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Tenderloin Housing Clinic Review 3-23-12

Tenderloin Housing Clinic Review 3-23-12

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Published by: Jeff Webb on Apr 27, 2012
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03/21/2014

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CITY AND COUNTY OF SAN FRANCISCOOFFICE OF THE CONTROLLER Ben RosenfieldController
 
Monique ZmudaDeputy Controller
M E M O R A N D U M
415-554-7500 City Hall 1 Dr. Carlton B. Goodlett Place Room 316 San Francisco CA 94102-4694 FAX 415-554-7466
Based in San Francisco’s Tenderloin neighborhood, Tenderloin Housing Clinic (THC)operates the City’s largest permanent housing program for single homeless adults and is aleading provider of legal services to low-income tenants. The organization currently leasesalmost 1,600 units in sixteen master-leased hotels. According to the Controller’s Office’svendor payment database, THC received over $18 million in City funds in FY 2010-11.The Controller’s Office and Human Services Agency performed a three-part review of THC’smanagement and budgetary practices:1.
 
In response to the arrest and subsequent conviction of a THC employee for embezzlement,we reviewed THC’s internal controls for the financial management of its properties. Ourreview found that THC, in response to this crime, has implemented sufficient internalcontrols for all of its properties.2.
 
In response to public concern regarding the City’s property tax assessment of a THCproperty on Innes Avenue, we found that the Assessor’s methodology for its valuation of the property to be reasonable. In addition, we found that there is no evidence that THC hasused City funds to pay for property-related expenses.3.
 
In response to public concern regarding the possible use of City funds to pay for THC’s
 Beyond Chron
website expenses, the Human Services Agency (HSA) staff reviewedTHC’s budget and staff allocation plans. HSA’s review found that there appears to be noindication that City funds are being use to support
 Beyond Chron
.
TO:
Trent Rhorer, Director, Human Services AgencyDavid Curto, Human Services AgencyScott Walton, Human Services AgencyBrian Cheu, Mayor’s Office of HousingBen Rosenfield, ControllerPeg Stevenson, City Performance Director, Controller’s Office
FROM:
Greg Asay, Performance Analyst II, Controller’s OfficeNikhila Pai, Performance Analyst II, Controller’s Office
CC:
Wynne Tang, Tenderloin Housing ClinicChristina Iwasaki, Human Services Agency
DATE:
March 23, 2012
SUBJECT:
Tenderloin Housing Clinic Review
 
 
I.
 
Internal Controls – Property ManagementBackground
On October 12, 2011 the San Francisco Police Department announced the arrest of JamesEugene Holland, a former THC employee, for allegedly embezzling over $29,000 from theagency in 2009. Mr. Holland was accused of taking rental payments from THC tenants at theGalvin Apartments and depositing the funds into his personal bank account. He was alsoaccused of moving new tenants into the Galvin Apartments, without notifying THC, anddepositing rent money from these units into his personal bank account. In media reports,Randy Shaw, THC Executive Director, said that Mr. Holland was fired two years ago afterallegations of theft came to light. Mr. Shaw also stated that the alleged crimes did not involveany properties connected to City contracts for housing.Separately, a March 19, 2010 external audit by DZH Phillips, an independent auditor,identified “significant deficiencies” in the bank reconciliation and rent rolls/propertymanagement functions of THC’s Modified Payment Plan (MPP) software. The auditorpointed specifically to limitations in the system that prevent the MPP software from preparingcomplete and accurate bank reconciliations or to generate a traditional rent roll. In responseto the audit, THC management redesigned the MPP database.In its February 28, 2011 audit, DZH Phillips stated the MPP software upgrade addressed theprevious year’s deficiencies.
Findings
In October 2006, THC opened the Galvin Apartments, a 56-unit apartment building at 785Brannan Street serving very low income tenants. A local housing developer constructed anddonated Galvin Apartments to THC in return for the City’s approval to upzone a market-rateproject at another site. As a result, no City funds were used to build the project and, becauserental revenue from the building pays for its expenses, no City funds are used for itsoperations.According to Wynne Tang, Director of Finance, because the Galvin Apartments are the onlyhousing units owned by the organization and operated without public subsidy, THC decidednot to integrate management of the units into THC’s established protocols. Under theseprotocols, THC’s Housing Division handles client intake and rent collection at the centraloffice and according to established policies and procedures. Instead, THC managed theGalvin Apartments as a for-profit company would, with a property manager assigned to fillvacancies and collect rent. The property managers would then deliver rent to THC’s HousingDivision for deposit.In 2008 THC assigned the resident screening and rent collection responsibilities to Mr.Holland, then Director of Property Management for all 15 master-leased THC properties.According to Ms. Tang, in mid-2009 the finance team noticed a dip in revenue from the
 
 
Galvin Apartments. Upon further investigation, staff discovered that Mr. Holland had beendepositing rent checks into his personal account and had filled two vacant units withoutnotifying the central office. Mr. Holland was placed on leave during an internal investigationand fired one week later. Subsequent to his arrest in 2011, Mr. Holland pled guilty to theembezzlement crimes and is currently serving a jail sentence.As a result of the embezzlement, management of the Galvin Apartments has been integratedinto THC’s standard operating procedures. The process for filling vacancies and collectingrent mirrors the tenant intake process at THC’s master lease sites. The centerpiece of theseprocedures is the Property Management Information System (PMI, also referred to as MPP), adatabase that tracks by client and lists funds collected, funds dispersed, account balance, andunit vacancies. All Galvin Apartments tenants – and units – are tracked in PMI. Tenants mailrent checks directly to THC’s Housing Division, which itself has separate units for rentcollection, accounting, and client interaction. An Associate Director of Supportive Housingand Property Management (SHPM) screens potential tenants and refers these potential tenantsto the Housing Division for further review and processing. In the event that PMI shows atenant behind on rent, THC sends a case manager – not the property manager – to speak withthe tenant.A review of THC’s written policies and procedures by Controller’s Office staff confirms thatTHC’s management of the Galvin Apartments has been integrated into the organization-widepractices. Unlike past practices during Mr. Holland’s tenure at THC, no one person controlsrent rolls, client screening, and rent collection at the Galvin Apartments. In particular:1.
 
THC’s written policies and procedures detail adequate controls for its propertymanagement functions, including new tenant intake screening, rent payment and theprocessing of rent checks, nonpayment of rent, and tenant transfers. Multiple THCdivisions are involved in these processes, and there are written records of actions takenthroughout the process.2.
 
THC’s policies and procedures require a joint review of the building’s rent rolls by anAssociate Director of SHPS, Galvin Apartments case manager, and a housingcounselor every other month.3.
 
Our review of the PMI database confirms Ms. Tang’s description of its breadth of information and confirms the security controls to limit access to authorized staff only.
HSA Oversight
While distinct from our original scope of work, the Controller’s Office reviewed the HumanServices Agency’s (HSA) practice of reimbursing master lease service providers, such asTHC, based upon actual expenses incurred minus rents collected. In particular, theController’s Office reviewed what controls are in place to prevent a service provider fromunderreporting rental income, thereby maximizing its HSA reimbursements.

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