We audited the Housing Authority of Travis County (Authority) due to several problem indicators including the U. S. Department of Housing and Urban Development’s (HUD) rejecting the Authority’s 2005 and 2006 audited financial statements and noting that the Authority’s 2007 financial statements contained $4.1 million in interprogram transfers and a negative $579,783 administrative fee reserve. Our objectives were to determine (1) whether the Authority and/or its related entities followed HUD procurement regulations for nonprofit development or procurement activities, if required, and (2) whether the Authority used federal funds only for eligible program activities.

In violation of its annual contributions contract and federal regulations, the Authority could not adequately account for its use of federal program funds or support that it used program funds only for eligible program activities. Specifically, the Authority haphazardly transferred more than $2.5 million between its federal and nonfederal programs and activities without proper support or justification. Further, its books and records were not auditable, and it did not properly allocate costs. Limited testing also showed that it could not support more than $600,000 in costs charged to federal programs, spent more than $3,000 on ineligible costs, and did not always follow procurement requirements. These violations occurred because the Authority disregarded HUD requirements in order to keep its programs functioning and lacked financial controls.

We recommended that the Authority (1) correct its books and records; (2) hire an outside accounting firm to perform a comprehensive review of the $2.5 million in transfers; (3) provide support for expenditures or repay $600,000; (4) repay $3,084 in ineligible costs; and (5) develop policies, procedures, and controls to ensure that federal funds are only used for eligible program activities and that interprogram balances are reconciled and paid in a timely manner. We also recommend that the Acting Director, Departmental Enforcement Center, take appropriate administrative actions against Authority officials, as applicable.