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We audited the Long Branch Housing Authority based on the results of our previous audits of the Asbury Park and Red Bank Housing Authorities, which received management services and technical assistance from Long Branch for several years. The objective of the audit was to determine whether Long Branch properly handled income and expenses associated with its agreements with Asbury Park and Red Bank in accordance with requirements.

Long Branch did not properly handle income and expenses related to services provided under agreements with two other public housing agencies.  Specifically, it improperly accounted for more than $2.2 million as non-Federal funds.  Additionally, it did not properly allocate and support base payroll expenses and maintain adequate documentation to substantiate incentive payments.  This condition occurred because Long Branch improperly considered itself to be a contractor and did not have adequate controls to ensure compliance with Federal requirements.  As a result, HUD did not have assurance that $1.5 million in incentives paid from agreement income was eligible and reasonable, and nearly $700,000 in unspent agreement income that had not been used continued to improperly reside in a Long Branch account.  Additionally, HUD did not have assurance that an estimated $1 million in base payroll expenses was paid from the proper funds, and any Long Branch program funds used were not available to benefit its own residents.

We recommend that HUD require Long Branch to (1) provide support to show the reasonableness and eligibility of the $1.5 million in employee incentives paid from agreement income or reimburse its program for any amount it cannot support, (2) provide support for a reasonable estimate of employee time used to perform services for the two agencies and reimburse its program for any program funds improperly used for those expenses, and (3) implement adequate controls to ensure that it properly classifies income received under any future agreements or activities and to ensure compliance with applicable cost principle requirements in the future.  Additionally, we recommend that HUD make a determination regarding nearly $700,000 in outstanding agreement income, including whether those unspent funds should be returned to the public housing agencies.