We audited the Stark Metropolitan Housing Authority’s public housing program as part of the activities in our fiscal year 2012 annual audit plan.  We selected the Authority based upon our previous audit of the Authority and an anonymous complaint received by the Office of Inspector General’s hotline.  Our objective was to determine whether the Authority followed the U.S. Department of Housing and Urban Development’s (HUD) requirements and its own policies regarding the administration of its program.

The Authority, under the direction of its former executive directors, inappropriately used more than $6.3 million in public housing operating and capital funds to pay ineligible expenses for its commercial development, Metropolitan Centre, and two nonprofit developments, Ruthe and Isadore Freed Housing Corporation and Stark Metropolitan Federal Credit Union.  Further, it did not (1) provide documentation to support that nearly $4.2 million in public housing operating and capital funds used to pay expenses such as salaries, utilities, and maintenance costs for its developments was from fees earned by its cost center for managing its projects or engaging in business activities, (2) charge and collect more than $263,000 in appropriate market rent from its developments, and (3) ensure that it obligated more than $57,000 in capital funds for eligible expenditures.  As a result of the Authority’s noncompliance, HUD and the Authority lacked assurance that more than $10.5 million in public housing operating and capital funds was used to benefit low- and moderate-income residents and more than $320,000 was available for eligible public housing purposes. 

Additionally, the Authority inappropriately executed an oil and gas lease with Chesapeake Exploration that encumbered project assets without HUD’s approval.  It received more than $356,000 in proceeds from the agreement.  Further, HUD lacked assurance that its interests in the Authority’s project assets were protected.

We recommend that the Director of HUD’s Cleveland Office of Public Housing require the Authority to (1) reimburse its operating and capital fund more than $6.3 million from non-Federal funds, (2) provide support or reimburse its operating and capital fund nearly $4.2 million from non-Federal funds, (3) charge and collect more than $263,000 in appropriate market rent, (4) deobligate more than $57,000 in capital funds, and (5) provide support that more than $356,000 in proceeds was not derived from the encumbrance of public housing property.  We also recommend that HUD considers a declaration of substantial default based on the issues cited in this audit report.