HUD TAKES ACTION TO ENSURE ACCOUNTABILITY OF FEDERAL FUNDS
Two Florida Accounting Firms Settle After Questionable Audits

WASHINGTON - The Department of Housing and Urban Development (HUD) has settled with two Florida certified public accounting firms accused of conducting questionable audits for public housing agencies across the country. Malcolm Johnson & Company, P.A. of DeBary, and Brewster & Associates of Pensacola faced debarment by the federal agency before agreeing to settlements that include restricting the number of audits they perform for public housing agencies (PHA) and HUD.

In both cases, the Department had alleged the firms had not followed the proper standards and procedures for conducting audits of public housing agencies that receive federal funds. These settlements, with other actions taken by the Department, ensure federally-funded housing programs are properly audited. Over the past two years, these firms performed audits for more than 100 public housing agencies combined in 22 states across the country. In both cases, the parties negotiated the settlements to avoid further litigation.

"The message is clear," said HUD Assistant Secretary Michael Liu, who heads up the agency's Office of Public and Indian Housing. "HUD expects federal funds to be accurately accounted for and we will not tolerate deficient audits involving HUD programs."

Under the settlement, Malcolm Johnson & Company, P.A., agreed to:

• Make an administrative payment of $50,000 to HUD.
• Fund an independent accounting firm to perform a review of eight of the company's audits over a two-year period. HUD will choose the independent reviewer and the audits to be reviewed, and the auditors and the company provided a $50,000 Letter of Credit to guarantee payment for the independent reviews.
• Restrict the number of public housing authority audits they perform over the next two years to 60 per year at PHAs having less than 1,250 units; and eliminate audits of PHAs with more than 1,250 units.
• Complete a limited number of audits currently under contract for PHAs with fiscal years ending March 31, 2003 and June 30, 2004.

Under the settlement, Brewster & Associates agreed to:

• Abide by a two-year voluntary exclusion from participating in all transactions involved HUD funds including, but not limited to, performing audits and financial reviews; assisting other persons or businesses that are performing audits and financial reviews for PHAs or HUD-insured or assisted projects.

Full debarment would have resulted in these firms not doing any new business with the federal government or federal funding recipients, including public housing authorities, for a prescribed period.

Last year, HUD settled a similar case with the certified public accounting firm Mike Estes, P.C. of Fort Worth, Texas, and its president Mike Estes. Under the settlement terms, HUD received an administrative payment of $50,000. In addition, $50,000 was placed in escrow to cover the costs of having a HUD-approved independent accounting firm perform a review of eight audits over a two-year period. That settlement also restricted the number of PHAs Mike Estes or Mike Estes, P.C. could perform audits for over a two-year period.

HUD's actions reinforce this Administration's strong emphasis on ensuring financial accountability from federally-funded providers. They are part of HUD's renewed emphasis on fiscal integrity. Other steps HUD has taken in this regard include:

• Referrals to state boards of accountancy: Results of Quality Assurance Reviews are referred to state boards in the states in which the auditors are licensed to practice for their review and appropriate administrative action.
  
  
• New methods of audit verification: HUD staff performs a portion of the OMB A-133 Compliance Supplement audit at PHAs to determine if the public housing agency's audit firm identified all material instances of noncompliance with Federal laws, regulations, and contract provisions occurring at the agency.
  
  
• Increased monitoring of fee accountants: Over half of all PHAs use service organizations, or fee accountants, to perform their financial operations. In violation of professional auditing standards, many auditors have not been reviewing the internal controls of the fee accountants during the annual audits. To ensure that material control weaknesses are being identified and reported in annual audits, HUD now conducts internal control reviews at the nation's largest providers of fee accounting services

HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet and espanol.hud.gov.