What We Audited and Why

We audited the Durham Housing Authority's (Authority) financial operations and procurement procedures, because a prior Office of the Inspector General (OIG) audit identified potential deficiencies in these areas.

Our audit objectives were to determine if the Authority's misuse of funds, identified in our prior report, jeopardized its ability to operate its projects in a manner that promotes serviceability, economy, efficiency, and stability, and whether the Authority followed Department of Housing and Urban Development (HUD) procurement regulations when purchasing goods and services.

What We Found

The Authority jeopardized project stability by misusing funds to subsidize operations of Development Ventures, Inc., (DVI) a non-profit subsidiary. The Authority's cash and investments decreased from $2.8 million in 1996 to $800,000 in 2003. For the same period, its accounts receivable balance increased from $400,000 to $4.6 million. As of June 30, 2004, DVI and its related entities owed $4.1 million to the Authority. At its current rate of spending, we estimated the Authority only had enough funds to continue operations for about 7 months.

Without adequate funds to operate and maintain its housing developments, the Authority could be in default of its Annual Contributions Contract (ACC). The Authority believes once DVI sells three of its developments DVI will repay the Authority, thus resolving the Authority's financial woes. However, the Authority's plan is seriously flawed. The Authority must develop strategies to resolve its current financial position and ensure its future financial stability. viable recovery plan coupled with HUD's Action Plan and continued oversight, will help assure the Authority's $6 million of annual operating subsidy will be putto  better use.

Because the Authority did not implement adequate procurement procedures, it spent $6,855,271 for goods and services obtained without following procurement regulations (Appendix C). Further, the Authority could not support $953,477 spent for goods and services (Appendix D. Specifically, it did not always properly solicit or document its procurements when it purchased goods and services. For example, between January 1, 2000, and December 31, 2003, the Authority paid a temporary employment agency $1.7 million from HUD funds without a written contract. Similarly, it also paid a law firm over $810,000 without soliciting bids and without a written contract. We believe the Authority can put the remaining unobligated balance of $2.2 million of Capital Funds to better use by developing and implementing procurement procedures that comply with procurement regulations.

What We Recommend

We recommend the Director, Office of Public Housing require the Authority to:

(1) devise plans with multiple strategies for resolving both its short-term and long-term financial problems, (2) develop and implement adequate procurement policies and procedures, including establishing a central procurement office, hiring a qualified procurement officer, and ensuring responsible management and staff are adequately trained on procurement requirements, (3) a $6,855,271 to its programs from non-Federal funds, and (4) provide support for $953,477. We also recommend HUD continue to oversee Authority operations to ensure funds are spent for their intended purposes.

For each recommendation without a management decision, please respond and provide status reports in accordance with HUD Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit.