October 7, 2011
Board of Directors Wallingford Housing Authority, Inc. We were engaged to perform certain forensic accounting procedures concerning the books and
records of the Wallingford Housing Authority for the fiscal years 2006, 2007 and 2008. The procedures we performed were based upon certain concerns expressed during discussions with Board members.
OBJECTIVES: The objectives of the investigation were to:
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To review and determine the disbursements made by the Authority's to significant vendors for a three year period To review the purchasing/bidding activity fbr the Authority for the vendors
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To perform procedures on the rental income for the Authority to identify any
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selected above unusual items d. e.
To review certain other revenues such as wash/dryer income To provide any recommendations/observations as a result of performing the procedures noted above
SCOPE OF THE INVESTIGATION: The scope of our procedures was limited to the fiscal years 2006, 2007 and 2008 and to the specific areas noted above in the objective section. The type and extent of the procedures that we were able to perform was limited by the information that was available for our review. For fiscal years 2006 and 2007 the Authority was not fully using the fmaneial software general ledger function and therefore general ledger activity was not available. The information that was available from the software was from separate software modules for disbursements, rents, and other revenues. Since there was no general ledger available, these reports were not able to be
reconciled to any other report as would be the normal process. In addition, without a balanced and complete general ledger, we were unable to review the Authority's financial activity to identify any items that may be considered unusual or would be identified for further analysis. For fiscal year 2008 there was activity in the trial balance/general ledger reports but the based upon our review, the trial balance amounts did not reflect activity in a format that would allow the type of analysis we would normally perfiorm.
BACKGROUND INFORMATION: Concerns were raised by Board members about certain transactions or practices regarding the manner in which the Agency's business was conducted.
SOURCE DOUCMENTS We inspected the following documents:
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1. Report prepared by Forensic Accounting Services, LLC dated November 4, 2010 2. Vendor History reports for the fiscal years 2006, 2007 and 2008 3. Certain vendor invoices for the fiscal years 2006, 2007 and 2008 4. Expense reports for various Housing Authority employees 5. Account Inquiry Report for non rent revenues for the period !/1/2000 through
12/31/2008 6. Transaction History report for Jill Kelliher from 9/1/2005 through 10/2/2009 detailing the rent amounts due and amounts paid. 7. Travel vouchers and work order forms ,
SUMMARY OF PROCEDURES PERFORMED .
We reviewed the reported prepared by Forensic Accounting Services, LLC dated November 4, 2010 to provide background and to avoid any duplication of effort with respect to the procedures we performed.
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We reviewed the vendor history report for each fiscal year 2006, 2007 and 2008 and performed the following procedures: a. We selected certain vendors based upon our concerns expressed by Board members and
our professional judgment and reviewed the related invoice files. b. We reviewed the documentation available for disbursements to employees including advances, travel voucher documentation and other expense reimbursements.
c. We prepared a schedule of the amounts paid to each vendor we selected for the fiscal years 2006, 2007 and 2008.
SUMMARY OF PROCEDURES PERFORMED .
We obtained an understanding of the process for collecting, depositing and recording the amounts received for use of the washer and dryers.
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We reviewed the Account Inquiry Report for non rent revenues for the period 1/1/2000 through 12/31/2008 to verify that laundry receipts were being recorded. We reviewed the Transaction History report for Jill Kelliher from 9/1/2005 through 10/2/2009 detailing the rent amounts due and amounts paid. We then reviewed the tenant rent file and the supporting documentation for each rent change for the period noted above.
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As a result of our review of the invoices, we obtained an understanding of certain Authority processes and related forms as we considered necessary.
RESULTS OF PROCEDURES PERFORMED ,ÿ .ÿ ÿ, ÿL:. ÿ=
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The following findings are a result of the procedures that were performed. The results are summarized in EXHIBITS A through C. 1. Based upon our review of certain vendor activity (EXHIBIT A presents the vendors we reviewed) and related invoices we noted the following: a. In general, there was proper supporting documentation for most disbursements. There were a few minor instances where the documentation was missing or incomplete.
Most of the invoices we reviewed were properly approved and cancelled. b. Reliable Plumbing Inc.: °
In June of 2008 it appears that the Authority began paying a monthly fee of $1,500 to Reliable Plumbing, Inc. It is unclear what services were included in this fee, how it was monitored, and how service calls were evaluated to ensure they were not
covered by the monthly charge. During the period this monthly fee was paid to the vendor, the Authority continued to pay for service calls to Reliable Plumbing, Inc. ,
The invoices presented for payment from Reliable Plumbing, Inc. lacked the expected detail for labor and materials as seen from other vendors. The invoices showed the same amount for rate as the total invoice.
c. During our review we noted the following with respect to the Authority's use of purchase orders:
1. In many cases the purchase order did not appear to be approved (not signed).
RESULTS OF PROCEDURES PERFORMED c. Purchase order use (continued): 2. The use of purchased orders was inconsistent for purchase of appliances, materials and supplies.
3. We noted that in many instances, the invoices to which the purchase orders were attached included items that were not listed on the purchase order. 4. There did not appear to be any reconciliation between the purchase order and the vendor invoice. d掳
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Competitive Bids 1. Based upon our inquiry, there does not appear to have been any formal purchasing policy or bidding requirement. 2. In many instances, we noted that the same items were being purchased from multiple vendors (water heaters) at varying prices.
e. Disbursements to Employees ,
During the period we reviewed, it appears that it was the Authority's policy to provide travel advances to employees attending conferences. The Authority has implemented a travel Voucher Form that properly accounts for the advance and calculates any amounts due to the Authority or additional amounts due to the employee.
In two instances an advance was issued to an employee and we did not see documentation of the expenses for that event and refund of balance (if due). In one instance only the hotel bill was attached to the travel voucher form and that amount was less than the advance.
In years previous to 2006 as far back as 2002, an accounting of the travel advance did not appear to be required. We did not see the travel voucher form or any
documentation of the anlount spent against the advance in the vendor invoice files. 2. We noted the following items that were paid as part of the travel voucher: a. Tips and tips for room service b. Miscellaneous c. Charger for phone
d. Maid e. Staff drinks (no documentation)
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RESULTS OF PROCEDURES PERFORMED FINDINGS 掳
Although we were unable to obtain documentation to verify whether the conference fee included meals, other conferences hosted by NAHRO included meals in the registration fee. If this was the case, it is unclear why the advances included $50 per day for meals.
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Although it appears that the Authority has a mileage reimbursement form, it was not always used and in certain other limited instances, not approved. For certain other reimbursements to employees we noted that they appear to be for items that the Authority should be purchasing directly, h每 many cases sales tax is paid by an employee and reimbursed on items that would be tax exempt if purchased by the Authority. We noted disbursements are made to Authority employees for Elderly Christmas parties and picnics. Based upon our review of the invoices, there was no supporting documentation for the expenditure of those monies or any refund to the Authority for any amounts not used.
We also noted in one case that there were some receipts provided with a note that the balance of the amount spent in excess of the advance was paid for with attendee donations.
7. We noted that one of the invoices for TND Services, LLC lacked adequate detail for work completed. Reference was made only to remodeling per contract amount.
In addition, the invoices appeared to be informal and varied including different levels of detail, font size and font type. .
Based upon our review of the process for collecting, depositing and recording the amounts received for use of the washer and dryers, we noted the following: The cost for washing and drying was 75 cents for each. Based upon review of the cash receipts for non rent revenue, we noted amounts being deposited for washer and dryer revenues.
We noted that most of the deposits were for round, even dollar amounts ($300, $500). We learned that the Maintenance department had a coin counter and would send collections to the bank in a bag in even dollar anaounts. It is our understanding that the procedure for depositing laundry monies has been revised and the coin counter is no longer used.
RESULTS OF PROCEDURES PERFORMED FINDINGS ,
Based upon our review of Transaction History report for Jill Kelliher from 9/1/2005 through 10/2/2009 detailing the rent amounts due and amounts paid we noted the following: a. The rent amount was changed 4 times during the 9/1/2005 through 10/2/2009 b. Based upon review of the tenant file, rent was increased/decreased for the following reasons: 1. Base rent increase 2. Son moved in 3. Son moved out 4. Income change
RECOMMENDATIONS: As a byproduct of performing the procedures described above, certain items came to our attention that we are providing to you for your consideration. The recommendations noted below relate to strengthening internal controls and policies and procedures, best practices or other considerations.
Since the purpose and scope of our engagement was not to review the Authority's internal controls and policies and procedures, the recommendations noted below are not all inclusive. If we had specifically performed an engagement to evaluate the Authority's internal controls, policies and procedures, other recommendations may have been reported to you.
CASH DISBURSEMENTS Condition:
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For the period we reviewed, we noted that in many instances there was a written memo from the Executive Director authorizing certain invoices to be paid. Recommendation:
We recommend that a voucher form be developed and implemented to document the necessary approvals, account distribution, inventory item and other necessary data that the Authority decides is relevant.
Condition: For the period we reviewed, we noted that the Authority paid employees $50 per day fbr meals when attending conferences, without any requirement to support the actual amount spent. Recommendation:
We recommend that the Authority review/update that policy to address meals provided by the conference and that documentation be required to support that amount. If the Authority continues to offer a per diem amount for meals, we recommend that the amount of the per diem
be reviewed and formally approved. Condition: For the period we reviewed we noted that the Authority paid advances to employees for attending local conferences
Recommendation:
We recommend that the Authority revisit this practice as it relates to local conferences since the use of advances it is not a common practice for municipal entities. We recommend that the Board formally adopt employee expense reimbursement policies and procedures. These procedures should address the situations where purchases should be made by the Authority vs the employee and reimbursement of sales tax for items purchased and reimbursed to employees. The policies should also formally document the types of documentation required to support any reimbursements.
Condition: During our review it was noted that the mileage reimbursement form was not always used to request reimbursement for use of an employee's vehicle. Recommendation:
We recommend that mileage reimbursement forms be completed with all required information. Mileage forms without adequate detail may create a payroll tax issue for the Authority. We also recommend that the mileage reimbursement form be updated to include the project to which the expense relates (or administrative) as well as a statement the employee must sign stating to the accuracy of the information on the form. Condition: During review of invoices, we noted that in some cases sales tax was being paid on items and in other cases it was not. Recommendation:
We recommend that this be reviewed and monitored by the accounting department as part of the process of paying vendor invoices. The review and consideration should be documented on the voucher package.
PURCHASING/BIDDING Condition: During our review it was noted that the Authority does not have formal purchasing or bidding procedures. Recommendation:
We recommend that the Authority develop and implement formal purchasing procedures to ensure that the Authority is obtaining the best possible pricing and that all purchasing activity is consistent and properly documented. Condition:
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Currently, there does not appear to be a formal process to evaluate and approve new vendors. Recommendation:
We recommend the Authority develop and implement a new vendor form, approval process, and related checklist to ensure that all required information is obtained, proper and required due diligence is performed and the approval is documented. The approval of the form would be the authorization to enter the vendor into the accounts payable system.
We also recommend that the employee who processes the accounts payable checks be restricted from having the ability to enter new vendors into the system. New vendors should be added only after proper due diligence has been performed as noted above and all required information and forms have been obtained by someone other than the accounts payable clerk. Condition: Currently the use of purchase orders is inconsistent and does not appear to be used to identify and monitor purchasing activity, inventory or capital asset purchases. Recommendation:
We recommend that the Authority formally implement a purchase order system. The purchase order system should be part of a comprehensive purchasing policies and procedures that address all Authority purchasing practices and guidelines. The policy should include such items as what types of purchases require purchase orders, any thresholds, required approvals, inventory tracking procedures, and other items that are necessary to properly control and monitor disbursements.
Condition: We noted that many items the Authority uses were purchased from multiple vendors at varying prices for items that appear to be purchased on a consistent or monthly basis. Recommendation:
We recommend that the Authority consider bidding out the commodities and services it uses on a consistent basis and developing an "approved" vendor list for each item. This will ensure that the Authority obtains the lowest possible cost for the commodities and services it uses on a regular basis. ,ÿ,,ÿ, .2, ÿ:ÿrÿ ÿ
Condition:
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We noted during our review of the Authority's vendor histories, that there were a small number of vendors who had two vendor numbers. Recommendation:
We recommend that the Authority review the current vendor files to ensure that all vendors only have one number, that inactive vendors be made inactive or purged from the system and that all vendors have a proper w-9 on file to ensure proper 1099 reporting.
INVENTORY Condition: Currently there does not appear to be any formal procedures to properly record, track and monitor inventory items purchased by the Authority. Recommendation:
We recommend that the Authority develop and implement formal policies and procedures to properly record and monitor inventory items purchased and subsequently used. Condition: Currently, the Authority uses a work order system/form for tenant requests for items to be addressed. The form is completed by the tenant and then signed off on by the maintenance department employee who is assigned the work order.
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Recommendation:
We recommend that the Authority implement a formal work order system for all maintenance and other related work performed on Authority properties. The work order system should require documentation of the material needed and actually used to complete the work order and all work orders should be pre numbered and accounted for. This information would then be used to update/verify inventory. Condition: Currently, it is unclear as to the process for the determination for using outside vendor to complete the necessary repairs and maintenance vs use of the Authority's maintenance department. Recommendation:
We recommend that the Authority develop and implement a formal policy or protocol for determining whether any required repair or maintenance project will be performed with existing staff or contracted out.
This will ensure that the work performed is completed at the lowest possible cost to the Authority and full utilization of the maintenance department employees
PAYROLL Condition: Currently, there does not appear to be any formal salm'y/benefit approval form or other documentation. Recommendation:
We recommend that the Authority develop and implement a formal process and related form to approve and change employee pay rates and benefits. This documentation should be retained in the employee personnel file.
OTHER Condition: We noted that certain supply and related expenses were allocated to each project based upon certain percentages.
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OTHER Recommendation:
We recommend that those percentages be reviewed on a periodic basis to ensure that the allocation is properly supported and documented to ensure compliance with Federal and State grant requirements
Condition: As part of this engagement we requested certain financial reports to be produced for our review. During that process we noted that the functionality and reporting of the accounting software was limited and inefficient. Although we did not review the capabilities or functionality, it is our understanding that the rental and operational functions of the software were useful to the Authority. Recommendation:
We recommend that the Authority consider an alternative accounting software such as Quickbooks or something similar to increase the accounting and reporting capabilities necessary to properly account for and monitor financial activity.
AUTHORITY POLICIES " ': •". i.., ;": J :.
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Condition: Certain policies and procedures are best practices and assist the Authority in informing employees and vendors of expected behaviors. These policies communicate the Agency's rights and obligations as well as employees' rights and obligations. They also communicate the Authority's expectation of both employees and vendors. Recommendation:
We recommend that the Agency review their existing policies for comparison to best practices and consider updating and/or developing and implementing the following policies: • Code of Ethics/Conflict of interest policy • Employee Handbook - guidelines • Accounting policy and procedure manual, with specific attention to the items noted above
• Purchasing/bid policy • Capital Asset policy • Inventory procedures/guidelines • Expense Reports (including timely submission (ex. 60 day, advances, sales tax reimbursement)
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ASSUMPTIONS: In performing our analysis we made the following assumptions: °
The reports provided for our use from the Authority's accounting software were complete and accurate.
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The supporting documentation (unless otherwise noted) was the original documentation that was used to process the transaction at the time it occurred.
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All documentation available related to the items examined was provided.
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All information obtained from discussions and interviews with the Authority staff were complete and accurate. ," '4" 'ÿ.: 'ÿ'ÿ 'ÿ
RESTRICTIONS:
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This report is intended solely for use of the Wallingford Housing Authority, Inc. the management of the Wallingford Housing Authority, Inc. and should not be used for any other purpose without our prior permission for each occasion.
The validity of this report is predicated on the extent to which full, honest, and complete disclosure was made to all parties.
Kostin, Ruftkess & Company, LLC Farmington, Connecticut
Attachments: Exhibit A
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