Audit Details Housing Agency Embezzlement
The former chief accountant for a nonprofit agency that provides housing for the poor was able to embezzle more than $400,000 in agency funds because of the agency’s strikingly poor accounting and oversight practices, according to an independent audit released Monday by Los Angeles city redevelopment officials.
The ex-chief accountant, Wazir Chand, has not been seen for eight months, according to the man who runs the agency. Chand’s financial practices are under a criminal investigation by the district attorney’s office.
The audit--ordered by the Community Redevelopment Agency after the Single Room Occupancy Housing Corp., or SRO, reported the missing funds in April--listed a series of problems in the nonprofit agency, which has an annual budget of more than $6 million. The problems include:
* An accounting system that failed to properly record financial information.
* Inadequate management oversight of cash transactions.
* Poor procedures for reporting how much rent is collected and how much rent is due at each hotel.
* Cash duties that are not adequately divided among several SRO employees.
* A former executive manager who did not communicate ethical standards and did not maintain effective internal checks and balances.
In its written response to the audit, SRO’s executive director, Bud Hayes, said the corporation has already taken steps to rectify the situation and implement the auditors’ recommendations. Hayes was hired in September after the long-scheduled departure of the previous director.
CRA Deputy Administrator Don Spivack said, “These things can happen and do happen in organizations from time to time,” but stressed that SRO had corrected its procedures.
Created by the CRA in 1984 to provide housing for the poor by buying and repairing downtown residential hotels, SRO bought and continues to manage 19 buildings with more than 1,300 rooms, which rent from $195 to $235 per month. In 1996, SRO had about $6.4 million in operating revenues from a variety of public and private sources.
Tenants’ rent, a portion of that revenue, is transmitted mostly in cash. Hayes said that was one factor that enabled Chand to divert large sums of money over the course of seven to nine months.
According to Hayes, Chand was responsible for receiving, counting, posting and depositing tenants’ rent payments. The audit, conducted by a Newport Beach accounting firm, said such a wide range of duties should be handled by a number of people to minimize the potential for fraud.
Chand, a 12-year veteran of the organization, also was responsible for handling checks from the government and other corporation funders.
Funds began disappearing in July 1995, just after the start of the fiscal year--a time period that would not be included in the corporation’s annual audit until the following year, Hayes said.
The corporation alleges that when checks for some of SRO’s revenue came in, Chand would hold them until rent collection days. Then, before depositing the cash rent collections, Chand would substitute one or more checks for an equivalent amount of cash, Hayes said. That way, the amount of the rent deposit would match the amount collected by SRO hotel managers--and Chand could pocket the cash, Hayes said.
After several months, an SRO accountant asked Chand to find out why several promised revenue checks had not yet arrived. When those funds were still missing in late February, the agency accountant again pressed Chand to follow up.
“At that point, he probably figured that he was about to get tripped up,” Hayes said.
On April 12, the agency’s then-executive director, Andy Raubenson, got a handwritten resignation from Chand, who said he had to leave because of unspecified health problems.
When the director called Chand’s home to talk with him about the resignation, Chand’s family said he was missing, Hayes said. The concerned agency accountant soon followed up with the funders and discovered that some of the rent deposits were made with checks for large amounts, not the expected cash. The SRO tallied up their losses and notified the Los Angeles Police Department.
Hayes said the corporation’s insurers so far have repaid $250,000 of the missing funds. Hayes said he hopes to recover the remainder of the missing $406,000 when the person responsible is brought to trial.
In the interim, SRO officials say, they have reinstituted executive oversight, dispersed accounting and deposit duties among a variety of people, changed their system for posting the funds they are owed and established a number of systemwide checks and balances.
