TACOMA — A recent audit of the Pierce County Housing Authority found that as of 2022 the agency remains behind in its financial responsibilities three years after its former finance director misappropriated over $6.9 million in public funds, according to an internal audit report the State Auditor’s Office released Thursday.
The accountability audit report found in 2021 and 2022 the housing authority had improved some of its operations, “However, as with the previous audit, this report shows the Housing Authority has yet to implement full internal controls to ensure proper oversight of its financial activities.”
The state Auditor’s Office found no financial irregularities with the PCHA, but auditors did find the agency is still developing controls to ensure financial transfers go to their intended accounts, which was an issue that allowed the scheme to misappropriate funds in 2019 to happen in the first place, Adam Wilson, the auditor’s office assistant director of communications, told The News Tribune.
The 2019 case was the biggest instance of fraud involving a local government in Washington state history, Wilson said.
The PCHA is governed by five-member Board of Commissioners and provides affordable housing for low-income families in Pierce County. The agency owns and manages nine apartment complexes with 841 total units and also provides housing assistance through the Low-Income Public Housing and Housing Choice Voucher programs. In 2022 it had about $42.8 million in operating expenses, according to the audit report.
PCHA executive director Jim Stretz told The News Tribune on Thursday that the latest audit was several years dated and said the organization has taken steps to address concerns. Stretz said PCHA is “on track” to complete its audit plan within several months.
During 2021 and 2022, PCHA experienced a lot of executive and finance department turnover, as well as moved to a new software system which contributed to issues outlined in the audit report, said Riley Guerrero, PCHA’s planning, policy and community engagement manager.
“We completely understand we need to have that oversight, and this has all been pursuant to getting that oversight in place as fast as possible,” Guerrero told the News Tribune. “We’ve been working on a lot of clean up and it’s coming to an end just about now, so we’re really lucky to be on the far side of that.”
The next audit of the PCHA will begin this fall and evaluate Jan. 1, 2023, through Dec. 31, 2023, Wilson said.
PCHA slow to implement financial controls
In the report, the State Auditor’s Office said it found PCHA management and board had taken steps to respond to internal control weaknesses identified in prior audits and fraud investigation, including hiring a new permanent finance director in February 2023 and creating a Finance Committee that meets monthly.
“However, the Housing Authority was unable to fully implement these new internal controls during the current audit period. As a result, we found the following weaknesses continued to exist,” the report said, including “developing controls to ensure amounts are transferred to the intended accounts” and further developing a reporting process for providing financial information to the board.
Lack of proper oversight and inadequate internal control systems “increase the risk that a loss or misappropriation of public funds could occur and not be detected by management,” the report said.
Significant fraud in the past required key management roles to be replaced and retrained at the PCHA, “which impaired its ability to ensure internal controls were adequate” and a new enterprise resource planning system to segregate duties “is still in progress due to the system’s complexity, which exceeded the expertise and capacity of Housing Authority staff,” the report said.
According to the audit report, by the end of 2022 PCHA had also not fully reconciled all tenant subledger accounts from the old legacy system to the new system, “nor has it established a plan to fully reconcile tenant subledger accounts, including accounts receivable, security deposits and prepay accounts.” Turnover in key staff also was identified as a cause of this in the report.
In response to the findings, PCHA said it is committed to ensuring that all tenant subledger balances are accurate, complete, documented and that an appropriate review has been completed.
“In the last several months, PCHA has made great strides in finishing the implementation of the new software system and is diligently working on balancing the accounts receivable, security deposit and prepay accounts to the tenant subledger balances,” PCHA said in the report.
PCHA said some of those problems were caused by software interface issues, and “since the audit, each individual sub-ledger has been or will be reviewed and corrected if necessary.”
Guerrero said PCHA knows there is trust to be rebuilt in the community.
“We’ve got a lot of processes that we’re going through to regain where we stand as an organization and also to move forward into being a new organization,” she said. “Over the last two years, we’ve been focusing really intensely on our system improvements internally so that we’re in a place where we can actually manage [our] programs and the programs that the community needs with responsibility and transparency.”
