HUD OIG reviewed the development activities of the Douglas County Housing Authority (Authority), Omaha, Nebraska, to determine whether the Authority encumbered or spent U.S. Department of Housing and Urban Development (HUD) assets for nonfederal development activities without HUD approval.

The Authority inappropriately encumbered nearly $1.67 million in federal assets when it entered into loan documents containing setoff provisions against the Authority's HUD-related bank accounts. The Authority also inappropriately entered into partnership agreements that made it responsible for all operating deficits of two nonfederal developments. Further, the Authority inappropriately spent nearly $860,000 in public housing funds on three nonfederal developments. Finally, the Authority arbitrarily allocated nearly $730,000 of its administrative and maintenance supervisor salaries to its federal programs without adequate support.

We recommend that HUD require the Authority to improve its controls, obtain adequate releases from the loan commitments and partnership agreements for the nonfederal developments, and repay its public housing program for any federal funds used inappropriately. We also recommend that HUD require the Authority to reimburse its HUD programs for any salary allocations it cannot support and implement an acceptable method for allocating future salary and benefits costs. Finally, we recommend that HUD take appropriate administrative actions against the Authority, its chief executive officer, and members of its board of commissioners for violating HUD rules.