WOONSOCKET [Rhode Island] — The Woonsocket Housing Authority improperly used federal funds to subsidize a non-profit agency, failed to follow competitive bidding requirements and issued reimbursement for travel expenses at rates that were “clearly unreasonable,” a financial audit spearheaded by the Department of Housing and Urban Development says.

The Office of the Inspector General, an arm of HUD, also criticized the WHA for improperly mingling funds between its federal housing voucher and subsidized housing programs, and did not manage its waiting lists properly, allowing some applicants for public housing to jump ahead of others.

Perhaps the most egregious finding in the 35-page audit report, however, was that the WHA improperly used $114,326 in federal funds to support the operations of the Blackstone Valley Development Corp., a non-profit agency established by the WHA in 2002 to convert the onetime Pothier School into affordable housing. The expenditures were a violation of the WHA’s contract with HUD for disbursing expenditures for voucher and housing subsidy programs, the report says.

“The Authority improperly used federal funds to pay non-program costs and put $114,326 in federal program funds at risk of loss had the operations of Blackstone failed,” the audit said. “This condition occurred because the Authority’s board members did not follow the annual contributions contract of the Voucher program restrictions to ensure that expenditures complied with federal regulations.”

Of five separate findings of impropriety in the report, the BVDC issue is the only one prompting a recommendation that either the HUD director or the departmental enforcement officer consider administrative sanctions against WHA members or the executive director who approved the improper spending.

The financial infusions included $75,577 in public housing funds, $18,749 in voucher program funds and a $20,000 interest-free loan between February 2003 and last August, at which point the WHA repaid all but $2,608.

The report identifies no member of the housing authority or its executive director by name. During much of the period the audit examines, former WHA Director Stephen Vadnais was in charge of the agency, while Robert Kulik succeeded him in March 2006.

Released on May 14, the report also documented the following violations:

· The WHA improperly mingled funds between its public housing and voucher programs, resulting in the unsupported allocation of $654,855, the overwhelming majority in management and finance salaries. Between January 2005 and last June, the report said, an average of $241,081 was owed to the public housing program from the Section 8 voucher program, making those funds unavailable for public housing. The problem occurred because the WHA was unaware that the crossover of funds was restricted and did not see the need for establishing accounting controls over inter-program receivables and payables, the report said.

· The WHA failed to follow not just HUD’s procurement procedures, but its own, entering into no-bid contracts for housing inspection, accounting and legal services, as well as the leasing of copying machines. For legal services obtained in July 2006 the authority had little detailed history of procurement, but two firms had been paid a total of $133,753 without signed contracts. Similar lapses accompanied the hiring of a $2,000-a-month accounting firm in 2005. In the matter of copying machines, the inspector general said the WHA entered into leasing contracts totaling $85,200 in 2006, while “our analysis of the lease showed that the purchase of copiers would have been less costly than the leases.” The inspector general determined the WHA could have saved more than $13,000 had it purchased copiers instead of leasing them. “HUD had no assurance that the Authority’s procurement process was fair, equitable, and resulted in obtaining the best quality and/or priced services,” the report concluded.

· The WHA was incapable of justifying its reimbursement rate for travel expenses of $175 per day, charged to federal programs. The report called the rate “arbitrary” and said some board members incorrectly interpreted the requirements for submitting travel expense vouchers. In addition, the inspector general said the authority could not account for $5,950 in cash advances for board members who traveled to conferences in Phoenix, Ariz., and Las Vegas, Nev. Moreover, the federally established travel rate for those trips was $59 per day, and $64, respectively.

· The authority did not always follow approved waiting-list procedures for applicants seeking public housing. The inspector general said it identified three cases in which applicants received preferential treatment over others on the WHA’s public housing and voucher program waiting lists. The report acknowledges, however, that the problem occurred because the executive director “decided to put the safety of the tenants first and provide housing to a homeless person without HUD approval.”

Although the director provided detailed police and medical reports to justify his actions, the WHA should have obtained HUD approval for the exceptions. The inspector general recommended the agency establish a clear policy for handling what were called “extraordinary circumstances.”

Albert G. Brien, the chairman of the WHA, allowed that the audit report makes some negative findings. But he says it sounds worse than it is.

“Generally the authority is well-run,” said Brien. “Obviously it’s well run because they found we were generally in compliance. The areas where they take exception are in the methodology we use for reporting various programs.”

Brien backed up his comments by quoting the report itself, saying the WHA “generally administered the Voucher and public housing programs in compliance with its annual contributions contract and HUD regulations.” The same section says HUD’s regional counsel opined that the WHA’s board members did not violate conflict-of-interest regulations, which was one of the key questions the inspector general was trying to resolve when the inquiry began, the report says.

Exactly what prompted the audit remains an open question. Without elaborating, the report says it began as part of an annual audit plan.

Brien suggests employees disgruntled over a shakeup in the financial division of the WHA might have complained, kick-starting the review. When auditors arrived last March, however, they told WHA members the review was part of a routine process that also involved the housing authority in Brockton, Mass., according to Brien.

Mike Serega, spokesman for the Office of the Inspector General, said specific complaints could have triggered the audit, but he could not confirm that. He said the inspector general’s office, an independent arm of HUD, does not conduct regular audits of any housing authorities, and such inquiries could be launched for many different reasons.

Occasionally, Serega said, HUD selects agencies of similar sizes in the same region for audits just to see how they fare in comparison to each other. The WHA audit, he added, “Could very well have been random.”