Finding 59523 (2022-002)

-
Requirement
N
Questioned Costs
$1
Year
2022
Accepted
2023-09-28
Audit: 54678
Organization: New York City Housing Authority (NY)

AI Summary

  • Core Issue: The Authority failed to document and correlate repair expenditures with received insurance proceeds in a timely manner.
  • Impacted Requirements: Compliance with HUD guidelines on using insurance proceeds for repairs and maintaining accurate financial records.
  • Recommended Follow-Up: Implement a process to ensure timely correlation of expenditures to insurance proceeds to recover allowable costs effectively.

Finding Text

FINDING # 2022-002 SPECIAL TESTS AND PROVISIONS- INSURANCE PROCEEDS ? COMPLIANCE- INTERNAL CONTROL DEFICIENCY PUBLIC AND INDIAN HOUSING (ALN # 14.850) CONTRACT #: NOT AVAILABLE FEDERAL AGENCY: PUBLIC AND INDIAN HOUSING, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 1. CRITERIA Special Tests and Provisions ? Insurance Proceeds As stated in the April 2022 Compliance Supplement, a Public Housing Agency (PHA) is required to use insurance proceeds to promptly restore, reconstruct, and/or repair any damaged or destroyed property of a project, except when a PHA has written approval from HUD to do otherwise. Unspent insurance proceeds normally are recorded as restricted cash or restricted investments on the Financial Data Schedules (FDS) up to the amount of the repair. In cases of unforeseeable and unpreventable emergencies that include damages to the physical structure of the housing stock, PHAs are allowed to use their Operating Funds to cover the expenses associated with the damages. A PHA?s insurance may cover the damages fully or partially, however, it usually takes time for the PHA to receive the insurance proceeds. Once received, the PHA must reimburse its operating account for any expenses that were initially covered with Operating Funds up to the amount received. If the amount of the insurance proceeds is less than the cost of the repair and the PHA elected to use Operating Funds to cover the difference, the PHA is not allowed to draw down capital funds to reimburse the Low Rent program. 2. CONDITION/PERSPECTIVE The Authority received insurance proceeds to cover catastrophic loss affecting a myriad of locations. The insurance recovery was promulgated on emergency repairs and post-events, many of which were not initiated or needed due to internal fixes. During our review of the insurance proceeds compliance, we noted that the Authority did not document repair expenditures for loss affecting myriad locations and could not correlate one-to-one expenditures to the insurance proceeds in a timely manner from when the insurance proceeds were received. 3. CAUSE The Authority did not correlate one-to-one expenditures to the insurance proceeds received on a timely basis. 4. EFFECT There is the potential that some allowable expenditures under commercial insurance related to a disaster may not be recovered from insurers, including but not limited to ordinary payroll costs utilized to make in house repairs and replacement cost adjustments. 5. REPEAT FINDING No 6. RECOMMENDATION We recommend that the Authority correlate one-to-one expenditures to the insurance proceeds received on a timely basis. 7. QUESTIONED COST Cannot be determined. 8. VIEWS OF RESPONSIBLE OFFICIAL All good faith efforts to correlate emergency expenditures from insurance proceeds will be made in order to capture vendor work on a timelier basis. Catastrophic events (resulting in insurable claims such as the Hurricane Ida related claim selected in Deloitte?s testing) are complicated as the focus is primarily on restoring critical services in many developments, usually located in all five boroughs. The proceeds thus far received were estimated via inspection and the insurance claim remains open for more permanent pricing and repair. Such a claim often takes years to finalize as work scope is prepared and agreed to by insurers? representatives and the Authority. The emergency proceeds received have been used as needed for more repairs requiring them. As identified in the audit, much of the emergency work to date on Hurricane Ida was performed internally by staff at the sites, which did not generate transparent repair expenses. Management will take action, within limitations described above, to improve the correlation of expenditures to the insurance proceeds received on a timelier basis. In order to accomplish, will rely on the Authority?s Asset & Capital Management Department to provide timely work scope to assist in the correlation of more permanent expenditures.

Corrective Action Plan

Finding Number 2022-002 SPECIAL TESTS AND PROVISIONS- INSURANCE PROCEEDS - COMPLIANCE- INTERNAL CONTROL DEFICIENCY Agency Name FEDERAL AGENCY: PUBLIC AND INDIAN HOUSING, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Program ALN 14.850 ? PUBLIC AND INDIAN HOUSING Contract # N/A Criteria Special Tests and Provisions ? Insurance Proceeds - As stated in the April 2022 Compliance Supplement, a Public Housing Agency (PHA) is required to use insurance proceeds to promptly restore, reconstruct, and/or repair any damaged or destroyed property of a project, except when a PHA has written approval from HUD to do otherwise. Unspent insurance proceeds normally are recorded as restricted cash or restricted investments on the Financial Data Schedules (FDS) up to the amount of the repair. In cases of unforeseeable and unpreventable emergencies that include damages to the physical structure of the housing stock, PHAs are allowed to use their Operating Funds to cover the expenses associated with the damages. A PHA?s insurance may cover the damages fully or partially, however, it usually takes time for the PHA to receive the insurance proceeds. Once received, the PHA must reimburse its operating account for any expenses that were initially covered with Operating Funds up to the amount received. If the amount of the insurance proceeds is less than the cost of the repair and the PHA elected to use Operating Funds to cover the difference, the PHA is not allowed to draw down capital funds to reimburse the Low Rent program. Condition/Context The Authority received insurance proceeds to cover catastrophic loss affecting a myriad of locations. The insurance recovery was promulgated on emergency repairs and post-events, many of which were not initiated or needed due to internal fixes. During our review of the insurance proceeds compliance, we noted that the Authority did not document repair expenditures for loss affecting myriad locations and could not correlate one-to-one expenditures to the insurance proceeds in a timely manner from when the insurance proceeds were received. Recommendation We recommend that the Authority correlate one-to-one expenditures to the insurance proceeds received on a timely basis Corrective Action Plan All good faith efforts to correlate emergency expenditures from insurance proceeds will be made in order to capture vendor work on a timelier basis. Catastrophic events (resulting in insurable claims such as the Hurricane Ida related claim selected in Deloitte?s testing) are complicated as the focus is primarily on restoring critical services in many developments, usually located in all five boroughs. The proceeds thus far received were estimated via inspection and the insurance claim remains open for more permanent pricing and repair. Such a claim often takes years to finalize as work scope is prepared and agreed to by insurers? representatives and the Authority. The emergency proceeds received have been used as needed for more repairs requiring them. As identified in the audit, much of the emergency work to date on Hurricane Ida was performed internally by staff at the sites, which did not generate transparent repair expenses. Management will take action, within limitations described above, to improve the correlation of expenditures to the insurance proceeds received on a timelier basis. In order to accomplish, will rely on the Authority?s Asset & Capital Management Department to provide timely work scope to assist in the correlation of more permanent expenditures Action Date Ongoing Final Implementation Ongoing Name And Phone Number Of Person Responsible For Implementation Arlene Orenstein Director of Risk Management 212-306-6682

Categories

Questioned Costs HUD Housing Programs Cash Management Internal Control / Segregation of Duties Special Tests & Provisions

Other Findings in this Audit

Programs in Audit

ALN Program Name Expenditures
14.871 Section 8 Housing Choice Vouchers $1.45B
14.850 Public and Indian Housing $1.21B
14.872 Public Housing Capital Fund $596.93M
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) $231.40M
14.218 Community Development Block Grants/entitlement Grants $67.58M
97.036 Covid-19-Disaster Grants - Public Assistance (presidentially Declared Disasters) $27.87M
14.269 Hurricane Sandy Community Development Block Grant Disaster Recovery Grants (cdbg-Dr) $10.09M
14.879 Mainstream Vouchers $3.62M
14.228 Community Development Block Grants/state's Program and Non-Entitlement Grants in Hawaii $1.71M
14.888 Lead-Based Paint Capital Fund Program $751,837
14.GSA_MIGRATION Covid-19-Emergency Housing Vocuher $507,716
14.895 Jobs-Plus Pilot Initiative $370,470
14.870 Resident Opportunity and Supportive Services - Service Coordinators $247,656
14.896 Family Self-Sufficiency Program $242,541
97.039 Hazard Mitigation Grant $-546,699