Taxpayer funding intended to improve rural housing developments was spent on Christmas parties, alcohol, and trips to Six Flags, according to a new audit from the U.S. Department of Agriculture’s Office of Inspector General.
The audit found that two managers of apartment complexes in Maryland operated by the Rural Rental Housing (RRH) program spent nearly $30,000 on parties.
"Based on our data analytics, we found that [two] management agents charged unallowable expenses to 11 RRH projects in 2013," the audit said. "These unallowable expenses included charges for staff Christmas parties, summer picnics, dinners, alcoholic beverages, and gifts to their staff."
The program’s management handbook explicitly disallows using funds for parties and alcohol.
The inspector general found misuse of taxpayer funding in all 11 projects in its sample. The $27,718.66 unallowable expenses identified included $3,912.37 for a staff summer picnic at Six Flags America in 2013; $11,411.74 for a staff Christmas party in 2012; and $12,394.55 for a staff Christmas party in 2013.
"This occurred because RHS does not have adequate controls to identify the misuse of RRH funds," the inspector general said. "Without proper oversight of management agent expenditures, RRH funds are vulnerable to misuse."
The inspector general said that wasting housing funds on parties and staff retreats increased rent for elderly tenants.
"Consequently, the misuse of program funds by management agents jeopardizes the integrity of the RRH program, burdens low-income and elderly tenants with higher rents, and unnecessarily increases RHS’ RA payments."
The inspector general suspects that hundreds of rural housing projects are misusing taxpayer funding. The audit sample was taken from a list of 546 projects with the highest operating expenses.
"Since we found that all 11 projects reviewed were charged for unallowable expenses by their respective management agents, we believe there is some probability that this condition also exists in the 535 projects we did not review," the inspector general said.
The RHS provides low-income housing for individuals living in rural areas. The RRH program provides loans to build and operate apartment complexes, amounting to $1.1 billion per year in rental assistance.
Rental income is supposed to go towards operating and maintenance costs and upkeep of the buildings.
"Budgets must be reasonable and realistic," the inspector general said. "Revenues and expenses must be consistent with past project budgets and comparable projects."
The inspector general recommended that the USDA improve its oversight of the program by identifying projects that have higher than normal budgets, and recover the $28,000 in spending on parties and alcohol.