering that GCCSA had been compromised by colluders committing fraud, the Organization is committed to combatting fraud by creating an organizational culture and structure conducive to focusing on the following control activities: data-analytics activities, fraud-awareness initiatives, reporting mechanisms, and employee-integrity activities.