The U.S. government wants roughly $6 million back from the Port Arthur Housing Authority, and to see Executive Director Seledonio “Cele” Quesada and a board member appointed by Mayor Deloris “Bobbie” Prince sanctioned for misappropriating funds after being warned about similar infractions in the past.
Those findings are contained in a June 1, 2012, audit report filed by Fort Worth Regional Inspector General for Audit Gerald Kirkland. In his report, Kirkland outlines a pattern of what he alleges is misappropriation of funds, abuse of publicly funded credit cards, questionable payroll benefit payouts, and faulty bid award procedures, to name just a few of the infractions listed in the 59-page document. Thousands of dollars were paid erroneously to Prince-nominated board commissioner Desireé Edwards, who serves as the housing authority’s resident
commissioner although she wasn’t a PAHA resident at the time of her appointment. Edwards received the money as a monthly stipend, on top of more than $1,000 charged by Edwards for use of a rental car and numerous trips and outings. Various developers and vendors are also in possession of thousands of taxpayer dollars meant to provide low-income housing to Southeast Texans, according to Kirkland’s report, as are various past and present board commissioners who were allowed to keep up to $120,000 in computer equipment.
Wording in Kirkland’s report urges HUD officials to implement measures including taking over the housing authority and recapturing millions in what the auditor believes are improperly used PAHA funds. Not that this is the first time Kirkland has recommended sanctions on the Port Arthur housing entity.
This time last year
The amount to be “recaptured” in Kirkland’s 2012 audit recommendation is added on top of more than $600,000 in grants already pulled from the public housing authority for failing to use the funds as directed. Kirkland was commissioned to perform the 2012 PAHA audit “due to deficiencies noted in a prior audit.” Kirkland referred to a 2011 report titled “The Housing Authority of the City of Port Arthur, TX, Mismanaged Its Recovery Act Funding” detailing numerous deficiencies identified at that time that made the inspector plan a return trip to Port Arthur.
“The Authority poorly planned its Recovery Act activities, violated procurement regulations and Recovery Act requirements, did not practice sound financial controls, failed to meet reporting requirements, and commenced site work for its project before receiving environmental clearance to proceed,” Kirkland’s 2011 report read. “The Authority violated procurement requirements designed to ensure full and open competition and reasonable cost and did not practice sound financial controls over the grant.”
As a result, Kirkland recommended taking back PAHA’s $725,546 Recovery Act grant allotment, which was provided by the government for the express purpose of demolishing the dilapidated Carver Terrace apartments. Executive director Quesada told The Examiner that, to date, the authority has been allowed to keep $67,640 in grant funds PAHA expended before Kirkland’s recommendation, but the housing authority did lose use of the remaining $657,906. But, Quesada said, none of the funding was used on the Carver Terrace property, located within yards of Motiva, the largest refinery in the United States. As noted in Kirkland’s request to rescind the grant, PAHA diverted the funds to build a learning center, much of its space dedicated to an indoor basketball court, near the housing authority’s Gulf Breeze/Lakeview Palms apartments.
“We had identified the need for a learning center for our residents quite some time ago, but we never had the funding for it,” Quesada said of the development. PAHA began work on the project in 2010, but soon ran into environmental problems with the site. As of June 2012, the learning center is still awaiting environmental clearance.
In addition to losing the Recovery Act funding, Kirkland’s 2011 report recommended Quesada and staff undergo additional training and implement more measured financial controls. Quesada responded to the inspector with a written response accepting the additional training and acknowledging a need for PAHA to exercise added financial controls.
Same song, different dance
“(The Authority) failed to enact policies and procedures to ensure the integrity of financial operations and compliance with procurement requirements, even after repeated findings regarding financial and procurement weaknesses,” Kirkland reported June 1, 2012, a little more than a year after his initial assessment of the public entity. “Instead,” Kirkland insists, “they abused the Authority’s charge card accounts and received ineligible and unsupported compensation.”
According to the recent audit, “the (PAHA’s) lack of controls put it at substantial risk for fraud, errors and financial mistakes.” Which is exactly what happened, Kirkland reports.
“The Authority charged in excess of $199,000 to its American Express charge card account, $23,205 to its gasoline charge card account, and $5,352 to its Lowe’s charge card account during the audit period,” Kirkland reported. “The Authority did not maintain control of its charge cards to ensure that only authorized personnel used the cards. The executive director acknowledged allowing five employees and a contractor to use his Authority-issued American Express card. Documentation also reflected that unauthorized personnel used the Authority’s gasoline charge cards. The director of finance stated that he had difficulty obtaining receipts to support charges to the Authority’s charge cards and preferred to limit the number of cards rather than trying to get receipts from individuals for many cards.
“Many of the American Express charges did not appear to fulfill a housing authority mission or business purpose,” Kirkland summed up. “Instead, the charges appeared to benefit the Authority’s commissioners, management, employees and contractors.”
Among some of the items billed to the American Express card that were questioned during the audit was more than $3,000 in charges at the Holiday Inn, $14,600 spent at Walmart, $2,250 at Jason’s Deli, $1,987 charged at Enterprise Rent-a-Car, more than $4,000 spent at the Woodlands Conference Center and thousands of dollars spent on items such as groceries, grilling supplies, party supplies, local restaurant charges and gasoline.
“The Authority incurred $8,410 in ineligible and $47,916 in unsupported charges that it allocated to its HUD programs and at least $9,595 in travel costs incurred by the commissioners that it charged to its non- HUD programs,” Kirkland surmises. “Not only were these charges unreasonable, they did not appear to support the Authority’s or its related entities’ missions.”
The demolition of Carver Terrace was again a point of contention in the inspector’s audit for a second year in a row. According to Kirkland’s audit, “the Authority reported that it planned to submit a demolition application to HUD for its Carver Terrace development by February 2010. However, as of January 2012, the Authority had not submitted an application or proceeded with land acquisition. In total, the Authority had $528,550 in unused capital funds set aside as replacement reserve. HUD allowed the Authority to draw the funds with the understanding that it would use the funds to rebuild Carver Terrace. However, in its plans for the year beginning October 2009, the Authority budgeted the replacement reserves for Gulf Breeze and its administrative office rather than Carver Terrace.”
Kirkland recommended that HUD recapture the $469,359 the housing authority drew as replacement reserves from its earlier Capital Fund grants and prepare a detailed plan for the use of its capital funds that include demolishing Carver Terrace.
Quesada said the PAHA is in the process of coordinating the demolition of Carver Terrace, and the funds examined by Kirkland are still available for use on the Carver Terrace project.
To pay or not to pay
While Quesada admits some of the funds were misappropriated and he has since learned Commissioner Edwards was appointed to the board improperly, he generally disagrees with Kirkland’s audit, he said.
As it pertains to Edwards, Quesada asserts she was only paid from April 2010 through November 2010, although it was in error since she doesn’t receive PAHA residential support. Quesada also said Edwards was willing to pay back the $1,900-plus Enterprise rental car bill “accidentally” charged to the housing authority for personal use.
“It is true that (the commissioner) is not a public housing resident or a recipient in the voucher program,” Quesada said in response to Kirkland’s report. “At the time of her appointment, however, she was selected by the mayor to serve based on a good faith belief that she met the eligibility requirements. To the extent that HUD determines that (she) does not fulfill the resident Commissioner requirements, HUD’s only role should be to present its findings to the mayor, who has the authority to determine the appropriate remedy based on a review of the facts. In the meantime, the Authority will consider candidates to serve as a resident Commissioner.”
Quesada said records indicate Edwards had previously been a public housing resident but had moved out before her appointment to the board, still owing delinquent rent to PAHA. Additional allegations concerning payments to Edwards are very specific, but Kirkland sees the errors as signs of a bigger problem.
“Identification of the $1,987 for the rental car for the resident commissioner in the Authority’s response as a personal purchase of the commissioner is further evidence of the lack of controls, policies, and procedures at the Authority,” Kirkland responded. “This expense was incurred in November 2010; however, the Authority did not identify it as a personal expense of the commissioner until May 2012 when it provided its comments to this audit report. In addition, the commissioner should not have been authorized to incur this type of expense on the Authority’s charge card.”
Kirkland also identified Quesada as receiving payments “in violation of (PAHA) personnel policy.” According to information compiled for the audit, PAHA paid the executive director $51,821 after taxes for accrued sick leave from August 2010 through December 2011. “However,” the report contends, “payroll documents did not show the payment as sick leave, and the Authority did not reduce the executive director’s accrued leave balances.”
“In addition, it failed to provide requested payroll data, resulting in $2.9 million in unsupported payroll expenses. HUD should require the Authority to support or repay $2.9 million in HUD-funded portions of its payroll expenses during the review period, including the $102,485 in irregular payroll transactions.”
Quesada refutes the notion he or his staff was improperly paid and said “miscommunication − rather than intentional obstruction or neglect – likely explains any purported deficiencies in the production of payroll data.”
Despite Quesada’s statements, Kirkland stood fast.
“Contrary to the intended purposes of the programs and the Authority’s own mission, the funds appeared to have been used for expenses that benefited the Authority’s commissioners, management and employees. Specific items noted during the audit included thousands of dollars spent on unnecessary equipment for commissioners, parties, excessive travel, local restaurant charges, and gifts. The Authority has a fiduciary responsibility to its residents, the public, and the Federal Government to administer its programs and funding in a manner that promotes its missions.”
Kirkland said if the audit was incomplete in any way, it was due to the uncooperativeness of the management at PAHA. According to the inspector, authority staffers impaired the audit by limiting the auditor’s access to staff, records and data; and by providing incomplete records, particularly for procurement.
“The Authority did not provide all of the documentation requested, even after requests for status updates, and refused to provide employee data on the advice of its attorney,” Kirkland stated. “Because of the Authority’s lack of cooperation, we issued an OIG administrative subpoena and then a demand letter to obtain materials necessary to conduct the audit. The Authority did not fully comply with either requirement that it produce data and records.”
Quesada said he was disappointed in the “unfortunate” recommendations made by Kirkland. “This is especially true because the OIG improperly suggests that HUD take over or remove Authority management and/or its commissioners in the Draft Report despite the fact that nowhere in the Draft Report has the OIG concluded that the Authority actually acted with improper intent,” he said. “The OIG improperly attempts to steer HUD to a specific outcome through unnecessary and suggestive language regarding HUD’s potential ‘take over’ of the Authority or removal of the executive director and/or the Authority’s commissioners.”
PAHA is “in the process of securing a third party consultant to develop and implement specific, written policies governing all manner of operational areas including, but not necessarily limited to, travel, credit card usage, investment and asset management policies,” the executive director added as proof the housing authority is moving forward from 2009-10.
But, “in the process” may be too late for the Inspector General, who concluded, “The Authority’s management and board failed to establish a control environment that instilled responsibility and accountability. They failed to ensure that basic controls were in place over the Authority’s financial operations, ensure compliance with procurement requirements, and adequately plan and undertake capital improvements.
Meanwhile,” Kirkland continued, “they spent lavishly on items that benefited them personally. As a result of their actions, the Authority incurred questioned costs of more than $5.9 million and was in violation of its annual contributions contract. In addition, the Authority’s lack of controls put it at substantial risk for fraud, errors, and improper payments.
“HUD should determine if the Authority was in substantial default of its annual contributions contract and take appropriate administrative action against the executive director and commissioners.”
In the end, despite what appears to be a damning bill of particulars against PAHA, Kirkland offers a measure of equivocation in summarizing the charges against the agency.
On the questionable credit card charges, the auditor would “require the Authority to repay from non-federal funds $8,410 in ineligible credit card charges.” Quesada acknowledged some credit charges were improper. As for the balance, Kirkland asks PAHA to merely “support or repay an additional $55,986.”
As for the charge Quesada was improperly paid for unused sick leave and vacation time, Kirkland asks HUD to “determine whether the clause in the executive director’s contract payment for unused leave is allowable.”
Finally, rather than recommending the outright termination of Quesada and the commissioners, the auditor calls for “appropriate administrative action including possible debarment.” The term “debarment” appears in federal regulations to facilitate a prohibition against a person or company from submitting or assisting in the submission of certain matters to an agency – a stiff sanction but one that falls short of outright termination.