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The U.S. Department of Housing and Urban Development's (HUD) Office of Inspector General audited the Housing Authority of the City of Terre Haute’s (Authority) nonprofit development activities. The review of public housing authorities’ development activities is set forth in our annual audit plan. We selected the Authority because it had high-risk indicators of nonprofit development activity. Our objective was to determine whether the Authority diverted or pledged resources subject to its annual contributions contract (contract), other agreement, or regulation for the benefit of non-HUD developments.

Under the direction of the former executive director and board of commissioners, the Authority diverted assets subject to its contract, other agreements, or HUD’s regulations for the benefit of Terre Haute Housing Authority Development Corporation (nonprofit), the Authority’s nonprofit entity. The Authority’s 21 properties, valued at more than $1 million, were used to support the activities of its nonprofit. As a result, HUD lacked assurance that the disposition of the 21 properties served the best interests of the Authority and its residents.

The Authority violated its contract with HUD when it provided $33,000 to its nonprofit to finance preconstruction costs for its nonprofit’s housing units and did not maintain complete and accurate books of record. As a result, HUD lacked assurance that the Authority used HUD funds in accordance with specific program requirements and that these funds were not used for non-HUD development activities.

The Authority’s former executive director created a conflict-of-interest relationship as the Authority’s executive director/resident agent for its nonprofit developments. As a result, the Authority and HUD lack assurance that the former executive director performed his official duties for the benefit of HUD, the Authority, and its residents.

We informed the Authority’s executive director and the Director of HUD’s Cleveland Office of Public Housing of minor deficiencies through a memorandum, dated July 31, 2009.

We recommend that the Director of HUD’s Cleveland Office of Public Housing require the Authority to (1) transfer the 21 properties, valued at more than $1 million, back to the Authority and secure deeds of trust or provide documentation to show that HUD funds were not used to acquire and/or rehabilitate the properties and (2) improve its existing procedures and controls to ensure that Authority assets are safeguarded against mismanagement. These procedures and controls should include but are not limited to maintaining pertinent records and providing training to its staff to ensure compliance with HUD’s requirements.

We also recommend that the Director require the Authority to (1) reimburse the applicable HUD program $33,000 from nonfederal funds for the improper payments cited in this report or provide documentation to show that HUD funds were not used, (2) implement adequate procedures and controls to ensure compliance with its contract with HUD regarding the general fund account, (3) continue restructuring its books of record to adequately identify the source and application of its funds, and (4) reimburse its low-rent housing program $136,500 from nonfederal funds for the former executive director’s payments as the resident agent of the nonprofits in addition to his salary.