We completed a review of the Hawthorne Housing Authority’s (Authority) Section 8 program. We performed the audit based on a recommendation from the Los Angeles U.S. Department of Housing and Urban Development (HUD) Office of Public Housing indicating missing and/or inadequate financial records, and because Section 8 reviews are a part of the Office of the Inspector General’s (OIG) annual audit plan. Our objective was to determine whether the Authority used Section 8 Housing Choice Voucher program funds in accordance with HUD rules and regulations. Specifically, we wanted to determine whether the Authority’s financial management system was adequate and Section 8 transfers into the City of Hawthorne’s (City) general fund were recorded and expended according to HUD rules and regulations. We found that the Authority and City failed to maintain an adequate financial management system to properly administer their Section 8 Housing Choice Voucher program according to HUD rules and regulations. Specifically, the Authority and City (1) did not properly document more than $1.4 million in Section 8 investment and interfund activity, making the expended funds ineligible; (2) accumulated Section 8 deficits due partly to the City’s failure to record portability receivables in its accounting system; and (3) failed to implement adequate internal controls to safeguard and minimize the risk of operating a Section 8 program.

We recommend that the Director of the Los Angeles Office of Public Housing require the City repay more than $1.4 million in ineligible expenditures of Section 8 funds and implement adequate policies and procedures over its accounting for interfund activities and portability receivables. In addition, the Director should consider sanctions against the City for not complying with its Annual Contributions Contract.