October 7, 2011

Board of DirectorsWallingford Housing Authority, Inc.

We were engaged to perform certain forensic accounting procedures concerning the books andrecords of the Wallingford Housing Authority for the fiscal years 2006, 2007 and 2008. Theprocedures we performed were based upon certain concerns expressed during discussions withBoard members.

OBJECTIVES:

The objectives of the investigation were to:

a.

b.

C.

d.

e.

To review and determine the disbursements made by the Authority's to significantvendors for a three year periodTo review the purchasing/bidding activity fbr the Authority for the vendorsselected above

To perform procedures on the rental income for the Authority to identify anyunusual items

To review certain other revenues such as wash/dryer incomeTo provide any recommendations/observations as a result of performing theprocedures noted above

SCOPE OF THE INVESTIGATION:

The scope of our procedures was limited to the fiscal years 2006, 2007 and 2008 and to thespecific areas noted above in the objective section. The type and extent of the procedures thatwe were able to perform was limited by the information that was available for our review. Forfiscal years 2006 and 2007 the Authority was not fully using the fmaneial software generalledger function and therefore general ledger activity was not available. The information that wasavailable from the software was from separate software modules for disbursements, rents, andother revenues. Since there was no general ledger available, these reports were not able to bereconciled to any other report as would be the normal process. In addition, without a balancedand complete general ledger, we were unable to review the Authority's financial activity toidentify any items that may be considered unusual or would be identified for further analysis.

For fiscal year 2008 there was activity in the trial balance/general ledger reports but the basedupon our review, the trial balance amounts did not reflect activity in a format that would allowthe type of analysis we would normally perfiorm.

BACKGROUND INFORMATION:

Concerns were raised by Board members about certain transactions or practices regarding themanner in which the Agency's business was conducted.

SOURCE DOUCMENTS

We inspected the following documents: ÿ', :ÿ ÿ':ÿ: ,'i'::

1. Report prepared by Forensic Accounting Services, LLC dated November 4, 2010

2. Vendor History reports for the fiscal years 2006, 2007 and 2008

3. Certain vendor invoices for the fiscal years 2006, 2007 and 2008

4. Expense reports for various Housing Authority employees

5. Account Inquiry Report for non rent revenues for the period !/1/2000 through12/31/2008

6. Transaction History report for Jill Kelliher from 9/1/2005 through 10/2/2009 detailingthe rent amounts due and amounts paid.

7. Travel vouchers and work order forms

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SUMMARY OF PROCEDURES PERFORMED

. We reviewed the reported prepared by Forensic Accounting Services, LLC datedNovember 4, 2010 to provide background and to avoid any duplication of effort withrespect to the procedures we performed.

. We reviewed the vendor history report for each fiscal year 2006, 2007 and 2008 andperformed the following procedures:

a. We selected certain vendors based upon our concerns expressed by Board members andour professional judgment and reviewed the related invoice files.

b. We reviewed the documentation available for disbursements to employees includingadvances, travel voucher documentation and other expense reimbursements.

c. We prepared a schedule of the amounts paid to each vendor we selected for the fiscalyears 2006, 2007 and 2008.

SUMMARY OF PROCEDURES PERFORMED

. We obtained an understanding of the process for collecting, depositing and recording theamounts received for use of the washer and dryers.

. We reviewed the Account Inquiry Report for non rent revenues for the period 1/1/2000through 12/31/2008 to verify that laundry receipts were being recorded.

We reviewed the Transaction History report for Jill Kelliher from 9/1/2005 through10/2/2009 detailing the rent amounts due and amounts paid. We then reviewed the tenantrent file and the supporting documentation for each rent change for the period notedabove.

. As a result of our review of the invoices, we obtained an understanding of certainAuthority processes and related forms as we considered necessary.

RESULTS OF PROCEDURES PERFORMED ,ÿ .ÿ ÿ, ÿL:. ÿ= ÿ ÿ ÿa ,ÿ 'ÿ, ÿ;,ÿ ÿ ÿo:: ÿ,ÿ

The following findings are a result of the procedures that were performed. The results aresummarized in EXHIBITS A through C.

1. Based upon our review of certain vendor activity (EXHIBIT A presents the vendors wereviewed) and related invoices we noted the following:

a. In general, there was proper supporting documentation for most disbursements. Therewere a few minor instances where the documentation was missing or incomplete.Most of the invoices we reviewed were properly approved and cancelled.

b. Reliable Plumbing Inc.:

° In June of 2008 it appears that the Authority began paying a monthly fee of $1,500to Reliable Plumbing, Inc. It is unclear what services were included in this fee, howit was monitored, and how service calls were evaluated to ensure they were notcovered by the monthly charge. During the period this monthly fee was paid to thevendor, the Authority continued to pay for service calls to Reliable Plumbing, Inc.

, The invoices presented for payment from Reliable Plumbing, Inc. lacked theexpected detail for labor and materials as seen from other vendors. The invoicesshowed the same amount for rate as the total invoice.

c. During our review we noted the following with respect to the Authority's use ofpurchase orders:

1. In many cases the purchase order did not appear to be approved (not signed).

RESULTS OF PROCEDURES PERFORMED

c. Purchase order use (continued):

2. The use of purchased orders was inconsistent for purchase of appliances, materialsand supplies.

3. We noted that in many instances, the invoices to which the purchase orders wereattached included items that were not listed on the purchase order.

d°

4. There did not appear to be any reconciliation between the purchase order and thevendor invoice. <ÿ ,

Competitive Bids

1. Based upon our inquiry, there does not appear to have been any formal purchasingpolicy or bidding requirement.

2. In many instances, we noted that the same items were being purchased from multiplevendors (water heaters) at varying prices.

e. Disbursements to Employees

, During the period we reviewed, it appears that it was the Authority's policy toprovide travel advances to employees attending conferences. The Authority hasimplemented a travel Voucher Form that properly accounts for the advance andcalculates any amounts due to the Authority or additional amounts due to theemployee.

In two instances an advance was issued to an employee and we did not seedocumentation of the expenses for that event and refund of balance (if due). In oneinstance only the hotel bill was attached to the travel voucher form and that amountwas less than the advance.

In years previous to 2006 as far back as 2002, an accounting of the travel advance didnot appear to be required. We did not see the travel voucher form or anydocumentation of the anlount spent against the advance in the vendor invoice files.

2. We noted the following items that were paid as part of the travel voucher:

a. Tips and tips for room serviceb. Miscellaneousc. Charger for phoned. Maide. Staff drinks (no documentation)

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RESULTS OF PROCEDURES PERFORMED FINDINGS

° Although we were unable to obtain documentation to verify whether the conferencefee included meals, other conferences hosted by NAHRO included meals in theregistration fee. If this was the case, it is unclear why the advances included $50 perday for meals.

, Although it appears that the Authority has a mileage reimbursement form, it was notalways used and in certain other limited instances, not approved.

. For certain other reimbursements to employees we noted that they appear to be foritems that the Authority should be purchasing directly, hÿ many cases sales tax ispaid by an employee and reimbursed on items that would be tax exempt if purchasedby the Authority.

. We noted disbursements are made to Authority employees for Elderly Christmasparties and picnics. Based upon our review of the invoices, there was no supportingdocumentation for the expenditure of those monies or any refund to the Authority forany amounts not used.

We also noted in one case that there were some receipts provided with a note that thebalance of the amount spent in excess of the advance was paid for with attendeedonations.

7. We noted that one of the invoices for TND Services, LLC lacked adequate detail forwork completed. Reference was made only to remodeling per contract amount.

In addition, the invoices appeared to be informal and varied including different levelsof detail, font size and font type.

. Based upon our review of the process for collecting, depositing and recording the amountsreceived for use of the washer and dryers, we noted the following:

The cost for washing and drying was 75 cents for each. Based upon review of thecash receipts for non rent revenue, we noted amounts being deposited for washer anddryer revenues.

We noted that most of the deposits were for round, even dollar amounts ($300, $500).We learned that the Maintenance department had a coin counter and would sendcollections to the bank in a bag in even dollar anaounts.

It is our understanding that the procedure for depositing laundry monies has beenrevised and the coin counter is no longer used.

RESULTS OF PROCEDURES PERFORMED FINDINGS

, Based upon our review of Transaction History report for Jill Kelliher from 9/1/2005through 10/2/2009 detailing the rent amounts due and amounts paid we noted thefollowing:

a. The rent amount was changed 4 times during the 9/1/2005 through 10/2/2009b. Based upon review of the tenant file, rent was increased/decreased for the following

reasons:

1. Base rent increase2. Son moved in3. Son moved out4. Income change

RECOMMENDATIONS:

As a byproduct of performing the procedures described above, certain items came to ourattention that we are providing to you for your consideration. The recommendations notedbelow relate to strengthening internal controls and policies and procedures, best practices orother considerations.

Since the purpose and scope of our engagement was not to review the Authority's internalcontrols and policies and procedures, the recommendations noted below are not all inclusive. Ifwe had specifically performed an engagement to evaluate the Authority's internal controls,policies and procedures, other recommendations may have been reported to you.

CASH DISBURSEMENTS

Condition:[ÿ i'j

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For the period we reviewed, we noted that in many instances there was a written memo from theExecutive Director authorizing certain invoices to be paid.

Recommendation:

We recommend that a voucher form be developed and implemented to document the necessaryapprovals, account distribution, inventory item and other necessary data that the Authoritydecides is relevant.

Condition:

For the period we reviewed, we noted that the Authority paid employees $50 per day fbr mealswhen attending conferences, without any requirement to support the actual amount spent.

Recommendation:

We recommend that the Authority review/update that policy to address meals provided by theconference and that documentation be required to support that amount. If the Authoritycontinues to offer a per diem amount for meals, we recommend that the amount of the per diembe reviewed and formally approved.

Condition:

For the period we reviewed we noted that the Authority paid advances to employees forattending local conferences

Recommendation:

We recommend that the Authority revisit this practice as it relates to local conferences since theuse of advances it is not a common practice for municipal entities.

We recommend that the Board formally adopt employee expense reimbursement policies andprocedures. These procedures should address the situations where purchases should be made bythe Authority vs the employee and reimbursement of sales tax for items purchased andreimbursed to employees. The policies should also formally document the types ofdocumentation required to support any reimbursements.

Condition:

During our review it was noted that the mileage reimbursement form was not always used torequest reimbursement for use of an employee's vehicle.

Recommendation:

We recommend that mileage reimbursement forms be completed with all required information.Mileage forms without adequate detail may create a payroll tax issue for the Authority.

We also recommend that the mileage reimbursement form be updated to include the project towhich the expense relates (or administrative) as well as a statement the employee must signstating to the accuracy of the information on the form.

Condition:

During review of invoices, we noted that in some cases sales tax was being paid on items and inother cases it was not.

Recommendation:

We recommend that this be reviewed and monitored by the accounting department as part of theprocess of paying vendor invoices. The review and consideration should be documented on thevoucher package.

PURCHASING/BIDDING

Condition:

During our review it was noted that the Authority does not have formal purchasing or biddingprocedures.

Recommendation:

We recommend that the Authority develop and implement formal purchasing procedures toensure that the Authority is obtaining the best possible pricing and that all purchasing activity isconsistent and properly documented.

Condition: ÿ"ÿ ...... ' " " ' " .......... " ÿÿ

Currently, there does not appear to be a formal process to evaluate and approve new vendors.

Recommendation:

We recommend the Authority develop and implement a new vendor form, approval process, andrelated checklist to ensure that all required information is obtained, proper and required duediligence is performed and the approval is documented. The approval of the form would be theauthorization to enter the vendor into the accounts payable system.

We also recommend that the employee who processes the accounts payable checks be restrictedfrom having the ability to enter new vendors into the system. New vendors should be added onlyafter proper due diligence has been performed as noted above and all required information andforms have been obtained by someone other than the accounts payable clerk.

Condition:

Currently the use of purchase orders is inconsistent and does not appear to be used to identifyand monitor purchasing activity, inventory or capital asset purchases.

Recommendation:

We recommend that the Authority formally implement a purchase order system. The purchaseorder system should be part of a comprehensive purchasing policies and procedures that addressall Authority purchasing practices and guidelines.

The policy should include such items as what types of purchases require purchase orders, anythresholds, required approvals, inventory tracking procedures, and other items that are necessaryto properly control and monitor disbursements.

Condition:

We noted that many items the Authority uses were purchased from multiple vendors at varyingprices for items that appear to be purchased on a consistent or monthly basis.

Recommendation:

We recommend that the Authority consider bidding out the commodities and services it uses on aconsistent basis and developing an "approved" vendor list for each item. This will ensure thatthe Authority obtains the lowest possible cost for the commodities and services it uses on aregular basis.

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Condition: ÿ " ÿ: ÿ:ÿ ' ÿ ¢

We noted during our review of the Authority's vendor histories, that there were a small numberof vendors who had two vendor numbers.

Recommendation:

We recommend that the Authority review the current vendor files to ensure that all vendors onlyhave one number, that inactive vendors be made inactive or purged from the system and that allvendors have a proper w-9 on file to ensure proper 1099 reporting.

INVENTORY

Condition:

Currently there does not appear to be any formal procedures to properly record, track andmonitor inventory items purchased by the Authority.

Recommendation:

We recommend that the Authority develop and implement formal policies and procedures toproperly record and monitor inventory items purchased and subsequently used.

Condition:

Currently, the Authority uses a work order system/form for tenant requests for items to beaddressed. The form is completed by the tenant and then signed off on by the maintenancedepartment employee who is assigned the work order.

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Recommendation:

We recommend that the Authority implement a formal work order system for all maintenanceand other related work performed on Authority properties. The work order system shouldrequire documentation of the material needed and actually used to complete the work order andall work orders should be pre numbered and accounted for. This information would then be usedto update/verify inventory.

Condition:

Currently, it is unclear as to the process for the determination for using outside vendor tocomplete the necessary repairs and maintenance vs use of the Authority's maintenancedepartment.

Recommendation:

We recommend that the Authority develop and implement a formal policy or protocol fordetermining whether any required repair or maintenance project will be performed with existingstaff or contracted out.

This will ensure that the work performed is completed at the lowest possible cost to theAuthority and full utilization of the maintenance department employees

PAYROLL

Condition:

Currently, there does not appear to be any formal salm'y/benefit approval form or otherdocumentation.

Recommendation:

We recommend that the Authority develop and implement a formal process and related form toapprove and change employee pay rates and benefits. This documentation should be retained inthe employee personnel file.

OTHER

Condition:

We noted that certain supply and related expenses were allocated to each project based uponcertain percentages.

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OTHER

Recommendation:

We recommend that those percentages be reviewed on a periodic basis to ensure that theallocation is properly supported and documented to ensure compliance with Federal and Stategrant requirements

Condition:

As part of this engagement we requested certain financial reports to be produced for our review.During that process we noted that the functionality and reporting of the accounting software waslimited and inefficient. Although we did not review the capabilities or functionality, it is ourunderstanding that the rental and operational functions of the software were useful to theAuthority.

Recommendation:

We recommend that the Authority consider an alternative accounting software such asQuickbooks or something similar to increase the accounting and reporting capabilities necessaryto properly account for and monitor financial activity.

AUTHORITY POLICIES

Condition:• ' ' , ÿ ; L. .1:1" ': ". i.., ;": J :. ';. L ÿ: .:, ,ÿ;:ÿ ;ÿ :" :iÿ i,:_ .ÿ ÿ:ÿ

Certain policies and procedures are best practices and assist the Authority in informingemployees and vendors of expected behaviors. These policies communicate the Agency's rightsand obligations as well as employees' rights and obligations. They also communicate theAuthority's expectation of both employees and vendors.

Recommendation:

We recommend that the Agency review their existing policies for comparison to best practicesand consider updating and/or developing and implementing the following policies:

• Code of Ethics/Conflict of interest policy• Employee Handbook - guidelines

• Accounting policy and procedure manual, with specific attention to the items noted above• Purchasing/bid policy• Capital Asset policy• Inventory procedures/guidelines

• Expense Reports (including timely submission (ex. 60 day, advances, sales taxreimbursement)

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ASSUMPTIONS:

In performing our analysis we made the following assumptions:

° The reports provided for our use from the Authority's accounting software were completeand accurate.

, The supporting documentation (unless otherwise noted) was the original documentationthat was used to process the transaction at the time it occurred.

3. All documentation available related to the items examined was provided.

4. All information obtained from discussions and interviews with the Authority staff werecomplete and accurate.

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RESTRICTIONS: ÿ,

This report is intended solely for use of the Wallingford Housing Authority, Inc. the managementof the Wallingford Housing Authority, Inc. and should not be used for any other purpose withoutour prior permission for each occasion.

The validity of this report is predicated on the extent to which full, honest, and completedisclosure was made to all parties.

Kostin, Ruftkess & Company, LLCFarmington, Connecticut

Attachments: Exhibit A

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