Audit Report Detailed Virtually No Controls

One of the first moves of former Chelsea Housing Authority (CHA) Receiver Judith Weber was to hire a professional number cruncher to weed through the sticky, convoluted financial records that had been created and left by the deposed former administration.

That number cruncher came in the form of nationally-known auditing company Urlaub and Co. (Certified Public Accountants) and they spent the better part of a week last December combing out the kinks in the web.

Late last week, that report became public record, and though it is a highly-technical document with a lot of professional terms, it still revealed some simple truths – no one was guarding the hen house.

The Urlaub report identified a number of problems – particularly with the way funds were allocated between separate federal and state programs for salaries and maintenance.

One troubling aspect of the report was that there was no monitoring of financial activities in the CHA and there were no formal internal controls established to detect risks, such as overt fraud – which is alleged of former Executive Director Michael McLaughlin.

“The component of monitoring is missing throughout the organization,” read the report. “Benchmarks are not used to assess financial amounts. From an analysis of the financial statements for the 10 months ended Oct. 31, it was apparent that significant material budget overruns were occurring in the administrative salary line item…As one can determine, budget overruns were clearly being reported on the financial statements received by the fee accountant. However, the lack of monitoring failed to note overruns…From our onsite review, it was noted that internal control procedures were not formally established.”

Three administrative salary budgets in three different programs had total budgets of about $880,000. Those same programs had total overruns for administrative salaries of about $172,000.

Other deficiencies noted were that routine maintenance costs were being taken from the Capital Improvement fund, with about 33 percent of that fund going towards what should have been coming from a maintenance account.

Also, major hardships were reported in the Housing Voucher program (Section 8), and the report indicated that there would have to be major cuts and cost reductions to that program immediately to keep it afloat.

What appeared to sink it was that it was being charged for cost in other programs – perhaps an easier program account to raid in order to make up for deficiencies in other areas.

And that seemed – from a novice point of view – to be a routine set of circumstances throughout the books of the CHA. Many programs were charged for deficiencies and salaries that were supposed to come from other programs. It was particularly noted that federal programs seemed to run much higher overruns than state programs.

It was so convoluted that auditors indicated it was hard to tell which program was being charged and what funds were going where and to support what.

“Due to the use of a centralized revolving fund, one cannot actually determine which source was used,” read the report. “Inter-program account balances should be reconciled on a monthly basis with reimbursements paid back to the revolving fund in a timely manner.”

Finally, one clear recommendation to prevent future problems was to put a culture and policy in place that would prevent a code of silence from developing once more – even going so far as to call for a Whistle Blower policy.

“All employees should understand their roles as stewards of government resources who help their community and that any fraudulent acts should be reported,” read the report. “The organization should consider the development of a Whistle Blower policy. This policy is established to protect employees who may need to communicate fraud, misappropriation or other illegal acts to those higher up the chain of command. Of course, this type of policy will only be successful in an organization with a sound control environment.”

In the end, the detailed, 13-page report made six specific recommendations – many of which have already begun to be implemented.

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