HOT SPRINGS -- Requiring the Hot Springs Housing Authority to repay more than $670,000 in mismanaged U.S. Department of Housing and Urban Development funds would create a "serious problem," the chairman of its board of commissioners said this week.
After concluding a year-long investigation in March, the HUD office of inspector general published a report online on Aug. 14 and released via email Monday that found the Hot Springs Housing Authority had not operated its public housing programs in accordance with federal regulations and other requirements, and could be required to pay back more than $670,000.
"That would create quite a serious problem," board Chairman Al Carney said Tuesday.
The federal investigation -- which generally covered the period of Sept. 1, 2011, to March 25, 2014, when Barbara Baer was the executive director -- found a total of $677,459 in questionable costs. The inspector general has recommended that the Hot Springs Housing Authority be required to either provide supporting documents for the expenditures or repay the money.
The investigation was initiated in accordance with the inspector general's regional plan to review public housing programs and because of a complaint filed by a contractor.
"A large chunk of that $677,000 was paid by insurance and involved a roofing contract. The board had a procurement policy in place that we passed as a resolution, but Barbara Baer just didn't follow it precisely the way she was supposed to.
"This incident involved her husband being an employee of one of the contractors, and that contractor should not have been selected. Ultimately Final Touch [Roofing] ended up doing the work, and all but a small portion of that bill was paid by insurance," Carney said.
The Hot Springs Housing Authority's response to the claim of $614,308 in questioned procurement costs, including an air conditioner chiller, wheelchair ramp, erosion work, and landscape and lawn maintenance, states that all but $31,806.98 was paid by insurance or from other housing authority accounts.
"It was not only insurance that paid those bills. There were other budget categories at the housing authority that paid a large amount of the other charges," Carney said, adding that he believes "there are some flaws in the OIG report."
The report said the insurance premiums were paid with federal funds, according to the Hot Springs Housing Authority's financial documents, and the housing authority will need to work with HUD to support that the costs were paid from nonfederal funds and complied with regulations.
The report also notes that the wheelchair ramp and soil erosion work appear to have been split in order to fall under the Hot Springs Housing Authority micropurchase ceiling of $5,000, but the purchase orders for the two contracts were dated the same, indicating the work was originally grouped together.
In a response to the investigation and recommendations, Richard Herrington Jr., the current housing authority executive director, has agreed that more than $250,000 was mismanaged, but the office of inspector general maintains that the disputed amounts are not supported by documentation.
The report also states that the housing authority needs to repay $23,621 from nonfederal funds for unsupported leave balance payments to the former executive director for about 482 hours of accrued leave when the board of commissioners terminated her employment without cause on April 23, 2014.
"This occurred because the Authority's staff did not comply with the Authority's requirements when calculating leave and improperly made a retroactive change to the leave accrual based on a November 2013 employment agreement. In addition, the former executive director did not completely report all leave taken during her employment with the Authority. As a result, the entire $23,621 was unsupported," the report states.
In addition, the investigation report states that the board of commissioners "failed to provide adequate oversight of the Authority and former executive director," and recommends that the director of the Office of Public Housing in Little Rock review the current actions of the board of commissioners to determine its effectiveness and whether it is "presently responsible."
If not, the report says "appropriate action should be taken, such as referring the board members to the Departmental Enforcement Center for proper administrative sanctions, including suspensions, limited denials of participants, and debarments as deemed appropriate."
Carney admitted that the housing authority staff did not provide adequate oversight of Baer.
"That didn't happen. The handbook for commissioners makes it clear that the board of commissioners' responsibility is to oversee, but not get involved in the day-to-day management of the housing authority. It is clear that the executive director is the CEO of a corporation, so the only guidance available is not to get involved," he said.
Carney said two audits are done each year -- one internally and the other by an outside firm -- and none of the audits that cover the period of the investigation showed any of the issues found by the office of inspector general.
"None of these were cited in previous audits," he said.
Carney said Baer moved to Kansas after her termination and was presented with several charges related to the investigation. He said she was given the option of offering a defense in court or pleading guilty and accepting a one-year probation.
She did repay some of credit card charges related to the purchase of alcohol, he said.
"The rest of it involves mismanagement of HUD funds, and as a general rule, you're not going to be charged with personal responsibility for that. It didn't benefit her; she just mismanaged the funds," Carney said.
"I don't think restitution would ever be an issue, but the next phase will be whatever the director in Little Rock decides to do. I've been told these matters start with the OIG investigation final report, and then it goes through a number of back-and-forth phases, so a final resolution could still be a year away," he said.
City Attorney Brian Albright said the housing authority is a creation of the Hot Springs Board of Directors, but the board and the city have no day-to-day oversight or responsibility. He said the city receives copies of the audits performed each year, and none of these issues were brought to light.
He said the city board ratifies appointments made by the housing authority board, but could remove all of them if needed and make new appointments.
He said the city incurs no financial liability for the actions of the housing authority.
State Desk on 08/29/2015