WHA audits, records show years of ‘significant deficiencies,’ ‘material weaknesses,’ and overpayments
The Wilmington Housing Authority has had significant, sometimes recurring, issues identified by independent auditors for the last three years. Some issues escaped auditors’ notice, including overpayments that pulled an excess $700,000 from WHA’s Housing Choice Voucher fund. Officials say these issues have been dealt with and won’t recur.
Over the last three fiscal years for which reports are available, auditors for CliftonLarsonAllen, LLP found issues with the Wilmington Housing Authority’s internal control over federal programs — including “material weaknesses” in all three years from 2018 to 2020 and “significant deficiencies” in both 2018 and 2020. The WHA’s fiscal year runs April 1 to March 31. According to the authority, the 2021 financial audit has been delayed and is due to be filed at the end of June.
WHA Board Chair Al Sharp said that the findings were not for financial mismanagement, but for compliance with HUD regulations on data management.
“The findings were on the data, and following the rules to certify certain things on an annual basis. So the financials, it's clean,” Sharp said.
Asked why WHA had issues with the compliance side for three years running, Sharp said it might have been management issues, or the switch to a new software system. Kim Fitzwater, WHA’s chief financial officer, noted that there was high turnover in property management for some time.
Sharp said there were a number of issues that may have impacted past audits, but that he believed all the recurring problems had been dealt with.
“I think, and this is a projection, but I think that none of these will be in the current audit,” Sharp said, referring to the forthcoming 2021 audit.
An issue that wasn’t identified in the audits was a significant overpayment on the Rankin Terrace project — which was rehabilitated and reopened in 2016. The funding for Rankin rent support used to come from public housing funds, but after the rehabilitation, funding came from the Housing Choice Voucher Program (HCVP) — and the two have different rates
WHA never adjusted the rates and, over the next three years, overpaid nearly $700,000. Those payments, drawn from the HCVP fund, were made to Housing and Economic Opportunities (HEO), a non-profit that spun off from WHA (and which shares the same board as WHA).
According to Sharp, the error was discovered by a consultant WHA had hired under a nearly $450,000 multi-year contract to handle HCVP issues and who later filled in as a middle manager.
HEO paid back roughly $350,000 from cash on hand, and took out a loan to pay back WHA’s HCVP fund the roughly $350,000 which remained. According to Sharp and Fitzwater, the miscalculation did not directly impact tenants and that the repayment plan was approved by all parties, including the North Carolina Housing and Finance Agency (which approved a Low Income Housing Tax Credit for the Rankin project) and First Citizens.
According to the auditors, Rankin Terrace — and two other LLCs owned by WHA or HEO as legally separate entities — were not required to be audited under the Government Auditing Standards, although in an email to WHQR the auditors confirmed that any entity can request an audit under these standards. It’s unknown if an audit of Rankin under ‘government auditing standards’ would have revealed the overpayment.
WHQR also asked Sharp about the commercial mortgage that WHA used to help finance the Rankin rehab — a $750,000 loan from First Citizens Bank and Trust, which issued the 30-year mortgage at 5.97%. That’s a considerably higher rate than the average rate from July 1, 2016, listed as 3.48% by Freddie Mac. Neither Sharp or Fitzwater were familiar with the details of the project and neither knew why WHA had been unable to secure a more favorable loan rate.
Both the Rankin overpayments and the multiple compliance failures on WHA’s audits were part of a formal whistleblower complaint sent to the Office of the Inspector General for Housing and Urban Development in July, 2020.
Mayor Bill Saffo, who appoints the board of WHA, said he was familiar with the complaint, and had met with the “whistleblower.”
“I know that there was a whistleblower complaint …and I talked to the whistleblower, [they] came in and see me one day, and laid out specifically what the whistleblower complaint was. I understand that complaint went to HUD, and HUD is the oversight for this the voluntary oversight, and they have a responsibility to determine whether they were right, or whether they were wrong,” Saffo said. “I had no idea if that's true or not. I'm anticipating that HUD has taken a look at it. And if they find that there was some misappropriation of funds, that the people that are responsible for that will be called out on it and we'll see where the chips fall.”
HUD noted that the Inspector General’s Office is independent and didn’t respond directly to a question about whether it has acted on the whistleblower complaint — but did note in a statement that it was now ‘looking into’ the Rankin issues:
During the last few months, HUD’s NC Public Housing team has provided technical assistance to representatives of the Wilmington Housing Authority on a weekly basis. The comprehensive engagement to help them resolve their challenges includes the participation of a financial analyst, an engineer, a portfolio management specialist, and the division director. Additionally, the HUD team has met with members of the WHA Board of Commissioners to keep them abreast of the housing authority’s challenges and progress towards resolution.
Thank you for bringing the overpayment topic to our attention. We are looking into it and addressing it with the Wilmington Housing Authority.
Asked if he had any concerns about WHA’s repeated audit issues, Saffo said he did.
He also suggested that the lack of answers about many of these issues from former WHA Katrina Redmon were part of what left to her abrupt resignation.
“And I'm also, I'm also guessing that, at some point in time the board, and they haven't shared this with me, but I would imagine that the board had serious questions that they were not getting answers to, which I think created some of the angst between the executive director and her staff and the board. And I think that the board took some drastic action that ultimately led to her resignation. I'm just surmising here," Saffo said.
Details: Audit issues
For the fiscal year ending March 31, 2018, auditors found material weaknesses in compliance for the housing program. A sampling of 40 tenant files found 27 issues, and auditors concluded that WHA “failed to perform recertifications” – that is, the paperwork necessary to evaluate what a tenant’s rent should be. The auditors noted this was a repeat finding from previous years.
Auditors also found a “significant” issue with the Housing Choice Voucher Program (HCVP), sometimes referred to as Section 8. According to the audit, WHA failed to update its HCVP waitlist with an applicant’s latest address. So, when the applicant reached the top of the waitlist they were never notified – because a letter was sent to the wrong address – and they were kicked off the waitlist for failure to apply.
Two other HCVP issues included lack of timely inspections – with 5 of 40 sampled files showing more than a year between inspections – and the lack of compliance with rules requiring rent comparisons to establish reasonable leases for tenants. These issues represented roughly $22,500 in questioned costs.
WHA indicated it would address these issues, and noted a new data system would help it keep track of tenant information. Some of the issues, including the significant deficiency, were cleared the following year — but other issues persisted.
For the fiscal year ending March 31, 2019, auditors again found issues with internal control for public housing records. A sampling of 40 tenant files found half had issues.
The HCVP program also had repeated issues, with 27 out of 40 sample files showing errors, missing paperwork, or delayed recertifications. There were also issues with quality control. Out of 40 sample files, 10 lacked timely inspections, and several had never passed inspection.
WHA indicated that its new software program had caused staff to get behind. For the recurring issues, where auditors found “management failed” to take appropriate steps to make sure recertification paperwork was performed and filed in a timely way, the authority also indicated it would hire a recertification specialist.
Auditors again found ‘significant deficiencies’ with WHA’s public housing problem, with tenant files lacking supporting documents for income, asset, and expenses. Another recurring issue was the ‘material weaknesses’ in internal control for the HVCP. There, auditors sampled 40 files and found issues in 25 of them. In other samplings, auditors looked at 40 HCVP tenant files and found 11 without properly filed recertifications; another cross-section of 40 HCVP files found seven where more than a year had passed for annual inspections.
For three separate findings of recurring deficiency or weakness, the auditors determined “management failed on making sure” appropriate steps were taken to address the issue.