As part of the Housing and Urban Development (HUD) Office of Inspector General's obligation to ensure accountability and transparency in use of the American Recovery and Reinvestment Act of 2009 (ARRA) funds, we performed a review to assess the Housing Authority of New Orleans' (Authority) capacity to administer $34.5 million in ARRA funding. Our objective was to evaluate the Authority's capacity and risks in the following areas: basic internal controls, financial operations, procurement, and outputs/outcomes.

The Authority had capacity deficiencies related to internal controls, financial operations, procurement, and inventory. Specifically, the Authority lacked (1) internal control capacity related to staffing levels and segregation of duties; (2) financial capacity related to its accounts payable procedures, financial policies, and independent public accountant reviews; and (3) procurement capacity, as the Authority did not always comply with the procurement policy and the policy was not always clear. The Authority generally ensured that its outputs and outcomes related to rehabilitation contracts were adequate. However, it did not maintain an adequate inventory listing of items removed from some of the rehabilitated projects. Due to capacity limitations, the Authority will encounter difficulty in both obligating and expending the $34.5 million in ARRA funds within the statutory time limits. While the Authority had taken measures to develop policies and procedures for obligating and expending the ARRA funds, the Authority's prior performance continues to raise serious concerns about the Authority's ability to comply with the statutory requirements and safeguard these limited resources. Therefore, HUD, as the Authority's administrative receiver, must make a realistic determination on the Authority's ongoing capacity limitations.

We recommended that HUD's Deputy Assistant Secretary require the Authority to (1) support or repay unsupported disbursements totaling $321,462; (2) maintain adequate staffing levels in its Finance, and Contracting and Compliance Departments, based upon the organizational structure. In addition, as related to the Finance Department, the Authority should obtain qualified staff to perform the accounts receivable function; (3) amend its finance policies to specify approving officials, appropriate staff titles, and required approval forms and procedures. In addition, the Authority should incorporate in its finance policy procedures related to expenditure of prepaid items and ensuring that independent public accountant audit findings are addressed in a timely manner; (4) consider cross-training employees in the Finance Department and rotate respective roles periodically in an effort to prevent collusion; (5) amend its procurement policy to comply with 24 CFR 85.36; (6) consider labeling all asset inventory items obtained for rehabilitation before placing items into the inventory to ensure that its assets are safeguarded; adequately accounted for; and protected from loss, damage, and theft; (7) obtain a contractor to oversee the contracting, and the progress and completion of the work activities; and (8) contract with an accounting firm to maintain a separate accounting and biweekly reporting of ARRA funds expended on ARRA activities. We also recommended that HUD's Deputy Assistant Secretary request that the Assistant Secretary for Public and Indian Housing immediately deobligate all or some of the Authority's ARRA funds and reallocate the funds to housing authorities that can utilize the funds, if the lack of capacity continues and indicates the Authority's inability to obligate or complete the planned work by the statutory deadline.