Issue Date
March 6, 2000
Audit Case Number
00-AT-201-1003
TO: Hildamar Ortiz, Director, Office of Public Housing, 4NPH
FROM: Nancy H. Cooper
District Inspector General for Audit-Southeast/Caribbean, 4AGA
SUBJECT: Puerto Rico Public Housing Administration
Procurement Management
San Juan, Puerto Rico
We have completed an audit of the Puerto Rico Public Housing Administration’s (PHA) management of
its central office procurement system. We conducted the audit in response to the Department of
Housing and Urban Development (HUD) officials and our on-going concerns regarding the Puerto Rico
Public Housing Administration’s financial management systems. Our audit objectives were to determine
whether the PHA administered its activities in compliance with HUD requirements.
We focused our audit to evaluate the PHA’s procurement system. This report presents four findings
that detail the PHA’s need to improve its procurement operations.
Within 60 days, please give us a status report for each recommendation in the report on: (1) the
corrective action taken; (2) the proposed corrective action and a planned implementation date; or (3)
why action is not considered necessary. Also, please furnish us copies of any correspondence or
directives issued as a result of the audit.
Should you or your staff have any questions please contact me or Sonya D. Lucas, Assistant District
Inspector General for Audit, at (404) 331-3369. We are providing a copy of this report to the Puerto
Rico Department of Housing and the PHA.
Page i 00-AT-201-1003
Management Memorandum
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00-AT-201-1003 Page ii
Executive Summary
We completed an audit of the Puerto Rico Public Housing Administration. The audit was conducted in
response to the Department of Housing and Urban Development officials’ and our on-going concerns
regarding the Puerto Rico Public Housing Administration’s financial management systems, especially its
procurement system. Our audit objectives were to determine whether the PHA: (1) had procurement
policies and procedures that complied with HUD requirements; (2) followed the policies and
procedures; (3) adequately determined the need for goods and services; and (4) had adequate
management controls to ensure receipt of quality goods and services and to preclude duplicate
payments.
The PHA has a long history of management problems. It was rated as a “troubled” public housing
authority until December 1996. However, in November 1997 the PHA was placed on the “mod
troubled” list because of problems managing its modernization program. HUD program officials and
Independent Public Accountants (IPA) continue to report serious management control weaknesses
regarding procurement and related financial management systems. None of the findings regarding
procurement have been resolved. In 1999, several former PHA employees were indicted for fraudulent
activities involving disbursements. Strong management controls may have prevented these crimes.
Other investigations involving the PHA are ongoing.
Local HUD officials have tried to take action to get PHA compliance without success. On June 11,
1998, the Director of HUD’s Caribbean Office of Public Housing sent a letter to John Blakeman, III.
The letter made reference to the numerous times that HUD had notified the PHA about their failure to
comply with Title 24 Code of Federal Regulations (CFR), part 85.36. The Director stated in the
request that the PHA must provide HUD the following: 1) a status of strategies you are
implementing through your improvement plan towards the resolution of the procurement
findings, and 2) evidence of the steps PHA has taken to ensure that procurement files are
complete, including but not limited to the history of the procurement as required by 24 CFR
85.36. Unless we receive the above required evidence by July 28, 1998, the HUD Caribbean
Office of Public Housing cannot approve the use of project funds to pay for services provided
under contracts not properly procured. In addition, please be advised that because of the
persistent failure of the PHA to address these issues in any meaningful way, failure to make
substantial progress toward correction of items of non-compliance will force this Department to
take whatever actions are necessary to obtain compliance with the Annual Contributions
Contract.
In the PHA’s reply dated September 3, 1998, the PHA administrator claimed that he had taken steps
to correct the deficiencies in the procurement area. Among the steps taken, he mentioned strict
enforcement of procurement requirements by the procurement office, sufficient records to show the
procurement history, and analysis for each procurement. Our audit disclosed that these areas were still
deficient.
Page iii 00-AT-201-1003
Executive Summary
Additionally, 24 CFR 85.43 (a) (2)-Enforcement provides remedies for noncompliance. If a grantee
materially fails to comply with any term of an award…the awarding agency may disallow (that
is, deny both use of funds and matching credit for) all or part of the cost of the activity or action
not in compliance.
Our review disclosed continued serious problems with the PHA’s ability to manage its procurement and
related financial management systems. Of about $39 million in procurements and other disbursements
reviewed, we identified about $21.8 million of ineligible costs and $4.1 million in cost efficiencies (see
Appendix A).
♦ The PHA did not comply with Federal and agency procurement requirements and did not
maintain control over its central office procurement activities. Although HUD program
officials and auditors had repeatedly cited the agency for noncompliance and lack of control
over purchases, actions taken to correct the systemic weaknesses were not effective. This
occurred because PHA management disregarded requirements and associated management
controls for planning, soliciting, and awarding purchase orders and contracts. As a result, the
PHA obtained goods and services without full and open competition, incurred excessive
costs, and allowed program waste, abuse, and potential fraud to occur. We identified
ineligible costs totaling about $8.8 million.
♦ The PHA paid about $4.9 million more than necessary for professional services provided by
two contractors. This occurred because it contracted for the services without competition
and without performing comprehensive price and/or cost analyses. The PHA improperly
justified these sole-source procurements under an emergency declaration by the Puerto Rico
Department of Housing Secretary. The PHA may incur additional ineligible costs of about
$2.1 million, if corrective actions are not taken.
♦ PHA management controls were not effective in deterring waste, abuse, and fraud. The PHA
paid: (1) invoices without proper authorization or signed agreements; (2) invoices that were
not original; (3) invoices without proof of delivery; (4) invoices that exceeded contract limits;
(5) unallowable advanced payments (per PHA regulations); and (6) invoices without any
support. In addition, the PHA routinely charged costs to inappropriate fund source (see
Appendices B and D). Both HUD and IPAs had previously reported similar deficiencies to
the PHA. These deficiencies continued to occur because the PHA management did not
enforce Federal and PHA requirements and ensure effective management controls were in
place. We identified other ineligible costs totaling about $8.1 million. The PHA may incur
additional ineligible costs of about $2 million unless corrective actions are taken.
♦ The PHA did not maintain adequate property management and related procurement
documents. Its inventory records were not accurate or did not contain required data such as
property location. PHA purchase order and contract registers and procurement regulations
00-AT-201-1003 Page iv
Introduction
also need improvement. This occurred because the PHA did not ensure that past actions
taken to improve controls were effective. As a result, there was no assurance that personal
property was properly accounted for and used or if effective controls were in place to
safeguard assets. The PHA’s June 30, 1997, Balance Sheet showed that personal property
was valued at about $8.6 million. However, the inventory report, as of June 30, 1997,
provided to OIG in February 1999, showed an adjustment increasing the inventory value from
$8.6 to $15.3 million, an increase of about 80 percent.
We recommend that you: (1) consider declaring the PHA in substantial default, if improvements are not
made; (2) consider placing the PHA on a reimbursement basis for funding; (3) review and approve the
PHA’s annual procurement plan; (4) ensure the validity of future emergency declarations; and (5)
perform cost reviews to determine whether the PHA properly allocated costs to HUD programs. Also
require the PHA to detail its procedures for maintaining a property ledger, conducting an annual physical
inventory, and reconciling and investigating differences. Recover about $21.8 million in ineligible costs
charged HUD programs and take appropriate action to save another $4.1 million in efficiencies.
We provided copies of the draft report to the PHA and HUD’s Caribbean Office officials on
September 24, 1999. We discussed the draft report with the HUD officials on October 27, 1999.
Upon the PHA’s request, we held a working session to discuss the draft report on November 4, 1999;
and held an exit conference on December 7, 1999. At the exit conference, we agreed to consider the
PHA’s comments and issue a revised draft report. We provided copies of the revised draft report to
the PHA and HUD’s Caribbean Office officials on January 12, 2000. The PHA provided written
comments on January 31, 2000. Generally, the PHA did not agree with the findings. We considered
the comments in finalizing the report. The PHA’s comments are summarized within each finding and
included in their entirety in Appendix G.
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Executive Summary
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00-AT-201-1003 Page vi
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 PHA Management Disregarded Procurement Requirements 5
2 The PHA Paid Excessive Costs For Professional Services
On Two Sole-Source Contracts 17
3 The PHA Did Not Adequately Administer Procurement
Disbursements and Payments Involving Management Agents 25
4 Property Management and Related Procurement Controls
Need Improvement 31
Management Controls 35
Follow Up On Prior Audits 37
Appendices
A Schedule of Ineligible Costs and Cost Efficiencies 39
B Summary of Purchase Order Deficiencies 41
C Summary of Purchase Order Cost Exceptions 45
Page vii 00-AT-201-1003
Table of Contents
D Summary of Contract Deficiencies 47
E Summary of Contract Cost Exceptions 49
F Purchase Order Cost Exceptions 51
G PHA Comments 57
H Distribution 89
Abbreviations
CAER Corporacion de Adiestramiento y Empleo en los Residenciales
CFR Code of Federal Regulations
CGP Comprehensive Grant Program
DEP Drug Elimination Program
FY Fiscal Year
HUD Department of Housing and Urban Development
IPA Independent Public Accountant
OIG Office of Inspector General
PHA Puerto Rico Public Housing Administration
00-AT-201-1003 Page viii
Introduction
Background
Public housing and urban renewal programs first started in Puerto Rico in 1938. By 1957 the Puerto
Rico Urban Renewal and Housing Corporation, the PHA’s predecessor, was created by the
Commonwealth Law No. 88 for the purpose of reorganizing those programs. In 1972, the government
of Puerto Rico established the Department of Housing (Law 97 of June 10, 1972). Under this law, the
Puerto Rico Urban Renewal and Housing Corporation was attached to the Department of Housing, and
the powers and faculties of the Board of Directors were transferred to the Secretary of Housing.
The PHA was created in 1989 and placed under the direction of the Puerto Rico Department of
Housing for the purpose of creating an efficient and flexible administration of public housing (Law 66
dated August 17, 1989). In 1991, the Puerto Rican Government dissolved the Puerto Rico Urban
Renewal and Housing Corporation and transferred the powers and faculties of its Public Housing
Program to the Puerto Rico Public Housing Administration. The Puerto Rico Public Housing
Administration is directed by the PHA Administrator which is appointed by the Puerto Rico Secretary
of Housing. The current PHA Administrator was appointed during December 1997. The PHA is the
second largest public housing agency in the nation. As of July 1, 1999, it had 327 housing projects with
56,585 units scattered throughout Puerto Rico.
History
The PHA has a long history of management problems. In 1981, its predecessor agency was designated
by HUD as “financially troubled.” In 1985, the agency was determined by HUD to be “operationally
troubled” because of serious financial, administrative, and project maintenance deficiencies. These
deficiencies were not corrected. As a result, in 1991, HUD imposed severe sanctions on the agency by
freezing about $308 million of unobligated funds. In 1992, the Governor of Puerto Rico transferred the
PHA’s modernization and development programs to the Puerto Rico Public Building Authority to act as
an agent for the PHA. Also, all project management functions were contracted to private management
agents. PHA staff were dramatically reduced from over 4,500 to under 100 employees. Its role was
reduced to an “asset manager” responsible for accounting for and reporting on the use of Federal funds
and overseeing management agent activities.
HUD rated the PHA as troubled until December 1996. However, in November 1997 HUD
determined that only the PHA’s modernization program was troubled. In the letter to the Department of
Housing Secretary dated November 4, 1997, HUD cited the PHA’s continuing financial management
problems and need for corrective actions.
Previous IPA and Office of Inspector General (OIG) audits and HUD program reviews have also
disclosed serious procurement noncompliance and associated management control weaknesses. Fiscal
year (FY) 1992-1997 single audit reports repeatedly cited the PHA for not following Federal
procurement requirements. The reports also disclosed numerous instances of poor management
Page 1 00-AT-201-1003
Introduction
controls involving disbursements. Millions of dollars of ineligible costs were recommended for recovery.
Because of the condition of the PHA’s accounting system and the control weaknesses, the IPA
disclaimed an opinion on the PHA’s 1993-1996 financial statements. The 1993-1996 statements were
all prepared in 1998, because the PHA had not obtained an annual audit since 1991. In order to bring
the PHA back into compliance with the Single Audit Act, the PHA’s current administration requested
the audits in 1998. Although an unqualified opinion was given on the agency’s 1997 statements, the
IPA determined that the PHA’s management controls were inadequate.
In June 1996, we reported (Report No. 96-AT-201-1821) that the PHA did not: (1) document the
history of each procurement including basis for contractor selection or rejection and contract price; (2)
perform required price and/or cost analyses prior to procurements; and (3) provide all required
standard contract provisions in its contracts. The findings remain unresolved.
In a monitoring report on PHA operations issued in August 1994, HUD also identified various
procurement related deficiencies including: (1) improperly procured and/or justified sole-source
contracts for professional and security services; and (2) no annual equipment inventory. The report
stated “…we could not determine that the PHA was obtaining goods and services at the lowest and
best prices.” HUD again reported similar procurement and management control deficiencies in 1997
and 1998 reports to the PHA. For example, in the Comprehensive Grant Program (CGP) Limited
Monitoring Review Report dated April 15, 1998, the Director of HUD’s Caribbean Office of Public
Housing detailed the continuing systemic weaknesses and lack of effective corrective actions. She
stated that “The continual lack of systems, the lack of urgency on the part of staff, and other factors
contribute to a general tendency of not addressing priorities with focus and determination. … Without
clear focus and action the PHA is exposed to losing substantial funds….”
In 1999, several former PHA employees were indicted for fraudulent activities involving disbursements.
Strong management controls may have prevented these crimes. Other investigations involving the PHA
are ongoing.
In October 1995, HUD’s central office contracted with a firm to provide the PHA technical assistance
in creating a central procurement unit and developing a procurement manual. The PHA later contracted
with an affiliate firm to provide similar services (see Finding 2). The procurement unit was established in
May 1997. The manual was drafted but had not been issued as of July 1999. Subsequent to our draft
report, in November 1999, the PHA submitted the final draft manual for HUD’s approval. HUD’s
comments and recommendations for changes to the manual were addressed in a letter dated December
3, 1999.
Procurement Spending
The PHA spent millions annually for goods and services procured by its central office and management
agents. In FY 1997 and 1998 program expenditures totaled $289.1 million. The PHA’s FY 1999
budget was about $260.6 million.
00-AT-201-1003 Page 2
Introduction
1997 1998 Total
Grant (million) (million) (million)
1994 Drug Elimination (DEP) $ 9.1 $ 0 $9.1
1995 DEP 1.3 13.9 15.2
1996 DEP 0 0 0
1994 HOPE VI 7.8 5.4 13.2
1995 HOPE VI .2 .1 .3
1996 Comprehensive Grant Program (CGP) 23.2 29.0 52.2
1997 CGP 0 .6 .6
1998 CGP 0 0 0
1999 CGP 0 0 0
1997 Operating Subsidy & Income (OS & I) 93.3 0 93.3
1998 OS & I 0 105.2 105.2
Totals $134.9 $154.2 $289.1
Procurement Requirements
The PHA’s procurement and associated management controls are governed by Title 24, Code of
Federal Regulations (CFR), Subpart 85.36. These standards provide a set of basic principles that are
to be followed in obtaining and paying for goods and services. The regulations allow the PHA to use its
own procurement procedures, provided that they conform to the Federal standards. The PHA’s
procurement regulations dated August 13, 1993, incorporate the Federal standards but also impose
additional requirements.
HUD Handbook 7460.8, Rev-1, Procurement Handbook for Public Housing Agencies and Indian
Housing Authorities, dated January 1993, supplements the Federal regulations.
Audit Objectives, Scope, and Methodology
Our audit objectives were to determine whether the PHA: (1) had procurement policies and procedures
that complied with HUD requirements; (2) followed the policies and procedures; (3) adequately
determined the need for goods and services; and (4) had adequate management controls to ensure
receipt of quality goods and services and to preclude duplicate payments.
The review was conducted at the PHA’s office in Rio Piedras, Puerto Rico and included visits to
housing projects and other locations in the San Juan area to verify receipt of selected purchases. The
audit primarily covered PHA procurement and related disbursement activities using HUD funds carried
out by its central office during the period July 1996 through June 1998. Prior period activities were
reviewed as necessary to meet our audit objectives. Audit testing was extended through December
1998 and the procurements and management controls through June 1999. For the first several months
Page 3 00-AT-201-1003
Introduction
of the audit period, the PHA was under the direction of a prior administrator. Following that
administrator’s departure, the PHA was headed by several acting and interim administrators. The
current administrator, John S. Blakeman, was appointed in December 1997. Our audit field work was
performed from July 1998 through May 1999.
To accomplish our audit objectives, we:
- analyzed Federal and PHA procurement requirements and guidance;
- reviewed prior OIG and IPA audit and HUD monitoring reports and related correspondence;
- interviewed Department of Housing, PHA and HUD officials, suppliers, and contractors;
- examined procurement and payment records related to use of credit cards, petty cash
accounts; purchase orders, and formal contracts; and
- assessed related management controls.
We did not review management agent procurement activities or assess the central office’s procurement
of management agent services.
In total, we examined about $35.8 million in procurements made by the PHA during the period July
1996 through December 1998. We examined 71 percent of the charges or about $4,600 out of
$6,527 made during the period July 1996 to June 1998 using PHA credit cards. To test the petty cash
account, we selected transactions totaling $1,986 and examined two replenishment vouchers and
supporting documents for transactions made during the period November 1997 through April 1998
totaling about $900, or 45 percent of the charges.
We reviewed about $10.2 million expended on 51 purchase orders. In general, we examined purchase
orders over $5,000. Other purchase orders were judgmentally selected. For FY 1997 we examined
65 percent of the charges, or about $1,241,827 out of $1,916,184. For FY 1998 we examined 93
percent of the charges, or about $9,049,863 out of $9,707,176. To assess whether conditions found
during the review existed after June 1998, we examined five judgmentally selected purchase orders
valued at about $1.4 million (see Appendix B).
From the PR Department of Housing contract register, we selected 10 contracts valued at
approximately $19.6 million or 72 percent of the contracts made during the 2 year review period.
In general, we chose contracts of $500,000 or more for review. Other contracts were judgmentally
selected. We also reviewed another six contract actions worth about $3.8 million that were not listed
on the register as of June 30, 1998 (see Appendix D).
The audit was conducted in accordance with generally accepted government auditing standards.
00-AT-201-1003 Page 4
Finding 1
PHA Management Disregarded Procurement
Requirements
The PHA did not comply with Federal and agency procurement requirements and did not maintain
control over its central office procurement activities. Although HUD program officials and independent
auditors had repeatedly cited the agency for noncompliance and lack of control over purchases, actions
taken to correct the systemic weaknesses were not effective. This occurred because PHA management
disregarded requirements and associated management controls for planning, soliciting, and awarding
purchase orders and contracts. As a result, the PHA obtained goods and services without full and open
competition, incurred excessive costs, and allowed program waste, abuse, and potential fraud to occur.
We identified ineligible costs totaling about $8.8 million (see Appendices C and E).
Title 24 CFR, part 85.36, dated April 1, 1995, allows agencies
Criteria
to use their own procurement procedures if they conform to
applicable Federal requirements and do not restrict full and
open competition. In general, the PHA Procurement
Regulation, Article 5.28 requires formal public bid procedures
to be used by the Administration to acquire any goods or
services which exceeded ten thousand dollars ($10,000) (e.g.,
equipment). 24 CFR 85.36 (d) (2) states that in the formal bid
method, bids are publicly solicited and a firm-fixed-price
contract is awarded.
Additionally, 24 CFR 85.43 (a) (2)-Enforcement, provides
remedies for noncompliance. If a grantee materially fails
to comply with any term of an award…the awarding
agency may disallow (that is, deny both use of funds and
matching credit for) all or part of the cost of the activity or
action not in compliance.
All formal contracts require Department of Housing legal
department review. These contracts were also required to be
reported to HUD and to the Puerto Rico Comptroller’s Office.
All procurements over $30,000 require Puerto Rico Housing
Secretary approval. In addition, a price and/or cost analysis is
required to be performed for each procurement (purchase
orders and formal contracts) including any contract
modification.
Page 5 00-AT-201-1003
Finding 1
Prior HUD reviews and OIG and IPA audits have reported
serious noncompliance and management control weaknesses
involving the PHA's central procurement system. Our review of
this system found that the PHA still needs to improve its
procurement operations.
We found continued noncompliance regarding the PHA’s
The PHA did not comply
solicitation and award of all procurements reviewed.
with requirements for
Deficiencies included: (1) performing no independent price
planning, soliciting, and
and/or cost analyses; (2) using false or altered vendor quotes;
awarding purchase orders,
(3) splitting purchases to avoid advertising requirements; and
contracts, and contract
(4) awarding procurements sole-source or to other than low
modifications
bidders without justification (see Appendices B and D).
In addition, we determined that the PHA used purchase orders
rather than formal written contracts to acquire goods valued at
$10,000 or more. Of the 56 purchase orders reviewed, 15
were for items that should have been obtained using formal
written contracts. These purchases ranged from $26,400 for
33 digital cameras to $2,604,000 for 12,000 electric stoves.
Most of the purchases were made from sealed bids solicited
through a public advertisement. However, purchase order
documents used to authorize the procurements did not contain
any of the legal provisions (specifications, warranties, delivery
and payment requirements, etc.) necessary to protect the
PHA’s interests. Also, management controls such as legal
department review, Housing Secretary approval, and
Comptroller’s Office and HUD notification, were circumvented
by using purchase orders rather than contracts. A responsible
PHA official said that this method was used because it was
quicker than using formal contracts. Generally, written
contracts were used to acquire professional services when
services were valued at $10,000 or more.
The result was that the PHA routinely purchased goods and
services without full and open competition. We identified
significant excess costs, waste, abuse, and potential fraud.
00-AT-201-1003 Page 6
Finding 1
For example:
Purchase Order No. 98-703
In April 1998, the PHA purchased for its housing projects,
79 Xerox digital copiers with built-in faxes ($6,800 each)
and 48-month copier maintenance contracts ($3,360 each).
It charged its operating fund $802,640. The acquisition
was made through a purchase order which made reference
to contract No. C-40-192 that had been procured by the
Puerto Rico General Services Administration. However,
the PHA did not provide the list of models and prices that
should have been attached to the contract. This contract
required the PHA to document a written justification if the
equipment being acquired was not the lowest price. The
contract also provided that the agencies could purchase
only the models in the contract. Changes in models had to
be approved by the General Services Administration.
There was no evidence that the procurement was approved
by the Housing Secretary as required. A PHA contracting
officer told us that the Deputy Administrator personally
negotiated with Xerox. Both the current Administrator and
his deputy signed the purchase order. The contracting
officer refused to sign it because he did not know the
reasonability of the changes or how it was procured. The
officer also stated that there was not a procurement file for
the acquisitions and that the Deputy Administrator
negotiated the price and model of the equipment directly
with Xerox.
Our visits to three projects to locate the equipment found
no more than 3 staff at each site. They informed us that
their old copiers were broken. However, two projects’
faxes were working and the staff used them. We could not
determine from the PHA inventory records that all the
equipment had been recorded (see Finding 4). According
to amendment No. 50 to contract No. C-40-192, the
PRPHA could have purchased less costly copiers and
service agreements. Therefore, we disallowed $536,015;
the difference between the price in the amendment and the
price paid. This included the maintenance contract.
Page 7 00-AT-201-1003
Finding 1
Purchase Order No. 98-821
In May 1998, the PHA acquired 12,000 electric stoves
from White Westinghouse for $2,604,000. We determined
that the PHA did not: (1) document the performance of a
price and/or cost analysis to assess whether bids were
reasonable; (2) obtain Secretary of Housing approval; (3)
get written HUD approval; (4) advertise the solicitation
twice as required by its regulations; and (5) provide
adequate time for bidders to respond to the solicitation. In
addition, the PHA did not select the low bidder but
negotiated a lower price with a higher bidder. There was
no documentation to indicate that negotiations were held
with the other bidders. In addition, the purchase order was
dated May 1, bids opened May 6, and the price revision
made on May 22. There was also no explanation in the file
for these discrepancies.
The stoves were purchased because appliances used by
tenants to cook were not safe. However, the new stoves
were given to the tenants because the PHA did not want to
maintain them. Tenants were required to sign an agreement
stating that the stoves were their property and they must
maintain them and take them when they vacate. This policy
could cause future safety and possible legal problems when
these low-income tenants do not comply with their
agreements. HUD did not provide written authorization for
the donations. Unless HUD specifically approves the
donation of the stoves to the tenants, the stoves become
property of the PHA. Therefore, we are disallowing the
$2,604,000 charged against HUD funds.
Purchase Order No. 98-822
Also, because of tenant safety concerns, in May 1998, the
PHA bought 21,428 nineteen (19) gallon water heaters
from a local distributor for $2,365,437. They were
delivered to management agents from July to December
1998. However, as of April 1999, 16,495 heaters (77
percent) had not been installed. This occurred primarily
because many of the housing projects had only one water
line. The heaters required two lines. For example, 2,554
heaters were delivered to one management agent between
00-AT-201-1003 Page 8
Finding 1
September and November 1998 to install but as of April
1999 only 927 had been installed. In August and
September 1998, 1,246 heaters were delivered to another
management agent. None of the equipment had been
installed 7 months later. As of April 1999, nine heaters had
been reported stolen from project warehouses.
We found that the PHA performed no price and/or cost
analysis nor obtained Secretary of Housing approval prior
to procurement. Had these actions occurred, the PHA may
have determined the need for two water lines to be in place
prior to purchasing the heaters. In addition, the one year
parts warranty will have expired on many of the heaters by
the time they are installed.
Subsequently, the PHA reported that at November 1999,
12,898 water heaters had been installed. Therefore, we
disallowed $941,627, representing the cost of 8,530
(21,428 - 12,898) water heaters that have not been
installed.
Purchase Order No. 97-267
In December 1996, the PHA acquired a desk-top
computer for $8,200 and charged the cost to the CGP.
The solicitation was not performed by purchasing staff but
by the former director of the PHA’s Technological
Information Department, who also certified the computer’s
receipt. The order was given to the vendor with the lowest
quote. However, we found that one of the other two
quotes used to justify the price paid was false. The owner
of the computer company whose name was on the quote
told us that his firm did not submit it and the signature on it
was not his. He said that the price paid for the computer
was excessive. At the time of the purchase, a similar
computer cost about $2,000. The PHA performed no
price and/or cost analysis. In addition, we could not find
the equipment on the PHA’s inventory ledger or positively
confirm its location at the PHA (see Finding 4). The
computer did not benefit the CGP. Because of these
deficiencies, we disallowed all the cost charged to the
program. This purchase, along with several others that
were similar, were referred for investigation.
Page 9 00-AT-201-1003
Finding 1
Contract No. 97-6773
In March 1997, the PHA awarded a firm fixed price
contract totaling $632,150 to a local accounting firm
(Cardona, Irizarry and Co.) to reconcile and reconstruct
1992 and 1993 CGP accounting records at the PHA and
its management agents. The PHA received six proposals
with fixed prices ranging from $127,425 to $1,600,000.
Contractor Price Score
A $ 127,425 76
B 160,000 65
C 222,506 81
D 444,347 86
Cardona, Irizarry & Co 632,150 97
E 1,600,000 84
The PHA awarded the contract to the fifth highest bidder.
Although the contractor received a higher score on its
proposal than the others, the contract file did not document
the basis for the scores and ranking factors. The
contractor’s proposal also contained detailed PHA
accounting data to which its competitors did not have
access. (The contractor was doing other work at the PHA
at the time it submitted its proposal.)
According to a Bid Board official, the amount proposed by
the winning contractor was close to the $700,000 the PHA
had remaining in its budget. However, the PHA performed
no price and/or cost analysis to assess whether the bids
were reasonable (had a comprehensive analysis been
performed, the PHA may have determined that the work
could have been accomplished with less costly contracted
employees (see Finding 2). Also no competitive range was
established and no negotiations were held with any of the
other prospective contractors or requests made for best
and final prices. Because of these deficiencies, there was
no assurance that the PHA procured the best services at the
lowest cost. We disallowed $504,725; the difference
between the lowest proposal submitted and the contract
amount.
00-AT-201-1003 Page 10
Finding 1
The PHA also paid $752,986 more to the firm than the
original contract allowed without any signed contract
amendments. The contractor submitted separate fixed-
priced proposals and the PHA verbally agreed to pay for
the work. No price and/or cost analyses were done to
assess reasonableness of the proposals. Some of this work
was included in the scope of the original fixed-price
contract and should have been completed at no additional
cost. Other effort was outside the scope of the contract
and should have been solicited and contracted separately.
We considered only one of the proposals an acceptable
contract modification; however, there was no signed
amendment for this modification.
Modification Description Comments Amount
Reconstruction of Management Agent CGP Records Original Contract $ 184,850
Reconciliation of CGP Records Original Contract 123,485
Reconciliation Period Extension Contract Modification 79,651
Reconciliation of 1987-1991CIAP Records Change in Scope 300,000
Rent Subsidiary and Other Accounting Work Change in Scope 65,000
Total $ 752,986
Based on these procurement deficiencies, we disallowed all
the amendment costs.
Contract No. 97-3715
In March 1997, the PHA executed an 11-month contract
with a local firm (Fiddler, Gonzalez & Rodriquez) for legal
services (primarily for litigation work). The PHA awarded
the contract without any effort to compete it and without
justification. The PHA also did not perform a price and/or
cost analysis or obtain HUD’s approval as required to
obtain litigation services. The contract provided the firm
$75-$125 per hour for services (up to $30,000 each
month) plus reimbursement of miscellaneous expenses
(mileage, telephone, photocopy, stamps). In January 1998,
the PHA extended the contract another year and increased
the monthly maximum to $60,000 plus expenses. According
to the contract amendment, the increase was due to an
increase in the legal work volume that needed to be done.
However, the PHA did not conduct a required price and/or
cost analysis or obtain HUD approval. The PHA paid the
firm $1,118,974 ($1,050,000 for services plus $68,974
Page 11 00-AT-201-1003
Finding 1
miscellaneous expenses). We consider all costs ineligible to
be charged against HUD funds because of the procurement
and administrative deficiencies.
The PHA may have restricted competition by charging potential
The PHA charged excessive
contractors excessive costs for copies of contract proposal
fees for contract proposal
documents. The fees charged were not in accordance with
documents
PHA procurement regulations. We determined that the PHA
charged competitors $40 to $500 to obtain PHA proposal
packages. PHA regulations limited the fee to $10 when
purchases are of goods and services. The cost of the packages
(up to $600) were allowed when procurements involved
extraordinary construction, modernization and maintenance.
A former PHA Procurement Director stated that high fees were
charged to reduce the number of proposals received and time
and cost of reviewing them. A PHA official stated that charging
$500 for obtaining bid packages for services is contrary to the
approved PHA regulation. The official stated that he did not
know how the PHA determined the fee. However, the PHA
Administrator stated that the price varied based on the size of
the bid package. As a result, the practice of charging high fees
restricted open and free competition as required by 24 CFR
85.36.
Of the 72 purchase orders and contracts reviewed, no
The PHA did not maintain
procurement files were maintained to support 20 purchases (28
adequate solicitation and
percent). These procurements ranged in costs from about
award records
$7,000 to $6.7 million. Of these purchases, 7 were over $.5
million. Of the remaining transactions, the PHA did not
document complete procurement histories on 35 purchases (49
percent). This included not maintaining all quotes, bids, and
proposals submitted and properly documenting the basis for
contractor selection and justification of sole-source
procurements (see Appendices B and D). Because adequate
documentation was not maintained, we could not always assess
whether the PHA procurement system provided for full and
open competition.
There is no support for the vast majority of the IG’s assertions
PHA Comments
in Finding One. First, the IG continues to insist that formal
contracts be used rather than purchase orders, even though
00-AT-201-1003 Page 12
Finding 1
PRPHA has demonstrated that the regulations upon which the
IG relies do not include such a requirement, and that PRPHA’s
use of purchase orders did not circumvent any processes
required by Puerto Rico law or federal regulations. With regard
to the specific purchase orders identified in Finding One:
(1) PRPHA and GSA regulations clearly allow the
purchase of the copiers, and the IG improperly
calculated its supposed disallowance.
(2) The electric stoves were purchased with the full
knowledge of HUD, if not with written HUD
approval. In addition, PRPHA has provided the IG
with documentation contradicting the IG’s assertions
about the alleged deficiencies in the purchasing of
those stoves.
(3) As documented to the IG, PRPHA has been installing
the purchased water heaters and continues to do so.
There was absolutely no requirement that the water
heaters be installed by a certain date, and there is
therefore no basis for disallowing the cost of heaters
that have not yet been installed.
(4) PRPHA has no information to substantiate the IG’s
claim that a false quote was submitted for the
desktop computer, and the IG has not provided
PRPHA with documentation to support that claim.
Moreover, the computer is in use and is providing
PRPHA with ongoing benefits.
With regard to the two contracts identified in Finding One, the
IG is wrong. There is no justification for the IG’s insistence that
PRPHA should have selected the lowest bidder for Contract
No. 97-6773, when that bidder was given an unacceptably low
score in an assessment of the various bids. Indeed, an
independent Bid Board assessed the scores and proposals of
the six bidders and approved the contractor selected.
Moreover, the IG’s description of the contract award process
is inaccurate.
With regard to contract No 97-3715, the IG’s analysis ignores
both Puerto Rico law and the realities of hiring outside
Page 13 00-AT-201-1003
Finding 1
contractors. First, Puerto Rico law does not require a
competitive procurement process when prices are regulated by
law, and the Government of Puerto Rico has established rates
of $75 to $125 per hour for legal representation of government
entities. Second, those rates are self-evidently reasonable and
have in fact been approved by HUD. Third, both the Cannons
of Professional Ethics for Attorneys in Puerto Rico and HUD’s
regulations regarding House Counsel for public housing
agencies make the OIG’s recommendations inapposite.
As indicated in Paragraph 4-6 of HUD Handbook 7460.8
Evaluation of PHA
REV-1, for housing authority requirements above the small
Comments purchase limitation, competitive procurement is conducted by
either sealed bidding or competitive proposals. Small purchase
procedures are those relatively simple and informal, allowing for
the use of purchase orders. The sealed bidding and the
competitive proposals methods are formal procedures and as
provided in 24 CFR 85.36 a formal written contract should be
issued. Formal written contracts should include the contract
provisions required by 24 CFR 85.36 (i). A purchase order is
a written contract, but it is not a formal written contract, and
does not contain the required provisions. With regard to the
specific purchase orders identified, we offer the following:
(1) We are not questioning the purchase of the copiers,
but the procurement procedures used in the
acquisition. We based the disallowance on the GSA
price list of the less costly copiers and service
agreements.
00-AT-201-1003 Page 14
Finding 1
(2) Our concern regarding the electric stoves was that
the PHA donated them to the tenants. Our position
is that unless HUD specifically approves the
donation, the costs are disallowed.
(3) Although there is no specific time requirement for the
installation of the water heaters, the fact that 8,530
heaters (40 percent) had not been installed two years
after their acquisition is not a sound management
practice and denotes poor planning on the PHA’s
part. It also indicates there was not a real need for
the heaters.
(4) The evidence of the false quote was provided to the
OIG Office of Investigation. The PHA did not
address the real concern regarding the purchase of
the computer. The computer was not procured by
the PHA purchasing staff and the cost was excessive.
With regard to contract No. 97-6773, the PHA’s records did
not show that the selection was justified. The PHA did not
provide documentation to show: 1) the basis for the scores
assigned; and 2) evidence that they conducted technical and
price/cost evaluations. A written plan for evaluating technical
and cost proposal is needed before the request for proposal is
issued. The plan shall include a rating sheet for each offer,
which lists each of the evaluation criteria and the weight
assigned.
With regard to contract No. 97-3715, HUD Handbook
7460.8 Rev. 1, Chapter 4, Paragraph 4-27 provides guidance
for the procurement of legal and other professional services.
The handbook states that the procurement of legal services
should follow the competitive proposal procedures. Contracts
for litigation services must also meet the requirements of HUD
Handbook 1530.1. As provided in this Handbook, with the
exception of litigation involving a housing authority acting as a
Section 8 developer, a housing authority must submit to HUD’s
Regional Counsel for prior written concurrence any contract
with a private attorney for litigation services involving housing
authority programs, projects, or activity receiving loans, grants,
or subsidy assistance from HUD.
Page 15 00-AT-201-1003
Finding 1
Recommendations We recommend that you:
1A. Assess the improvement in the PHA’s procurement
management system. If the PHA fails to improve to
acceptable levels, consider declaring the PHA in
substantial default and breaking it up into smaller more
manageable housing authorities.
1B. Consider placing the agency on a reimbursement
basis for funding, if its procurement management
system does not improve to acceptable levels.
1C. Require that the PHA terminate use of purchase
orders for other than small purchases.
1D. Review and approve the PHA’s annual
procurement plan in accordance with HUD
Handbook 7460.8, Rev-1 requirements.
1E. Require that the PHA reduce fees for contract proposal
documents to conform to the regulations and refund the
overcharges.
1F. Require the PHA to reimburse HUD $8,841,638 from
non-Federal sources for the ineligible costs associated
with the procurement deficiencies (see Appendices C and
E).
00-AT-201-1003 Page 16
Finding 2
The PHA Paid Excessive Costs For Professional
Services On Two Sole-Source Contracts
The PHA paid about $4.9 million more than necessary for professional services provided by two
contractors. This occurred because it contracted for the services without competition and without
performing comprehensive price and/or cost analyses. The PHA improperly justified these sole-source
procurements under an emergency declaration by the Puerto Rico Department of Housing Secretary.
The PHA may incur additional excess costs of about $2.1 million if corrective actions are not taken (see
Appendix A).
Title 24 CFR, part 85.36 requires that grantees conduct all
Criteria
procurements using full and open competition, perform price
and/or cost analyses (including sole-source procurements), and
fully document all procurement activities. Noncompetitive
proposals may be used only when contract award is not feasible
under small purchase procedures, sealed bids or competitive
proposals and one of the following circumstances applies: (1)
the item is available only from a single source; (2) the public
exigency or emergency for the requirement will not permit a
delay resulting from competitive solicitation; (3) the awarding
agency authorizes noncompetitive proposals; and (4) after
solicitation, competition is determined inadequate.
PHA procurement regulations define an emergency as a
situation which causes unexpected and unforeseen public needs
and which requires immediate action because of the danger to
life, health, or public safety. Similar criteria is provided by
HUD Handbook 7460.8 Rev 1. It also states that an
emergency is a situation that “would otherwise cause injury to
the PHA, as may arise by reason of a flood, earthquake,
epidemic, riot, equipment failure or similar event.”
On October 30, 1997, the Housing Secretary declared an
Background
emergency existed at the PHA. The Secretary stated in the
declaration that the two sole-source contracts were necessary
to: (1) avoid the PHA being placed back on HUD’s troubled
list; (2) keep it from losing $150 million within the next 2 years
because of “lack of efficient financial and contract management
procedures;” (3) keep it off the “mod-troubled” list or risk
Page 17 00-AT-201-1003
Finding 2
losing $200 million per year; and (4) obtain financial
management services that the PHA could not provide. On
December 23, 1997, after reviewing documentation submitted
by the PHA, the HUD office in Puerto Rico approved the
awarding of the sole-source contracts.
However, we question the justification for the declaration
because the situation did not meet the PHA’s own definition of
an emergency or HUD’s. It was not a situation that caused
unexpected and unforeseen needs and required immediate
action. There was no threat to life, health, or public safety
which required immediate action as for a natural disaster.
In addition, the situation did not meet the requirement for sole-
source contracting. We found that 69 days elapsed from the
declaration of emergency to when the contracts were awarded.
The PHA had adequate time to competitively award the
contracts. Also, contractor actions were not immediate. The
term of the contracts ranged from 18 to 36 months.
We estimate that the PHA paid excess costs totaling about $4.9
million on the two contracts because it did not perform price
and/or cost analyses and did not compete the awards. Also
$2.1 million in additional excess costs may be paid if corrective
actions are not taken.
On January 8, 1998, the PHA awarded CVR Puerto Rico, Inc.
Contract No. 98-3465
an 18-month $4.4 million contract to provide technical
assistance to ensure the PHA’s implementation and efficient
administration of all components of the modernization program.
The work included developing policies and procedures and
providing expertise and staff necessary to develop and
implement a system for the PHA to administer all aspects of the
program including planning, contract administration,
procurement, and financial reporting. The contract provided for
payments based on services rendered by about 20 individuals at
rates from $20 to $137 per hour plus overhead, profit, and
reimbursement of miscellaneous expenses (travel, phone,
equipment purchases, rent). As of January 1999 the PHA had
paid the contractor about $2.6 million.
All three of the contractor’s principals had been providing the
PHA consulting services through affiliate firms since at least
00-AT-201-1003 Page 18
Finding 2
1995. In May 1995, the PHA contracted with Vargas and
Associates for $95 per hour plus expenses to provide advice
regarding the Federal budget and regulations, and help prepare
reports required by HUD. The contract was effective from
May 1995 to June 1996. However, the PHA made only one
payment to the contractor in October 1995 of $12,862.
On October 14, 1995, HUD’s central office contracted with
CVR Associates, Inc., to provide technical assistance to the
PHA on the modernization program including creating
monitoring controls, developing program close-out procedures,
recruiting and training staff, and developing procurement
procedures. The contractor provided services under this
contract through March 1998. In its November 1997 progress
report submitted to HUD, the contractor stated it “developed
procurement processes to retain the services of firms for
modernization and finance.” This was the same time that CVR
Associates, Inc. submitted its proposal to contract with the
PHA direct. CVR Puerto Rico, Inc. (incorporated in Delaware
on November 13, 1997) was given the contract based on a
proposal submitted by the other contractor.
We determined that the PHA did not conduct a required price
and/or cost analysis which included alternative ways to staff the
project. There were other firms in Puerto Rico capable of
providing such consulting services. For example, in 1996 the
PRPHA contracted with three firms to manage its 1994 and
1995 CGP funds.
The PHA also routinely contracted direct with individuals for
services rather than hire them as full-time employees. Many of
the staff working in the PHA finance office were contracted
employees. The PHA could have paid fixed price or an hourly
rate for the professional services of a firm’s principals and
contracted for the other staff direct. Interviews with a contract
specialist and an administrative assistant found that the
contractor hired them in Puerto Rico when the contract began
and paid them $17.30 and $11.54 per hour respectively, plus
fringe benefits. The PHA paid the contractor $60 and $20 per
hour for these individuals’ services. The PHA also paid the
contractor about $537,000 more for overhead and profit and
$296,000 for miscellaneous expenses. Hourly rates charged by
Page 19 00-AT-201-1003
Finding 2
consulting firms include these costs (see Contract No. 98-
3464).
Included in the miscellaneous costs charged the PHA was
$22,600 for a 1997 Ford Taurus and a 1997 Mitsubishi Mirage
bought by the contractor just after the contract began. Also
included were the costs of several computers. The PHA paid
the contractor’s invoices without reviewing supporting
documentation.
Hourly ___ _
Hours Contract OIG Paid Eligible Ineligible
Billed Rate Rate 1 Costs Costs Difference
Principal 1,715 $130-137 $ 130 $222,950 $222,950 0
Project Director 2,920 80-84 $ 80 233,600 233,600 0
CGP Director 4,932 50-53 $21.441 246,600 105,742 $ 140,858
Construction Manager 1,899 70-74 $21.441 132,930 40,715 92,215
Senior Monitors/Cont. Specialists 13,211 60-63 $21.441 792,660 283,244 509,416
Contract Monitors 4,051 40-42 $21.441 162,040 86,853 75,187
Accountants 3,617 30-32 $21.441 108,510 77,548 30,962
Administrative Assistants 6,306 20-21 $14.301 126,120 90,176 35,944
Other Costs 296,302 0 296,302
Overhead/Profit 537,429 0 537,429
Totals $2,859,141 $1,140,828 $1,718,313
Based on the percent of ineligible costs paid, we estimate that
additional unnecessary costs of $683,047 could be paid on this
contract.
On January 8, 1998, the PHA also executed a 3-year $9.5
Contract No. 98-3464
million contract with Cardona, Irizarry & Co. to provide: (1)
financial management services including establishing
management controls, training staff, and assisting in the PHA’s
finance and administration areas, and (2) acquiring computer
equipment. The contract provided that payments for
professional services were to be made based on services
rendered at hourly rates ranging from $20 to $175 per hour.
The contractor’s overhead costs, profit, and miscellaneous
costs were included in these rates.
1
Hourly rate paid by the contractor plus 20 percent fringe benefits and 3.28 percent PHA indirect costs.
00-AT-201-1003 Page 20
Finding 2
The PHA did not compete the award of this contract or
conduct a required cost and/or price analysis. If these actions
had taken place, significant cost savings could have been
achieved. The PHA could have paid a fixed price or an hourly
rate for professional services of a company’s principals and
contracted directly with individuals to do the hands-on work.
This is what the contractor did. One of the firm’s partners even
set up a temporary employment agency (C&C Resources) that
provided most of the staff on the contract.
Interviews with 12 contractor staff (11 special staff and 1
senior) found that they were paid $6.50 to $12.50 per hour
plus benefits (about 10 percent) by the employment agency.
The PHA paid the contractor $20 to $58 per hour respectively
for their services. The three other staff (1 senior and 2
managers) interviewed were paid $13-14 per hour plus benefits
as full-time employees of the contractor. The PHA paid up to
$84 an hour for their services.
For services through April 1999, the PHA paid the contractor
$4.6 million or about 68 percent of the maximum amount
allowed under the contract although 20 months remained. This
occurred because the contractor billed, and the PHA paid, for
more staff effort than was allowed under the contract. No
contract amendment had been approved for this additional
effort. For example, the contract provided that in the second
year of the contract, about 19 individuals would work on the
contract at an average monthly cost of $168,625 or annual cost
of about $2 million. However, for the 4 month period ended
April 1999, the contractor had billed and the PHA paid
$1,266,630; an average of $316,657 per month for services of
32 individuals. At this rate, the cost for the second year of the
contract could total about $3.8 million.
In March 1999, the PHA requested HUD’s approval for what
it and the contractor had been doing for some time. The PHA
wanted to modify the contract to increase the contractor’s staff
and work effort, add about $377,000 to the contract’s
maximum cost for professional services ($6.8 million), and
reduce the contract period from 3 to 2 years. HUD denied the
request on May 10, 1999. In June 1999, the PHA contracted
directly with 12 individuals that had been working at the PHA
for the contractor. The PHA paid an average of $12.31 per
Page 21 00-AT-201-1003
Finding 2
hour for their services. These subcontractors were responsible
for paying their own benefits. This saved the PHA about
$87,720 per month over what the PHA had been paying the
contractor for the same services.
We determined that the PHA paid excess costs on the contract
totaling about $3.1 million as of May 1999 and could incur
additional excess costs of about $1.5 million if corrective
actions are not taken.
Hourly ___ _
Hours Contract OIG Paid Eligible Ineligible
Billed Rate Rate 2 Costs Costs Difference
Partners 2,386 $156-175 $165-175 $ 396,284 $ 396,284 $ 0
Managers 20,850 $80-88 $18.681 1,690,997 389,483 1,301,514
Seniors 40,609 $55-60 $12.712 2,265,987 516,137 1,749,850
Special Staff 11,343 $20-25 $12.712 234,519 144,173 90,346
Totals $ 4,587,787 $ 1,446,077 $ 3,141,710
1
Hourly rate contract employees by the PHA plus 3.28 percent indirect costs.
2
$12.71 X 147 percent (ratio of $88/$60 rate charged for manager/senior)
C&C Resources has also solicited the PHA’s business. On
August 6, 1999, the PHA advertised its plans to procure
temporary employment agency services. On August 26, 1999,
it advertised its intention to privatize its accounting department.
The contract also included $2,755,000 for 411 computers and
associated costs and for project design, management and
training. According to PHA officials, this part of the contract
was canceled and the computers were purchased through the
Puerto Rico General Services Administration for $1,327,975.
However, the PHA did not amend the contract with Cardona,
Irizarry & Co..
There is absolutely no basis for the IG to criticize PRPHA’s
PHA Comments
actions with regard to the two contracts identified in Finding
Two. Both of those procurements, as well as the contracts
themselves, were approved by HUD based upon extensive
documentation provided by the PRPHA. 24 CFR 85.36 (d)(4)
specifically allows HUD’s approval, either because of a public
exigency or emergency or at HUD’s discretion. The IG’s
00-AT-201-1003 Page 22
Finding 2
attempts to find problems with the approval process and these
contracts are completely unfounded.
We acknowledged HUD’s approval of the contract in the
Evaluation of PHA
finding. However, we are questioning the justification provided
Comments by the PHA to HUD for the approval request. Also, the PHA
did not conduct a price or cost analysis, and thus, did not
comply with Title 24 CFR, part 85.36 (d) (4). As a result, the
PHA paid excessive and/or unnecessary costs on these
contracts.
Recommendations We recommend that you:
2A. Ensure that future emergency declarations for or by
the PHA meet Federal and local requirements.
2B. Determine whether the procurement of temporary
employment agency services was in accordance with
Federal and PHA requirements and take appropriate
corrective action, if applicable.
2C. Require that the PHA reimburse HUD $4,860,023
from non-Federal sources for the ineligible costs paid
the two contractors (see Appendix E).
2D. Assess eligibility of $2,133,404 corresponding to
payments made subsequent to our review and recover
excess costs (see Appendix E).
Page 23 00-AT-201-1003
Finding 2
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-AT-201-1003 Page 24
Finding 3
The PHA Did Not Adequately Administer
Procurement Disbursements and Payments
Involving Management Agents
PHA management controls were not effective in deterring waste, abuse, and fraud. The PHA paid: (1)
invoices without proper authorization or signed agreements; (2) invoices that were not original; (3)
invoices without proof of delivery; (4) invoices that exceeded contract limits; (5) unallowable advanced
payments (per PHA regulations); and (6) invoices without any support. In addition, the PHA routinely
charged costs to inappropriate fund sources. Both HUD and IPAs had previously reported similar
deficiencies to the PHA. The deficiencies continued to occur because PHA management did not
enforce Federal and PHA requirements and ensure effective management controls were in place. We
identified other ineligible costs totaling $8.1 million. Also the PHA may incur additional ineligible costs
of about $2 million unless corrective actions are taken (see Appendix A).
Title 24 CFR, part 85.20 requires that grantees must have
Criteria
adequate controls to safeguard all assets including cash,
property and other assets and assure that such assets are used
solely for authorized purposes. In addition, part 85.36 requires
that grantees maintain a contract administration system which
ensures that contractors perform in accordance with
procurement terms, conditions, and specifications. PHA
procurement regulations require similar controls.
Although an entity may have a procurement system that
provides for full and open competition, the system must also
include effective procedures and management controls to ensure
contractors comply with agreement terms, purchased goods
and services are received, and correct payments are made and
charged to the proper fund source.
Examples of PHA administrative deficiencies:
Security Service Agreements
The PHA paid excess costs totaling $920,691 for security
services they did not receive. The services were provided
by two security firms during the period March 1996 through
September 1998. Additional excess costs estimated at
about $2 million may be incurred for subsequent periods if
Page 25 00-AT-201-1003
Finding 3
costs are not properly allocated. This occurred because
adequate management controls were not established to
ensure that all costs charged against PHA funds directly
benefited the PHA. For example, invoices paid by the
PHA included cost of services provided to the Department
of Housing. Other charges may have benefited both
agencies (e.g., day care security) but were paid in part by
the PHA. To avoid paying more than their share of the
costs, the PHA budgeted less than the contract limits. The
control was not effective. The PHA paid most of the
security costs billed. None of the costs were allocated to
the Department of Housing.
Contract Paid Paid Estimated
Number Firm Term Limit Budget Amount Excess Excess
C56-031 Domenech 3/96-3/97 $603,096 $189,947 $ 631,641 $441,694
Security
C47-106 Domenech 4/97-3/98 $642,959 $281,964 642,959 360,995
Security
UNK Island 4/98-9/98 $730,858 $139,272 257,274 118,002 $ 473,584
Security
UNK Island 9/98-9/00 $1,735,078 $214,265 0 0 1,520,813
Security
Total $ 1,531,874 $ 920,691 $ 1,994,397
The PHA obtained the services under intergovernmental
agreements managed by the Puerto Rico General Services
Administration. Under these agreements, the PHA could
choose any vendor from an approved list. Instead of formal
contracts with the firms, the PHA executed three agreement
letters. As a result, these contracts were not listed on the
PHA contract register or reported to the Puerto Rico
Comptroller’s Office.
Contract No. 98-3465
In January 1998, the PHA executed an emergency sole-
source contract with CVR Puerto Rico, Inc. to provide
technical assistance and administrative services to the
agency’s modernization program. The 18-month contract
totaled about $4.4 million. Seven days after the contract
was signed the PHA paid the contractor $211,117 in
advance. This is contrary to Title 24 CFR, subpart 85.36
(b) (8) which states that grantees should make awards only
to responsible contractors possessing the ability to perform
00-AT-201-1003 Page 26
Finding 3
successfully under the terms and conditions of a proposed
procurement. Consideration must be given to the potential
contractor’s technical and financial resources. We found
that although the owners of the company had prior public
housing experience, the company was constituted just prior
to receiving the contract thus, their past experience did not
meet the criteria (see Finding 2). In addition, the Puerto
Rico Treasury Department Regulation No. 31 prohibits
advance payments.
Fictitious Training Invoices
Other payments involving
management agents were
During the period April 1995 through January 1997, the
not administered properly
PHA paid about $2.6 million to Corporación de
Adiestramiento y Empleo en los Residenciales (CAER). Of
this amount, approximately $1.9 million was for services
that were not rendered. All the costs were charged to the
CGP. The payments were for training public housing
resident councils to help establish small businesses. The
goal was to create 3,000 jobs for public housing residents.
The PHA did not contract with CAER. However, PHA
officials endorsed the training and recommended that
management agents promote it to the councils. Using the
agents, CAER convinced at least 222 councils to sign
$8,000 sole-source contracts and send the invoices to the
PHA for payment. The training was to be given in two
stages. The first stage was for 15 hours of classroom
training to be given each council; cost $4,000 each. The
second stage was for CAER to assist resident councils to
select and implement one of five business concepts
promoted by CAER. The cost of this effort was also
$4,000 per council.
Under the first stage, the PHA paid CAER over $430,000
for training that was not provided. Training agendas and
resident interviews revealed that only 8 hours or less of
training were provided rather than 15 hours. Invoices
submitted to the PHA showed training given 1 day.
However, it paid the invoices without questioning how at
least 2 days of training could be given on 1 day.
Page 27 00-AT-201-1003
Finding 3
The PHA also paid CAER $888,000 for assisting resident
councils to start businesses. However, we found that only
44 of 222 councils actually received assistance. Also, the
assistance provided was not effective. As of January 31,
1998, only 2 council businesses were operating that
employed 13 residents.
In addition, the PHA paid CAER $776,000 in duplicate
payments. The payments were approved by PHA officials
without original invoices. Some payments were made
without any invoices.
PHA management controls were not effective in ensuring
that payments were for legitimate services. The scheme
was disclosed only when a PHA employee not involved in
the payment process, expressed concern to HUD regarding
the contractor’s work. We consider all the costs
($2,568,000) paid ineligible because services were not
rendered or effective and were not for allowable CGP
activities.
Five individuals including two former PHA employees and
the owner of CAER were recently indicted for fraud in
connection with this contractor. Two of the former
employees pled guilty.
Fictitious Management Agent Claims
During the period September 1996 through July 1997, the
PHA paid over $1 million from CGP funds based on
fictitious reimbursement claims. Four checks ranging from
$108,000 to $486,000 were issued to Inter Island Rental
Corporation, a PHA management agent. The agent did not
submit the claims or receive the payments. Two individuals,
in collusion with a former PRPHA employee, opened two
checking accounts doing business as the management agent
and deposited the checks. Two of the individuals pled
guilty and have been sentenced. The former employee pled
guilty. The scheme was discovered when a bank
questioned the deposits.
00-AT-201-1003 Page 28
Finding 3
Although three of the claims were duplicates previously paid
the management agent, PHA management controls were not
effective in keeping the claims from being processed again
or identifying the duplicate payments. Therefore, charges of
$1,034,733 are ineligible grant costs and must be
reimbursed HUD.
The single-audit report on 1992-1993 financial statements
Prior reviews cited
issued in October 1995, identified numerous management
control weaknesses
control weaknesses involving PHA procurement and related
involving procurement
disbursements. The single-audit report issued in August 1998,
and disbursements
on the 1994-1997 financial statements also cited the continuous
deficiencies and management control weaknesses in these
areas. Prior OIG and HUD reviews also cited similar
problems. As a result, the PHA agreed to strengthen controls.
We found that although the PHA has made many organizational
changes such as creating a central procurement division and
hiring an IPA firm to help manage many of its accounting
functions, the actions have not been effective in reducing
procurement and related disbursement deficiencies. Our tests
of PHA procurements (as recent as December 1998) and
disbursements showed continued noncompliance.
PRPHA has provided the IG with extensive documentation
PHA Comments demonstrating that the IG’s assertions regarding the Security
Services Agreements are simply incorrect. With regard to the
fictitious training invoices and fictitious management agent
claims, it has been well-documented that PRPHA completely
cooperated with law enforcement officials as soon as these
fraudulent schemes were discovered, and PRPHA has
instituted new procedures to prevent a recurrence of such
schemes. The advance payments that the IG seeks to disallow
are not prohibited by 24 CFR 85.36, the cited Treasury
regulation, or any other statute or regulation. Moreover, that
payment was approved by HUD. Finally, the IG does not fully
and accurately describe either PRPHA’s audit reports or the
organizational changes instituted by PRPHA.
Page 29 00-AT-201-1003
Finding 3
We considered the documentation provided by the PHA
Evaluation of PHA
regarding the Security Services Agreements, but it did not
Comments constitute a basis for changing the finding. With regard to the
fictitious training invoices and management agent claims, as
stated the PHA’s management controls were not effective to
detect or prevent the criminal fraud.
We are not disallowing the advance payment made to CVR.
Our point was that the advance payments made to CVR are
prohibited by the Puerto Rico Treasury Department regulations.
Recommendations We recommend that you:
3A. Perform cost reviews of major programs at least
annually to determine whether the PHA properly
allocated costs and require appropriate cost
adjustments and/or recovery of ineligible charges.
3B. Require that the PHA reimburse HUD ineligible costs of
$4,506,396 from non-federal funds improperly charged
to HUD programs and paid for services not received
(see Appendices C and E).
3C. Require that the PHA reimburse $2,568,000, less any
restitution, for the fictitious training invoices.
3D. Require that the PHA reimburse $1,034,733, less any
restitution, for the fictitious management agent claims.
3E. Assess the eligibility of $1,994,397 that had not been
paid on the security service contracts at the time of our
review and require PHA reimbursement, if applicable
(see Appendix E).
00-AT-201-1003 Page 30
Finding 4
Property Management and Related Procurement
Controls Need Improvement
The PHA did not maintain adequate property management and related procurement documents. Its
inventory records were not accurate or did not contain required data such as property location. PHA
purchase orders, contract registers and procurement regulations also need improvement. This occurred
because the PHA did not ensure that past actions taken to improve controls were effective. As a result,
there was no assurance that personal property was properly accounted for and used or if effective
controls were in place to safeguard assets. The PHA’s June 30, 1997, Balance Sheet showed that
personal property was valued at about $8.6 million. However, the inventory report, as of June 30,
1997, provided to OIG in February 1999, showed an adjustment increasing the inventory value from
$8.6 to $15.3 million, an increase of about 80 percent.
Title 24 CFR, part 85.20(b)(3) states that effective control and
Criteria
accountability must be maintained over all assets. Subpart
85.32(d)(1) further requires that personal property (equipment)
records must be maintained that include a description of the
property, a serial or other identification number, the source,
cost, location, use and condition of the property. PHA
regulations state that inventory controls apply to all items valued
at $50 or more.
Since at least 1994, auditors and HUD program officials have
repeatedly recommended that the PHA improve controls over
property management and procurement including maintaining
accurate inventory and procurement records and developing
and issuing a procurement manual. For example, a HUD
monitoring report issued in August 1994, cited the PHA for not
having an annual equipment inventory. The single-audit reports
on the PHA’s FY 1992 and 1993 financial statements issued in
October 1995, cited many control problems regarding property
management. The IPA recommended that the PHA take a
physical inventory and prepare and maintain a fixed assets
subsidiary ledger. However, the PHA did not develop the
ledger until 1998.
Page 31 00-AT-201-1003
Finding 4
Our tests of the ledger showed that it was not complete nor
accurate. We attempted to trace 285 items purchased during
the review period from source documents (purchase orders,
invoices, and receiving reports) to the ledger dated June 30,
1998. We could not positively confirm any of the items were
on the list. For example, we found 34 vehicles on the list with
the same purchase date and price as those tested but no
identifier (serial/plate number) or detailed description was
shown. We did not find the other 12 vehicles purchased in
August 1997 on the list. We also found none of the 59 Xerox
photocopiers purchased and received in April 1998 on the list
or 177 pieces of office furniture purchased from February to
April 1998. Although we could not be certain, three notebook
computers bought for $3,300 each in February 1998, were
listed as one notebook worth $9,900. The ledger did not show
the location for any of the items on the list. The inventory list
cannot be effectively used unless all personal property items are
accurately recorded with all required information.
In general, we physically located the personal property items
tested. However, we could not be certain that some items
located were the items procured. For example, we could not
positively confirm three computers purchased (purchase order
number 97-341) in January 1997 were the computers we saw
at the PHA Finance and Administration Office. The inventory
ledger and the purchase order did not show the manufacturer or
any other identifier (serial number).
PHA purchase order and contract registers were not accurate.
They were required to be maintained as a management control.
We found purchase orders were not sequentially numbered on
the register and all contracts were not shown. We also
determined that the purchase order and contract registers did
not show fund sources or always reflect actual purchase
amounts.
In addition, PHA procurement regulations did not contain all
HUD requirements. We found that the regulations did not:
• prohibit use of cost-plus contracts,
• include detailed steps for rejecting contractors,
00-AT-201-1003 Page 32
Finding 4
• provide procedures to ensure contractor
performance,
• include steps to preclude awards to contractors on
Federal debarment lists, and
• require contract solicitations remain open 15 days
minimum.
In 1998, a contractor developed a comprehensive procurement
manual for the PHA which included these requirements.
However, it had not been issued as of December 1999.
PRPHA does not dispute that additional improvements in its
PHA Comments
property management and procurement systems are desirable.
Indeed, PRPHA welcomes HUD’s assistance in instituting such
changes. However, the problems are not nearly so extensive as
suggested by the IG audit.
We had no assurance that personal property was properly
OIG Evaluation of
accounted for and used or if effective controls were in place to
Auditee Comments safeguard assets.
Recommendations We recommend that you require the PHA to:
4A. Submit detailed policy and procedures for: (1)
maintaining a personal property ledger that complies
with Federal requirements that includes a detailed
property description, identification/serial number,
location, and source document reference, and (2)
conducting an annual physical inventory, comparing
results to the ledger, and reconciling differences
including steps to investigate missing items.
Page 33 00-AT-201-1003
Finding 4
4B. Properly record all personal property items included in
this review in the ledger, physically locate the items we
could not find, and investigate those that are missing.
4C. Establish management controls to ensure reliability of
purchase order and contract registers.
4D. Issue the procurement manual and policy on its use.
00-AT-201-1003 Page 34
Management Controls
In planning and performing our audit, we considered the PHA’s management controls to determine our
audit procedures and not to provide assurance on those controls. Management is responsible for
establishing effective management controls to ensure that its goals are met.
Management controls include the plan of organization, methods and procedures adopted by
management to ensure that its goals are met. Management controls include the processes for planning,
organizing, directing, and controlling program operations. They include the systems for measuring,
reporting, and monitoring program performance.
We determined that the controls most relevant to our objectives pertained to the following:
1. Procedures and practices used to accumulate and charge costs to the Program.
2. Procedures used for contract administration.
3. Procedures used to comply with Federal and PHA’s procurement requirements and maintain
control over its central office procurement activities
4. Procedures to ensure that personal property was properly accounted for and to maintain
inventory control.
5. Procedures used to monitor procurement activities.
We assessed controls in place. We obtained an understanding of the PHA’s procedures and HUD's
requirements, assessed control risk, and performed various substantive tests of the controls.
A significant weakness exists if management controls do not give reasonable assurance that resource use
is consistent with laws, regulations, and policies; that resources are safeguarded against waste, loss, and
misuse; and that reliable data are obtained, maintained, and fairly disclosed in reports.
Based on our review, we believe that significant weaknesses existed in all five management control areas
mentioned above. The specific weaknesses are discussed in the findings.
Page 35 00-AT-201-1003
Management Controls
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00-AT-201-1003 Page 36
Follow-Up On Prior Audits
Prior audit reports contained findings which impact the objectives of this audit.
• An OIG audit report (No. 96-AT-201-1821 dated June 26, 1996) on the PRPHA concluded
that the PHA did not (1) document the history of each procurement including basis for
contractor selection or rejection and contract price; (2) perform required price and/or cost
analyses prior to procurements; and (3) provide all required standard contract provisions in its
contracts. At the time of this review, these findings were unresolved. HUD has referred them
to its legal staff for further action.
• A single audit of the PHA’s FY 1992-1993 financial statements, management controls, and
compliance (issued October 31,1995) by PriceWaterhouseCoopers, LLP, found numerous
significant deficiencies. The IPA disclaimed an opinion on both years’ statements. Among the
items reported was that the PHA did not: (1) maintain bid and contract documents; (2) have
records supporting disbursements; (3) adequately solicit procurements; and (4) prepare written
contracts for professional services. These findings were also unresolved at the time of our
review.
• A single audit of the Department of Housing including the PHA’s FY 1994-1997 financial
statements, management controls, and compliance (issued August 17, 1998) by the same firm,
found numerous significant deficiencies. Because of these deficiencies and their impact on the
statements, the firm disclaimed an opinion on the 1994-1996 statements. Although all the
deficiencies continued into the next year, the firm was able to give an unqualified opinion on the
1997 statements. It reported that the PHA: (1) did not maintain contract nor related
procurement documents; (2) made procurements without using competitive procedures; (3)
performed no price and/or cost analyses and; (4) made payments for professional services
without signed contracts. These findings were not resolved at the time of our review.
As discussed in detail in the “Findings and Recommendations” section of this report, the above
conditions continue to exist. This report stresses the importance of developing and implementing
management controls to ensure that the conditions do not continue.
Page 37 00-AT-201-1003
Follow-Up On Prior Audits
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00-AT-201-1003 Page 38
Appendix A
Schedule Of Ineligible Costs and Cost
Efficiencies
Recommendation Ineligible Efficiency
1F. $8,841,638
2C. 4,860,023
2D. $2,133,404
3B. 4,506,396
3C. 2,568,000
3D. 1,034,733
3E. 1,994,397
Total $21,810,790 $4,127,801
Ineligible - Costs not allowable by law, regulation, contract, or HUD or local agency policy.
Cost Efficiency - An action to prevent an ineligible obligation or expenditure, or to increase revenue.
Page 39 00-AT-201-1003
Schedule Of Ineligible Costs and Cost Efficiencies
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00-AT-201-1003 Page 40
Appendix B
Summary Of Purchase Order Deficiencies
Number Vendor Procurement Deficiencies
97-279B Bus Rental 1, 3, 7, 10, 11, 12, 14, 20
97-528 Bus Rental 1, 3, 5, 7, 10, 11, 12, 14, 20
97-578 Bus Rental 1, 3, 7, 10, 11, 12, 14, 20
97-585 Bus Rental 1, 3, 7, 10, 11, 12, 14, 20
97-014 Colortaal 5, 11
97-460 DRC 4, 8, 11
97-271 Ferreteria Martin Gonzalez 5, 7, 8, 11, 19, 20
97-299 Ferreteria Martin Gonzalez 2, 5, 7, 8, 11, 19, 20
97-342 Ferreteria Martin Gonzalez 5, 8, 11, 15, 19, 20
97-409 Ferreteria Martin Gonzalez 8, 11, 13, 17, 21
97-592 Ferreteria Martin Gonzalez 8, 11, 13
97-458 IBM 4, 6, 8, 11, 14
97-032 Michica International 6, 11, 14
97-031 Motorola de Puerto Rico 6, 11, 14, 21
97-057 Nu-Vue Ind. Service 7, 11, 19, 20
97-191 National Security Institute 1, 2, 3, 7, 10, 11, 13, 14, 19, 20
97-220 National Security Institute 1, 2, 3, 7, 10, 11, 13, 14, 19, 20
97-370 National Security Institute 1, 2, 3, 7, 10, 11, 13, 14, 19, 20
97-461 National Security Institute 1, 3, 5, 7, 8, 10, 11, 12, 13, 14, 19
97-231 Plebiscito Storm Shutter 2, 5, 7, 8, 11, 19, 20
97-338 PR Computer Services 1, 4, 8, 11, 20, 21
97-263 Standard Forms, Inc. 1, 2, 5, 11, 19, 20, 21
97-228 The Capicorn Group 2, 5, 6, 8, 11, 19
97-267 The Capicorn Group 1, 2, 5, 8, 11, 19, 20
97-275 The Capicorn Group 1, 2, 5, 8, 11, 16, 19, 20
97-318 The Capicorn Group 1, 2, 5, 8, 11, 19, 20
97-341 The Capicorn Group 1, 2, 5, 8, 11, 15, 16
98-487 Belfra Interiors 1, 7, 11, 20
98-478 COMPUTERLINK 5, 11, 13, 21
98-723 Fire Control Corporation 6, 7, 11, 12, 16
98-469 Future Data Visions 1, 3, 4, 8, 10, 11
98-551 Future Data Visions 1, 3, 5, 8, 10, 11
98-684 J&K Printers 11
98-070 Kane Caribbean 6, 7, 9, 10, 11, 12, 14, 18, 20, 21
98-074 Losada Auto Truck, Inc. 4, 9, 10, 11, 12, 14, 16, 17, 20, 21
98-763 MORS Inc. 5, 11
98-631 MV Electrical Contractor 1, 5, 7, 11
98-829 Office Gallery 2, 3, 8, 10, 11
98-830 Office Gallery 2, 3, 8, 10, 11
98-566 Office Gallery 5, 11, 13, 21
Page 41 00-AT-201-1003
Summary Of Purchase Order Deficiencies
00-AT-201-1003 Page 42
Summary of Purchase Order Deficiencies
Number Vendor Procurement Deficiencies
98-822 Rafael J. Nido 6, 7, 9, 10, 11, 12, 14, 16, 21
98-752 Royal International 7, 8, 11, 14
98-071 Royal Motors Corp. 4, 6, 8, 9, 10, 11, 12, 14, 20
98-708 Speedy Office 3, 10, 11, 20, 21
98-707 Speedy Office 3, 7, 10, 11, 20, 21
98-541 Speedy Office 4, 7, 8, 11, 14, 20, 21
98-595 The Atmospheric Group 1, 4, 7, 8, 11, 14
98-073 Triangle Dealers 6, 9, 10, 11, 12, 14, 20
98-821 White Westinghouse 6, 7, 9, 10, 11, 12, 14, 18, 20, 21
98-405 Xerox Corporation 6, 8, 11, 12, 13
98-703 Xerox Corporation 6, 8, 11, 12, 13, 21
99-248 Abreu Power Cars 6, 7, 8, 10, 11, 20
99-246 Autos Vega 6, 7, 10, 11, 20
99-326 COMPUTERLINK 6, 10, 11, 20
99-245 Empresas Losada 6, 7, 10, 11, 20
99-247 Triangle Dealers 6, 7, 10, 11, 20
Solicitation and Award Deficiencies
1 Procurement did not involve purchasing department
2 False or altered questions
3 Splitting acquisition to avoid formal procurement, not advertised
4 Lowest quotation/bid not selected
5 No or insufficient number of quotations obtained
6 Purchase order issued instead of written contract
7 Purchase order with incorrect or incomplete information
8 Excessive costs
9 Insufficient time to respond to the request for bid/proposal
10 Not advertised twice
11 No independent cost and/or price analysis
12 Acquisition over $30,000 without required Housing Secretary approval
Inadequate Procurement Records
13 No procurement file
14 File did not show complete procurement history
Page 43 00-AT-201-1003
Summary Of Purchase Order Deficiencies
Inadequate Payment/Contract Administration
15 Payment not supported by an invoice
16 Payment without adequate support demonstrating that goods/services were received
17 Payments made without proper PHA authorization
18 Invoice paid without having proper vendor certification
19 Invoice/supporting documents not marked “paid” to avoid duplicate payment
20 Cost not allocable to HUD program
21 Sampled item(s) not on inventory list and/or not physically located
00-AT-201-1003 Page 44
Summary of Purchase Order Deficiencies
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Page 45 00-AT-201-1003
Appendix C
Summary Of Purchase Order Cost Exceptions
Number Date Vendor Goods/Services Amount Grant Ineligible Reason A/F
Costs @
97-279B 11/14/96 Bus Rental Transportation $3,750 DEP $3,750 20 3
97-528 5/5/97 Bus Rental Transportation 4,150 DEP 4,150 5, 20 3
97-578 6/3/97 Bus Rental Transportation 6,760 DEP 6,760 20 3
97-585 6/10/97 Bus Rental Transportation 6,320 DEP 6,320 20 3
97-014 7/22/96 Colortaal Copy of Plans 5,052 OS&I 5,052 5, 11 1
97-460 3/13/96 DRC Network Services 2,500 OS&I 1,100 8 1
97-271 12/4/96 Ferreteria Martin 6 Electricity Generators 9,000 DEP 9,000 5, 8, 20 3
Gonzalez
97-299 12/12/96 Ferreteria Martin 10 Chain Saws 4,500 DEP 4,500 2, 5, 8, 20 3
Gonzalez
97-342 1/24/97 Ferreteria Martin Cleaning Materials 8,785 OS&I 8,785 8, 13 3
Gonzalez
97-409 2/25/97 Ferreteria Martin Maintenance Equipment 7,004 DEV 7,004 8, 13 1
Gonzalez
97-592 6/13/97 Ferreteria Martin Tools 9,818 OS&I 9,818 8, 13 1
Gonzalez
97-458 3/12/97 IBM Software License 319,501 CGP 129,635 8 1
97-032 7/31/96 Michica International 200 Batteries and 50 50,500 DEP
Chargers
97-031 7/31/96 Motorola de Puerto Rico 247 Portable Radios 707,710 DEP
97-057 8/19/96 Nu-Vue Ind. Service Storm Shutters 3,756 OS&I 2,518 20 3
97-191 10/22/96 National Security Aerial Photographs of 11 9,945 DEP 9,945 2, 13, 20 3
Institute Public Housing Projects
97-220 11/6/96 National Security Scanning & 8,775 DEP 8,775 2, 13, 20 3
Institute Digitalization of Aerial
Photographs
97-370 2/5/97 National Security Aerial Photographs of 7 7,050 DEP 7,050 2, 13, 20 3
Institute Public Housing Projects
97-461 3/13/97 National Security RETA-1 Seminar 9,900 DEP 9,900 5, 8, 13 1
Institute
97-231 11/18/96 Plebiscito Storm Shutter Storm Shutters 5,160 OS&I 2,580 2, 5, 20 3
97-338 1/22/97 PR Computer Services 1 Laptop Computer 7,365 CGP 7,365 8, 20 3
97-263 11/29/96 Standard Forms Inc. 50 Antiglare Filters and 7,075 CGP 7,075 2, 5, 20 3
25 Wrist Rests
97-228 11/12/96 The Capricorn Group Office Furniture 5,950 DEP 5,950 2, 5, 8 1
97-267 12/3/96 The Capricorn Group 1 Desk-top Computer 8,200 CGP 8,200 2, 5, 8, 20 1
97-275 12/5/96 The Capricorn Group 2 Desk-top Computers 5,600 CGP 5,600 2, 5, 8, 20 1
97-318 12/3/96 The Capricorn Group 3 Desk-top Computers 8,400 DEP 8,400 2, 5, 8 1
97-341 1/23/97 The Capricorn Group 3 Desk-top Computers 9,300 CGP 9,300 2, 5, 8, 20 1
98-487 2/6/98 Befra Interiors Rehab Modernization 9,800 CGP 9,800 20 3
Office
98-478 2/5/98 COMPUTERLINK 3 Laptop Computers 9,900 OS&I 9,900 5, 13 1
98-469 5/1/98 Future Data Visions 55,000 Fire Extinguishers 684,750 OS&I 2,252 1
98-723 2/2/98 Fire Control Corporation Server Back-up Drive 8,419 OS&I 8
98-551 3/2/98 Future Data Visions Installation and Training 4,800 OS&I 4,800 5, 8 1
Page 47 00-AT-201-1003
Summary Of Purchase Order Cost Exceptions
of Back-up Drive
98-684 4/14/98 J&K Printers Reproduction of PHA 6,000 OS&I
Forms
98-070 8/13/97 KANE Caribbean 7 Steer Loader/Backhoes 243,852 CGP 243,852 20 3
98-074 8/14/97 Losada Auto Truck Inc. 43 Vehicles 1,295,453 CGP 1,295,453 20 3
98-763 5/15/98 MORS Inc. Toners 6,750 OS&I 6,750 5, 11 1
98-631 3/29/98 MV Electrical Contractor Electrical Work at 6,800 OS&I 6,800 1, 5, 7, 11 1
Modernization Office
98-829 6/4/98 Office Gallery Office Furniture 6,525 OS&I 6,525 2, 8 1
98-830 6/4/98 Office Gallery Office Furniture 3,775 OS&I 3,775 2, 8 1
98-566 3/17/98 Office Gallery Office Furniture 7,192 OS&I 7,192 5, 13 1
98-822 5/1/98 Rafael J. Nido, Inc. 21,428 Water Heaters 2,365,437 OS&I 941,627 a 1
98-752 5/12/98 Royal International Fax and Copiers 7,775 OS&I 4,418 8 1
98-071 8/13/97 Royal Motors Corp. 11 Vehicles 168,719 CGP 168,719 8, 20 3
98-708 4/27/98 Speedy Office Office Furniture 7,930 CGP 7,930 20 3
98-707 4/27/98 Speedy Office Office Furniture 6,840 CGP 6,840 20 3
98-541 2/26/98 Speedy Office 100 Chairs 6,250 OS&I 6,250 8, 20 1
98-595 3/12/98 The Atmospheric Group Analysis of Lead 9,570 OS&I 1,875 8 1
Abatement Waste
98-073 8/14/97 Triangle Dealers 12 Vans 296,686 CGP 273,864 6, 20 3
98-821 5/1/98 White Westinghouse 12,000 Electric Stoves 2,604,000 OS&I 2,604,000 20 1
98-405 1/7/98 Xerox Corporation 96 Copiers 480,000 OS&I 346,080 8, 13 1
98-703 4/24/98 Xerox Corporation Maintenance 802,640 OS&I 536,015 8, 11, 12, 1
Agreements 13
99-248 11/101998 Abreu Power Cars 5 Skymaster Trucks 238,500 OS&I 238,500 8, 20 3
99-246 11/10/98 Autos Vega 13 Pick-ups 358,225 OS&I 358,225 20 3
99-326 12/22/98 COMPUTERLINK 33 Digital Cameras 26,400 CGP 26,400 20 3
99-245 11/10/98 Empresas Losada 14 Dump Trucks 595,196 OS&I 595,196 20 3
99-247 11/10/98 Triangle Dealers 6 Vans 135,732 OS&I 135,732 20 3
Total $11,645,743 $8,137,302
Grant
CGP - Comprehensive Grant Program
DEP - Drug Elimination Program
DEV - Development Fund
OS&I - Operational Subsidy & Income
A/F- Audit Finding Ineligible
1 $4,688,218
3 $3,449,084
Total $8,137,302
a - Heaters not installed 19 months after purchased
@ - See Appendix B for legend
00-AT-201-1003 Page 48
Summary of Purchase Order Deficiencies
Page 49 00-AT-201-1003
Appendix D
Summary Of Contract Deficiencies
Number Vendor Procurement Deficiencies
97-6773 Cardona, Irizarry & Company 5, 8, 9, 10, 11, 12, 15, 17, 25
97-3715 Fidler, Gonzalez & Rodriguez 1, 2, 3, 4, 10, 11, 12, 15, 16, 17, 19, 20, 23
97-134 Guirimar Construction 2, 10, 11, 12, 17
98-416 American Fundware 1, 2, 3, 4, 10, 11, 12, 13, 16, 17
98-427 Analytical Environment 5, 6, 7, 10, 12, 17, 18
98-2311 Cardona, Irizarry & Company 2, 5, 7, 8, 10, 11, 12, 17, 18, 22, 25
98-3464 Cardona, Irizarry & Company 1, 2, 3, 4, 11, 12, 13, 16, 17, 25
98-3465 CVR Puerto Rico, Inc. 1, 2, 3, 4, 11, 12, 13, 16, 17, 24, 25
98-3823 Global Panzardi Joint Venture 5, 6, 8, 10, 12, 13, 17, 18, 24, 25
98-5121 Habibe Computer 5, 7, 10, 12, 13
98-431 Price Waterhouse Coopers 5, 7, 8, 10, 12, 17, 21
UNK Cardona, Irizarry & Company 1, 2, 4, 10, 12, 13, 14, 16, 17, 18, 19, 20, 21, 23
UNK Domenech Security 9, 10, 12, 13, 16, 17, 20, 27
UNK Domenech Security 9, 10, 12, 13, 16, 17, 20, 27
UNK Island Security 9, 10, 12, 13, 16, 17, 20, 27
UNK Island Security 9, 10, 12, 13, 16, 17, 27
UNK National Security Institute 1, 2, 4,10, 12, 13, 14, 16, 17, 18, 19, 20, 21, 23, 25,
26
Solicitation and Award Deficiencies
1 Inappropriate procurement method
2 Inadequate competition
3 Sole-source contract not justified
4 Not advertised
5 Not advertised twice
6 No due date to submit proposal
7 Insufficient time to respond to the request for bid/proposal
8 Request for proposal did not contain all evaluating factors and weighted importance
9 Contract awarded to other than lowest bidder without justification
10 Contract not approved by HUD and Housing Secretary
11 Excessive costs
12 No independent cost and/or price analysis
13 Contract did not include all required clauses
14 No written contract executed
Improper Contract Modifications
15 Change order not approved by HUD and/or Housing Secretary
Page 51 00-AT-201-1003
Summary Of Contract Deficiencies
Inadequate Procurement Records
16 No procurement file
17 File did not show complete history
18 File did not include all bid/proposals received
19 File did not document the basis for contractor selection
Inadequate Payment/Contract Administration
20 Payment made above the budgeted and/or contract amount
21 Payment made without contract
22 Payment made without original invoice
23 Payment made without proper PHA authorization
24 Payment made in advance or without evidence of completion of service
25 Payment made without detail of services provided
26 Payment made without proper contractor certification
27 Cost not allocable to HUD program
00-AT-201-1003 Page 52
Appendix E
Summary Of Contract Cost Exceptions
Number Date Vendor Goods/ Amount Grant Audit Reason
Services Classification @
97-6773 03/10/1997 Cardona, Irizarry Accounting $1,385,136 CGP $1,257,711 1 9, 11, 15
& Co. Services
97-3715 03/12/1997 Fiddler, Gonzalez Legal Services 1,118,974 OS&I 1,118,974 1 2,3,10,11,
& Rodriguez 15,16,20
1
97-134 07/24/1996 Guirimar Demolition 1,189,000 URD,CGP 4,000 2,10,11
Construction
98-416 07/18/1997 American Computer 977,400 CGP 953,014 1 2,3.16
Fundware Services
98-427 09/12/1997 Analytical Lead Risk 659,317 LB
Environment Assessment
98-2311 11/17/1997 Cardona, Irizarry Accounting 1,068,660 CGP 819,721 1 2,10,11
& Co. Services
98-3464* 01/08/1998 Cardona, Irizarry Accounting 6,762,610 CGP/OS&I 3,141,710 1 2,3,11,16
& Co. Services
1,450,357 2
98-3465 01/08/1998 CVR Puerto Rico, Modernization 4,418,326 CGP 1,718,313 1 2,3,11,16
Inc. Area Services
683,047 2
98-3823 09/25/1997 Global Panzardi Lead Disposal 1,365,756 CGP
Joint Venture
98-5121 03/27/1998 Habibe Computer Computer 675,340 CGP
Services
99-431 08/13/1998 Price Waterhouse Single Audit 802,211 Various
Coopers Services
UNK UNK Cardona, Irizarry Accounting 62,300 CGP 62,300 1 2,10,16,20,21
& Co. Services
UNK UNK Domenech Security Services 642,959 OS&I 360,995 1 9,10,16,20, 27
Security
UNK 10/31/1996 Domenech Security Services 603,096 OS&I 441,694 1 9,16,20, 27
Security
UNK 04/06/1998 Island Security Security Services 730,858 OS&I 118,002 1 9,10,16,20, 27
473,584 2
UNK UNK Island Security Security Services 1,735,078 OS&I 1,520,813 2 9,10,16,27
UNK UNK National Security Security Seminar 74,321 DEP 74,321 1 2,10,16,20,21
Institute
UNK UNK CAER Business 2,568,000 CGP 2,568,000 1 11,27
Establishment
UNK UNK Fictitious Claims 1,034,733 CGP 1,034,733 1 27
Total $24,271,342 $13,673,488 1
$4,127,801 2
Page 53 00-AT-201-1003
Summary Of Contract Cost Exceptions
Grant
CGP- Comprehensive Grant Program
DEP- Drug Elimination Program
DEV- Development Fund
LB- Lead Based Program
OS&I- Operational Subsidy & Income
URD- Urban Renewal Development (HOPE VI) Program
Audit Classification
1- Ineligible Cost
2- Cost Efficiency
A/F- Audit Finding Ineligible Efficiencies
1 $4,153,420 $0
2 $4,860,023 $2,133,404
3 $4,660,045 $1,994,397
Total $13,673,488 $4,127,801
* Contract reduced by $2,754,920
@- See Appendix D for legend
00-AT-201-1003 Page 54
Appendix F
Purchase Order Cost Exceptions
Number Vendor Ineligible Reason A/F Remarks
Costs @
97-279B Bus Rental $3,750 20 3 Transportation to ballet was not among the DEP
activities approved by HUD, therefore is not an eligible
DEP activity.
97-528 Bus Rental 4,150 5,20 3 Transportation to the Corps of Volunteers facilities at
Aibonito town & other trips was not among the DEP
activities approved by HUD, therefore is not an eligible
DEP activity.
97-578 Bus Rental 6,760 20 3 Transportation to the Corps of Volunteers facilities at
Aibonito town & other trips was not among the DEP
activities approved by HUD, therefore is not an eligible
DEP activity.
97-585 Bus Rental 6,320 20 3 Transportation to the Corps of Volunteers facilities at
Aibonito town & other trips was not among the DEP
activities approved by HUD, therefore is not an eligible
DEP activity.
97-014 Colortaal 5,052 5 1
97-460 DRC 1,100 8 1 The lowest quote was not selected & the explanation
was not documented, therefore the difference between
the lowest & the paid price is ineligible ($125/hr. less
$70/hr.= $55 x 20hrs.= $1,100).
97-271 Ferreteria Martin 9,000 5,8,20 3 Excessive costs per comparable prices obtained by
Gonzalez auditor of $1,000 per electricity generator. Purchases
for emergency situations are not DEP eligible cost.
Also, two generators were not used for the intended
purpose. Therefore, the $9,000 is ineligible.
97-299 Ferreteria Martin 4,500 2,5,8,20 3 Excessive costs per comparable prices obtained by
Gonzalez auditor. Purchases for emergency situations are not
DEP eligible cost. Therefore, the $4,500 is ineligible.
97-342 Ferreteria Martin 8,785 5,8,20 3 Some of the supply items appear to be overpriced per
Gonzalez auditor's experience (i.e., propane gas can for approx.
$2 vs. $4.25 paid by PHA). Purchases for emergency
situations are not eligible public housing operating
costs , thus the $8,785 is ineligible.
97-409 Ferreteria Martin 7,004 8,13 1 Some of the maint. equipment appears to be overpriced
Gonzalez (i.e., elect. handsaw $169, lawn mower $1,200). There
was no procurement file, thus no assurance that the
lowest quote was selected & charges reasonable.
Therefore, the $7,004 is deemed ineligible.
97-592 Ferreteria Martin 9,818 8,13 1 Same as above for P.O.#97-409. The $9,818 is deemed
Gonzalez ineligible.
97-458 IBM 129,635 8 1 The lowest bid was not opened because the bidder did
not attend or was late for the pre-bid conference. This
is contrary to HUD HBK. 7460.8 REV-1, Parag. 4-11.
The diff. between the awarded & the lowest bid
($319,501 - $189,866=$129,635) is ineligible.
Page 55 00-AT-201-1003
Purchase Order Cost Exceptions
97-032 Michica
International
97-031 Motorola de Puerto
Rico
97-057 Nu-Vue Ind. 2,518 20 3 Per physical inspection, the PHA purchased more
Service storm panels than needed to protect its Tech.
Information Office Adjacent areas of the Dept. of Hsng.
were apparently covered with the extra panels. The
cost of the extra panels was determined to be $2,518.
97-191 National Security 9,945 2,13,20 3 The aerial photographic services of 11 public housing
Institute projects were not included in the PHA's FY 95 DEP
application, therefore the services were not authorized
by HUD. The services are not allocable to the program.
97-220 National Security 8,775 2,13,20 3 The scanning & digitalization services for the above
Institute indicated photographs (P.O. #97-191) were not
included in the PHA's FY 95 DEP application, therefore
the services were not authorized by HUD. The services
are not allocable to the program.
97-370 National Security 7,050 2,13,20 3 The aerial photographic services of seven public
Institute housing projects were not included in the PHA's FY 95
DEP application, therefore the services were not
authorized by HUD. The services are not allocable to
the program.
97-461 National Security 9,900 5,8,13 1 There was no procurement file for the RETA-1
Institute seminars. No price analysis or quotations, etc..
Therefore, price reasonability could not be determined.
The payment documents did not include the required
attendance sheet.
97-231 Plebiscito Storm 2,580 2,5,20 3 The PHA paid for the installation of more storm panels
Shutter than needed to protect its T.I. Office. Adjacent areas of
the Dept. of Hsng. were apparently covered with the
extra panels. The cost of installation of the extra panels
was determined to be $2,580.
97-338 PR Computer 7,365 8,20 3 The charges for the laptop computer were not an
Services eligible expense of the CGP. Although if they were, the
selected quote was $1,700 over the lowest quote.
97-263 Standard Forms 7,075 2,5,20 3 The charge for the acquisition of computer equipment
Inc. was not an eligible expense of the CGP. In addition, the
25 wrist rests & 50 anti-glare screens could not be
physically located at the PHA facilities.
97-228 The Capricorn 5,950 2,5,8 1 The 10 executive type desks & chairs purchased could
Group not be traced from the inventory record to the P.O.. In
addition, the receipt in the pymt. file showed a different
type of chair, thus we have no certainty that the
equipment was in fact received.
97-267 The Capricorn 8,200 2,5,8,20 1 The computer was allegedly assigned to the T.I. Office.
Group We could not verify this from the inventory & P.O.
records. At the T.I Office., it does not benefit the CGP
where it is charged. Also, a more advanced computer
could be purchased for $4,000 less.
00-AT-201-1003 Page 56
Purchase Order Cost Exceptions
97-275 The Capricorn 5,600 2,5,8,20 1 For two computers purchased, one could not be
Group positively identified as the one purchased, due to the
state of the inventory records. The other was
reassigned to an unknown unit. A more advanced
computer could be obtained for about the same price.
97-318 The Capricorn 8,400 2,5,8 1 None of the three computers purchased could be
Group identified due to the state of the inventory records. A
false quote was detected. A more advanced computer
could be obtained for about the same price.
97-341 The Capricorn 9,300 2,5,8,20 1 None of the three computers purchased could be
Group identified due to the state of the inventory records.
Two false quotes were detected. A more advanced
computer could be obtained for about the same price.
98-487 Befra Interiors 9,800 20 3 Rehabilitation work done at the PHA's Modernization
Office is not an eligible CGP expense.
98-478 COMPUTERLINK 9,900 5,13 1
98-469 Future Data Visions 2,252 8 1 Per auditor's inquiry with two vendors, the price for a
computer backup drive & software could be obtained
for $2,252 less than the amount paid by the PHA, if
proper procurement procedures had been followed.
98-723 Fire Control
Corporation
98-551 Future Data Visions 4,800 5,8 1 Per auditor's review, the installation & training of the
HP backup drive could had been done by the PHA's
personnel & consultant.
98-684 J&K Printers
98-070 KANE Caribbean 243,852 20 3 Per auditor's physical inspections & interview of
project staff, the seven Skid Steer Loader/Backhoes
purchased with CGP funds were used to provide
ordinary maintenance to public hsg. projects, which
was an ineligible CGP activity (HUD HBK. 7485.3G).
98-074 Losada Auto Truck 1,295,453 20 3 Per auditor's physical inspections & interview of
Inc. project staff, the 38 trucks & 1 Blazer were used to
provide ordinary maintenance to public. hsg. projects.
The Blazer was used for executive staff which was not
eligible CGP activities (HUD HBK. 7485.3G).
98-763 MORS Inc. 6,750 5 1
98-631 MV Electrical 6,800 5 1
Contractor
98-829 Office Gallery 6,525 2,8 1 PHA officials did not perform a price analysis & did not
follow other procurement procedures, which resulted in
excess charges to the operating funds.
98-830 Office Gallery 3,775 2,8 1 Same as above for P.O #98-829
98-566 Office Gallery 7,192 5,13 1
98-822 Rafael J. Nido, 941,627 a 1 Weak management practices and poor planning.
Inc.
Page 57 00-AT-201-1003
Purchase Order Cost Exceptions
98-752 Royal International 4,418 8 1 The PHA did not perform a price/cost analysis ,
therefore it charged excessive costs to operations. A
more economical fax could be acquired for $189 & a
copier for $1,395. The difference between the paid price
& the above was $4,418 of ineligible costs.
98-071 Royal Motors Corp. 168,719 8,20 3 The PHA acquisition of cars for the transportation of
its employees to the PHA & projects facilities was an
on going operating expense, which is an ineligible
management improvement cost. An unsolicited bidder
offered a lower price for pick-up trucks.
98-708 Speedy Office 7,930 20 3 The PHA acquired office furniture for the CGP office,
but for employees of a consultant which are considered
on going operating expense not CGP expense as
charged.
98-707 Speedy Office 6,840 20 3 Ongoing operating expense not eligible under CGP
98-541 Speedy Office 6,250 8,20 1 File did not show how this equipment relates to public
housing. Other lower bidder was not selected.
98-595 The Atmospheric 1,875 8 1 Difference between lowest bidder and selected
Group contractor ($7,975-$6,100).
98-073 Triangle Dealers 273,864 6,20 3 Ongoing operating expense not eligible under CGP
98-821 White 2,604,000 20 1 Not approved by HUD in Operating Budget. HUD did
Westinghouse not approve the donation to the residents.
98-405 Xerox Corporation 346,080 8,13 1 No cost analysis performed. The need, economy, and
efficiency were not documented. Auditor allowed
$1,395 for 96 units & maintenance.
98-703 Xerox Corporation 536,015 8,13 1 No cost analysis performed. The need, economy, and
efficiency were not documented. Auditor allowed
$3,375 for 79 units (equipment & maintenance).
99-248 Abreu Power Cars 238,500 8,20 3 Not approved by HUD in Operating Budget.
Additionally, the bid was for $41,700; however, PHA
charged $47,700 per unit.
99-246 Autos Vega 358,225 20 3 Not approved by HUD in Operating Budget.
99-326 COMPUTERLINK 26,400 20 3 Ongoing operating expense not eligible under CGP
99-245 Empresas Losada 595,196 20 3 Not approved by HUD in Operating Budget.
99-247 Triangle Dealers 135,732 20 3 Not approved by HUD in Operating Budget.
$8,137,302
00-AT-201-1003 Page 58
Purchase Order Cost Exceptions
Grant
CGP- Comprehensive Grant Program
DEP- Drug Elimination Program
DEV- Development Fund
OS&I- Operational Subsidy & Income
A/F - Audit Finding Ineligible
1 $4,688,218
3 $3,449,084
Total $8,137,302
a- Heaters not installed 15 months after purchased
@- See Appendix B for legend
Page 59 00-AT-201-1003
Purchase Order Cost Exceptions
(THIS PAGE LEFT BLANK INTENTIONALLY)
00-AT-201-1003 Page 60
Appendix G
PHA Comments
VERNER. LIIPFERT
BERNHARD McPHERSON HAND
LCHARTERED/
901 - 15T H STREET , N.W.
. WASHINGTON, D..C. 20005-2301
(2O2) 371-6000
FAX: (202) 371-6279
JAMES F. HIBEY (202) 371-6045
WILLIAM R. SHERMAN (202) 371-6075
January 31, 2000
BY TELECOPIER and FIRST CLASS MAIL
Nancy H. Cooper
District Inspector General for Audit
Southeast/Caribbean, 4 AGA
75 Spring Street, S.W.
Room 330 Box 42
Atlanta, GA 30303
Re: Draft Audit of Puerto Rico Public Housing Administration Procurement System
Dear Ms. Cooper:
In accordance with the agreements reached at the December 7, 1999 exit conference, your
letter dated January 12, 2000, and the extension granted via phone message from Sonya Lucas of
your office, please find attached hereto the following:
1. PRPHA's general response to the revised draft audit report; and
2. Summaries of PRPHA's responses to each of the specific audit findings, to be
inserted in the specified places in the text of the audit report.
You agreed on December 7 to insert PRPHA's summary comments verbatim, subject to
certain conditions, including that those summaries be brief. We have, therefore, endeavored
concisely to summarize our comments regarding each finding. It is our understanding that the
Inspector General's office will incorporate the attached summaries from PRPHA and issue the
audit report to HUD only, and that any wider distribution of the report will await PRPHA's full
response. Obviously, PRPHA's concern that proper and agreed-upon distribution procedures be
followed is heightened by the premature release, to a wide distribution list, of your November 15,
1999 memorandum to Harold Lucas regarding Finding Two of the audit report.
· WASHINGTON, DC · HOUSTON · AUSTIN
· HONOLULU · LAS VEGAS · McLEAN · MIAMI
61 00-AT-201-1003
PHA Comments
00-AT-201-1003 62
PHA Comments
,
63 00-AT-201-1003
PHA Comments
Additional PRPHA Comments to Revised Draft Audit Report
Dated January 12, 2000
I. Overall Comments
The Puerto Rico Public Housing Administration ("PRPHA") appreciates the opportunity
to review the above referenced revised draft audit report, and to provide the following summary
comments. PRPHA also appreciates the two meetings held with representatives of the Office of
Inspector General (OIG), at which PRPHA attempted to explain the many inaccuracies in the
draft audit report. Unfortunately, while a handful of changes have been made from the earlier
version discussed both at the November 4, 1999 working session and the December 7, 1999, exit
conference, PRPHA's overall reaction to the revised draft is one of disappointment. As
discussed at those meetings, PRPHA vehemently disagrees with many of the factual findings and
recommendations in the draft audit report. PRPHA's concerns generally include (1) items which
the OIG agreed to reconsider which were not changed or were only partially revised; (2) issues
which the OIG indicated it would reconsider based on additional documents supplied by
PRPHA, but, no changes were made; (3) standards which were incorrectly applied to PRPHA;
(4) "facts" which are incorrect or misleading; (5) failure to differentiate clearly between past
(5) problems and efforts already in place to improve operations; (6) documents which the OIG
agreed to forward to PRPHA which have not been supplied; and (7) use of an audit methodology
which unfairly prejudices PRPHA.
The HUD OIG Handbook 2000.6 Rev-3 - Audits Management System, Section 2-1(B),
states that "[t]he final audit report should consider the results of the exit conference and contain
references to specific areas of disagreement between the auditor and program participant for any
recommendation where differences exist." PRPHA's disagreements with the OIG are not fully
or accurately reported in the revised draft. Again, PRPHA asks that the OIG revise its audit to
include the points raised at the exit conference, many of which are described below.
1. Agreements Made at the Exit Conference Not Fully Carried Through In
the Revised Draft
During the exit conference, PRPHA made a number of requests for revisions regarding
specific recommendations. In several cases, the OIG agreed to make those changes; however,
the draft audit report does not reflect the revision, or else the change was made in one place, but
not carried through in other parts of the report. PRPHA recognizes that such inconsistencies may
simply be the result of an oversight, or incomplete notes of the exit conference, or a
misunderstanding. However, it was precisely to avoid such circumstances that PRPHA requested
that the exit conference be tape recorded. Specific instances include the following:
Page 1 of 19
00-AT-201-1003 64
PHA Comments
• Executive Summary - page 3 - first bullet point - The sentence beginning, "The
large amount of HUD funds available to the PHA to spend may have contributed
to the problem" remains, although this finding has been removed from other
sections of the report per our agreement at the exit conference.
• Finding 1 - page 12 - second paragraph - PRPHA acknowledges the removal of
some language regarding the use of purchase orders, as we discussed at the exit
conference. Given that agreement, PRPHA asks that you also remove the rest of
this section, which implies that PRPHA's use of purchase orders for purchases
over $10,000 is inappropriate. The OIG has not cited any applicable authority
which forbids the use of purchase orders in these situations. The Secretary of
Housing approves all purchases over $ 30,000, whether they are done by purchase
order or other contract; therefore, the assertion that purchase orders are used to
circumvent internal control processes is incorrect.
• Finding 1 - page 13 - Purchase Order No. 98-703 - At the exit conference, the
OIG agreed to remove the sentence beginning "The contracting officer...", as the
statement was taken out of context. The contracting officer did not sign this
purchase order because he did not believe he had authority to authorize purchases
of that dollar amount.
2. Additional Documentation Sent To The OIG Not Reflected in the Revised Draft
In some situations where the OIG and PRPHA disagree, the OIG gave PRPHA two
weeks after the exit conference to submit additional documentation to support its points. The
OIG agreed to review and, if appropriate, reconsider several of its positions based on these
documents. On December 22, 1999, PRPHA submitted to the OIG four large binders containing
numerous records. A list of the documents supplied to the OIG is attached to this document. It
does not appear that the OIG made any revisions based on this information. Examples include the
following:
• Finding 1 - page 13-14 - Purchase Order No. 98-703 - The OIG agreed to review
and revisit its conclusions regarding this contract based on additional
documentation submitted. While the revised draft audit report reflects some
changes, it still does not show an understanding of the GSA procurement process,
as reflected in the submitted materials.
PRPHA procured Xerox copiers in accordance with the GSA process permitted
under Article 10 of its procurement policy. The GSA contract under which these
copiers were purchased permits PRPHA to substitute copier models if a model
contained in the contract was discontinued or if better technology became
available. PRPHA provided evidence that the copier originally selected was
discontinued and that the new copier selected was of new digital technology. The
agency also supplied correspondence between PRPHA, Xerox, and GSA
Page 2 of 19
65 00-AT-201-1003
PHA Comments
documenting the change. Because the selected model was discontinued, PRPHA
selected a new model from Xerox, and specifically chose a model which could
handle the large volume of photocopying required in property management
offices. A cost analysis was also performed to support the purchase.
Contrary to the OIG's assertion, the GSA process does not prohibit agencies from
negotiating with approved suppliers under these circumstances. Information
provided to the OIG also indicates that PRPHA received a substantial discount on
this equipment. As the documentary evidence indicates, PRPHA followed the
GSA process and purchased a better value photocopier after the originally selected
model was discontinued. The subject finding should be removed from the audit
report.
• Finding 1 - Page 14 - Purchase Order No. 98-821 - Again, the OIG's office
invited PRPHA to submit documents supporting its position that these purchases
were in accordance with regulations. Contrary to the OIG's assertions, this
documentation clearly shows that (1) prices and costs of bids were evaluated; (2)
the Housing Secretary approved the policy requiring these purchases; (3) HUD
worked closely with PRPHA over many months in making the decision to
purchase these items; (4) the solicitation was advertised twice; and (5) bidders had
14 days to respond, four days in excess of that required by PRPHA Procurement
Policy. Moreover, PRPHA supplied the OIG with minutes from the Bid Board
meeting indicating that the selected contractor was the only responsive bidder. It
appears that the OIG simply ignored this evidence.
In response to the OIG's contention that the disposition of the stoves was
improper, PRPHA provided numerous memoranda and information dating back to
1981 indicating HUD's concern regarding unsafe resident-owned stoves in its
units. In early 1998, PRPHA worked on a task force with HUD that met every
two weeks for several months to develop the stove policy and to address other
issues related to its PHMAP compliance. PRPHA provided the OIG with sign-in
sheets showing HUD staff attendance and minutes detailing the discussions.
HUD approved PRPI-IA's PHMAP plan, which included the stove purchases. The
OIG cites no support for its assertion that HUD must provide specific written
authorization of the stove policy.
• Finding 1 - Page 16 - 17 - Contract No. 97-3715 - The OIG incorrectly suggests
that amounts paid under PRPHA's contract for legal services with
Fiddler, Gonzalez, and Rodriguez ("FG&R") be determined ineligible because the
firm was improperly procured and the contract rates were excessive. PRPHA
strongly disagrees on both counts. Not only is it questionable whether
procurement is required in this case, but even if competitive proposals could have
been solicited, no public purpose would be served. At the very least, PRPHA
acted reasonably, based on its interpretation of the law; thus, the fees paid to
Page 3 of 19
00-AT-201-1003 66
PHA Comments
FG&R under this contract should not be disallowed. Again, PRPHA has supplied
the OIG with numerous documents supporting its position.
HUD procurement requirements look first to the law of the State or local
jurisdiction. Puerto Rico Law 66 states that a competitive procurement process
need not be followed when "prices are not subject to competition because there is
only one source or supply or because they are regulated by law, in which case the
purchase may be made in the open market as is usual in prevailing business
practice. " P.R. Law No. 66, § 1006(c). As PRPHA has informed the OIG, the
Government of Puerto Rico has established rates between $ 75 and $125 per hour
for legal representation of government entities. State Department of Puerto Rico,
Circular 7-93. Given that the rates are dictated by the government, Puerto Rico
law allows PRPHA to purchase legal services without competition. Moreover,
considering the usual cost of legal services in Puerto Rico and elsewhere, fees in
the $75 to $125 range are incredibly reasonable and far from excessive, especially
given the quality of legal representation provided by FG&R and firms of similar size
and expertise.
This provision also complies with HUD's procurement requirements. Because
FG&R was essentially acting as PRPHA's House Counsel, its procurement was
not subject to competition. Section 4-27 of the HUD Procurement Handbook
states that "the employment of House Counsel is not covered by 24 C.F.R. 85.36,"
Although the HUD Procurement Handbook does not define House Counsel,
FG&R clearly acted in that capacity as the term is commonly understood in the
legal profession. The scope of services provided by FG&R was broad, including
representation and advice to the agency on all legal matters. PRPHA had no in-
house legal counsel at the time; thus, the agency relied heavily on FG&R to meet
its legal needs. Consequently, Puerto Rico law and HUD requirements both
indicate that PRPHA need not have competitively procured its legal services.
Moreover, Cannon 32 of the Cannons of Professional Ethics for Attorneys in
Puerto Rico states that "it would be improper for a lawyer to appear at any auction
concerning the rendering of professional or notarial services before any juridical,
public or private person." By letter dated April 3, 1998, from Oscar Gonzalez
Rivera, Esquire, Deputy Secretary Legal Affairs for the Department of Housing
to Hildamar Ortiz, Esquire, Director of the HUD Caribbean Office of Public
Housing, PRPHA informed HUD that Cannon 32 barred attorneys in Puerto Rico
from responding to a solicitation for legal services. Although HUD has taken the
position that Cannon 32 does not apply, local attorneys believe that they could be
disciplined for responding to a PRPHA request for proposals. As Cannon 32
continues to have a chilling effect on competition, PRPHA gains little to nothing
by issuing a request for proposals. Competition would not result in responses
from quality law firms and would do nothing to reduce legal costs, as fees are set
by the government. Under these circumstances, no public purpose is served by
PRPHA conducting a competition among legal service providers in Puerto Rico.
Page 4 of 19
67 00-AT-201-1003
PHA Comments
As reiterated by the OIG, the purpose of HUD's procurement requirements is to
obtain the best quality services at the lowest cost. The purposes of HUD's
procurement requirements are not served by such a process.
As additional support for the claim that amounts paid FG&R should be
disallowed, the OIG indicates that PRPHA should have had the contract reviewed
and approved by the HUD Office of General Counsel. The HUD Litigation
Handbook does state that contracts for litigation should be reviewed by HUD OIG
staff. Other legal contracts are not subject to HUD review. The FG&R contract is
for both litigation and non-litigation representation. The primary purpose again is
to ensure fees are reasonable. At HUD's insistence, PRPHA submitted its 1999
legal services contract to the HUD Office of General Counsel in the Atlanta
Region for its review in May, 1999, even though the fees were government
regulated. PRPHA received confirmation that the contract was approved and the
contract rates reasonable on August 6, 1999. The rates in the 1999 contract are
identical to those in Contract 97-3715. As PRPHA is now complying with the
HUD Litigation Handbook requirement and the rates in the contracts have been
deemed reasonable by HUD, there is no compelling argument to disallow these
costs. In light of this information, PRPHA encourages the OIG to reconsider its
position.
• Finding 2 - page 19 - 24 - The OIG agreed to review, and possibly remove,
Finding Two, regarding the sole-source procurements of CVR Puerto Rico and
Cardona, Irizarry and Company because the applicable regulation permits HUD,
in its sole discretion, to approve such procurements, and such approval was
obtained by PRPHA. See 24 C.F.R. 85.36 (d)(4). We note that this finding
remains part of the Executive Summary and the body of the audit report, although
PRPHA provided the OIG with numerous documents in support of its position.
PRPHA vehemently denies that it acted inappropriately in awarding the two
contracts in question by sole source. On the contrary, PRPHA acted in close
consultation with HUD both in determining the need for sole source procurements
and in providing the documentation needed to obtain HUD approval. At both the
November 4, 1999, and December 7, 1999, meetings, the OIG auditor suggested
some irregularity or inconsistency in the documents submitted by PRPHA.
PRPHA is unaware of any such irregularity or inconsistency, and has requested, at
both meetings, copies of the documents to which the auditor referred. The OIG
has refused to provide PRPHA with any such documents.
As the OIG points out, 24 C.F.R. 85.36(d)(4) allows for non-competitive
procurement when there is no other feasible alternative and one of the four
circumstances enumerated in the regulation applies. Those include situations
where the public exigency or emergency for the requirement will not permit the
delay resulting from competitive solicitation and the awarding agency (in this
case, HUD) authorizes the purchase. The Emergency Declaration of the Housing
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Secretary dated October 30, 1997, seeks HUD approval for the sole source
procurements under either of the above stated provisions. As the regulation
clearly provides, HUD can approve sole source procurements in its discretion. See
24 C.F.R. 85.36(d)(4)(i)(c). By letter dated December 23, 1997, HUD confirmed
that it received each of the documents needed to justify a sole source procurement
and approved both contracts . Given that the procurements and the contracts were
authorized and approved by HUD in accordance with applicable regulations, the
OIG has not demonstrated that PRPHA has violated any law, regulation, or
policy, and the OIG's recommendation with regard to those contracts is
unsupportable.
The OIG report also fails adequately to describe or account for the justification for
procuring these contractors without a competitive bid. In the fall of 1997,
PRPHA received final reports from HUD indicating that its finance and
modernization departments were performing very poorly. These problems left
the agency vulnerable to misuse of federal funds and an inability to carry out its
mission to provide housing to low income citizens. In an effort quickly to rectify
these very serious findings, PRPHA consulted with HUD regarding strategies
which should be employed immediately to reform many operations. It was
decided that PRPHA's finance and modernization divisions should be "taken-
over" immediately by outside contractors who were currently working for
PRPHA. Following the Housing Secretary's declaration, PRPHA acted swiftly
to solicit proposals from these contractors and to obtain HUD approval. Contrary
to the OIG's assertion, the sole-source process enabled PRPHA to implement
radical changes much more quickly than if another procurement method had been
used, particularly given that PRPHA worked closely with HUD in finalizing these
contracts.
• Appendices A - E - PRPHA provided additional back-up documentation refuting
many of the OIG's allegations that PRPHA did not properly document the
procurements detailed in appendices A - E. This documentation included two
advertisements for procurements, although the OIG claimed there had been only
one, documentation explaining the procurement history, minutes from Bid Board
meetings explaining the reasons for selecting particular contractors, and other file
information. The OIG made very few changes in the appendices, despite
documentation contradicting many of its assertions.
3. Incorrect or Misapplied Standards
The draft audit report indicates that the OIG does not appear to understand certain of the
applicable procurement requirements. In some cases, the OIG evaluates PRPHA's performance
by standards that do not apply to the circumstances of the procurement. In other cases, the OIG
misapplies requirements to support its position that PRPHA acted improperly. Examples include
the following:
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• Finding 1 - Page 12 - second paragraph - PRPHA strongly disagrees with the
OIG's insinuation that the sealed bid method is the only method available for
purchases over $10,000. The standard cited by the OIG, 24 C.F.R. 85.36(d)(2),
indicates that the sealed bid or formal advertising resulting in a firm, fixed price
contract "is the preferred method for procuring construction ." In other cases
when a sealed bid is not appropriate, the Federal and PRPHA regulations permit a
public bid process through competitive proposal. See 24 C.F.R. 85.36(d)(3). A
fixed price or cost reimbursement contract may be used in these cases. Virtually
all of PRPHA files reviewed by the OIG involve services other than construction
and were procured under the regulations for competitive proposal. Consequently,
the standard does not apply. Even in cases where contracts were procured by
sealed bid, a purchase order is by definition considered a firm contract under both
the HUD Procurement Handbook and PRPHA Procurement Policy.
• Finding 1 - Page 14 - 15 - Purchase Order No. 98-822 - The OIG inappropriately
cites 24 C.F.R. 85.43 in support of its contention that $ 941,627 in costs incurred
for the purchase of hot water heaters which have not yet been installed should be
disallowed. This provision applies in cases where the program participant (in this
case, PRPHA) "fails to comply with any term of an award..."
As discussed at the exit conference, PRPHA's program to finally provide safe hot
water to public housing residents through the installation of hot water tanks is
ongoing. It was approved by both the Housing Secretary and HUD, as evidenced
by documents supplied to the OIG. There was no "term of an award" which
placed a time limit on the installation of those hot water heaters. The OIG has not
shown how this program does not comply with any HUD requirement.
Consequently, there should be no disallowance of costs.
• Finding 1 - Page 17 - first and second full paragraphs - There are no Federal
requirements regulating the cost of bid packages in 24 C.F.R. 85.36.
Consequently, the last sentence of the second paragraph is incorrect and should be
deleted.
• Finding 3 - page 26 - In its sole source contract with CVR Puerto Rico, Inc.,
which is discussed more fully in Finding 2, PRPHA agreed to advance
funds to the contractor to be paid back in equal portions during the 18 month term
of the contract. Despite the fact that the advance was part of a HUD-approved
contract, the OIG asserts that it is unallowable because it shows that the contractor
was not financially responsible as required by 24 C.F.R. 85.36(b)(8). Contrary to
the impression created by the OIG's argument, the cited provision requires
PRPHA to make awards only to responsible contractors, giving consideration to a
number of factors including "contractor integrity, compliance with public policy,
record of past performance, and financial and technical resources." PRPHA
Procurement Policy contains a similar requirement. Nowhere does either
document preclude the possibility of advancing start-up costs.
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Moreover, the advance was not made to an unknown, untested and potentially
"irresponsible" contractor. Rather, it was made to a new affiliate of a contractor
already doing substantial work for PRPHA, and was made specifically to allow
the affiliate to begin work for PRPHA immediately. Such a payment was
particularly important in this case, because the contractor would be required to
establish an office immediately and hire a staff of over 15 in Puerto Rico. At the
time, the advance was also needed as PRPHA was having difficulty paying its
contractors in a timely fashion. As CVR Associates, Inc. and its affiliate, CVR
Puerto Rico, Inc. have the same principals, the same technical expertise, and the
same assets, there is no support for the OIG's conclusion that the advance violates
the procurement regulations.
The OIG also cites Treasury Department Regulation No. 31 as prohibiting
advance payments. This regulation does not apply here as it governs only State-
funded programs - not Federally-funded agencies like PRPHA. Even if it did
apply, this regulation clearly permits advance payments if they are set forth in the
contract which is approved by the awarding agency. As the advance was
approved by HUD, it complied with both 24 C.F.R. 85.36 and PRPHA
Procurement Policy, and it has already been fully paid back through the
arrangement established under this contract. Therefore, it is not an ineligible cost.
• Finding 2 - page 19-24 - A long discussion was held at the exit conference about
the OIG's conclusions regarding the cost of the two sole source contracts. The
OIG still has not provided PRPHA with its methodology for determining
ineligible costs under these contracts. In addition, there is no regulation or
requirement stating that the eligibility of costs should be based on the OIG's
determination of what is reasonable. The contractors used by PRPHA were
compensated not only to cover the cost of contract employees' services, but to
provide expertise and accountability that PRPHA was not able to acquire on its
own. Expertise and accountability are what PRPHA required to improve its
troubled finance and modernization departments. HUD not only approved the use
of private contractors to perform these functions, but it also approved the contract
costs and terms. The contract employees' salaries are not relevant to this inquiry.
4. Incorrect or Misstated Facts
Several statements of "fact" in the OIG report are simply not factual. In some places, the
OIG also either does not fully explain or misstates the circumstances in order to support its
findings. Some examples include the following:
• Executive Summary - Page 8 - fifth paragraph - In a concern not previously
raised, the OIG complains that PRPHA's sole source contract with CVR Puerto
Rico includes services similar to those for which CVR Associates was paid under
a HUD IQC. The OIG incorrectly implies that these services are duplicative.
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Pursuant to a HUD IQC, CVR Associates assisted PRPHA in drafting a new
procurement policy and handbook and providing procurement training to staff.
CVR Associates successfully completed this task before the IQC expired in
March, 1998. The CVR Puerto Rico contract to assist the modernization
department includes, as one of many tasks, providing technical assistance in
procuring modernization contractors. Under this item, CVR Puerto Rico helped
PRPHA develop specifications for bid packages for modernization activities.
This is a completely different task from the assistance under the IQC. The OIG
has cited no regulation or requirement that would prevent CVR Associates and
CVR Puerto Rico from providing these different services under two separate
contracts. HUD did not view these items as overlapping as it was well aware of
CVR Associates's IQC activities at the time it approved the CVR Puerto Rico
contract. This statement is untrue and misleading; thus, it should be removed
from the report.
• Executive Summary - page 8 - fifth paragraph - The OIG's determination that a
separate procurement unit was established in May 1997 is not correct. As
discussed at the exit conference, PRPHA may have intended to implement this
suggestion during the prior administration. However, there was not a functioning
procurement department at the time the current Administrator took over the
agency in December 1997. That department was not fully operational until May
1998. Again, PRPHA supplied the OIG with documents describing the
establishment of the procurement department in Spring 1998.
• Finding 1 - page 13 - first paragraph - As discussed at the exit conference,
PRPHA finds the sentence beginning "A responsible PHA official...
" particularly irresponsible, as it insinuates wrongdoing on the part of PRPHA
based on hearsay. Such insinuations have no place in an audit report. Again, we
specifically ask that this assertion be removed from the report, along with the rest
of that paragraph.
• Finding 1 - page 15-16 - Contract No. 97-6773 - The OIG's disallowance for the
cost of this contract is based on several factual inaccuracies. First, the bid
solicitation documents and minutes from the Bid Board supplied to the OIG
clearly show that evaluation criteria were provided to the proposers and used by
the Bid Board to select the chosen contractor. All proposers were given an
opportunity to review PRPHA financial information in putting together their
submissions. Third, the OIG fails to show that other bidders were in a
"competitive range" as required to justify additional negotiations. Fourth, the
competitive proposal method used to select this contractor specifically allows
PRPHA to select a contractor based on qualification, not just the cost. See 24.
C.F.R. 85.36(d)(3). Consequently, the OIG's assertion that the difference in cost
between the selected contractor and the lowest bidder should be disallowed is
without basis and wholly unjustified.
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• Finding 1 - page 17 - fourth paragraph - The statement that "no procurement files
were maintained to support 20 purchases... "is incorrect and should be stricken
from the report. The OIG auditor obviously received procurement files for each of
the requested purchases, and they were apparently reviewed as to the adequacy of
the documentation, which is detailed in Appendices B-E of the report.
• Finding 2 - Page 23 - third and fourth paragraphs - It is not true that an affiliate of
one of PRPHA's contractors, C&C Resources, has solicited additional business
from PRPHA. Although PRPHA advertised for temporary employment services,
C&C Resources did not respond to the request. Even though PRPHA has
solicited proposals for private accountants, the OIG has not cited any facts or
requirements demonstrating that C&C Resources, Cardona, Irizarry and
Company, or PRPHA acted improperly. PRPHA decided not to purchase
computers through the contract for accounting services as originally intended,
thus funds earmarked for that purchase, can not be used for other purposes.
Consequently, there is no need to amend the contract.
5. Failure to Delineate Between Past Problems and Current Practices
As PRPHA stated at the exit conference, the draft audit does not adequately differentiate
between activities which took place under prior administrations and the current one. This is a
particularly important point for PRPHA, as many of the OIG's recommendations would have a
dramatic impact on the agency's future operations, but are supported primarily by evidence of
past problems. The OIG's office indicated a willingness to separate past performance from
current practices. Although some suggested language was added to clarify the time frames,
findings that allegedly occurred well before the recent changes are still used to support
recommendations regarding the future operations of PRPHA. Specific examples include the
following:
• Executive Summary - page 2 - second paragraph - PRPHA takes issue with the
OIG's assertion that it has done nothing to resolve past problems. This paragraph
also implies that PRPHA is the subject of ongoing criminal investigations.
PRPHA is not aware that it is the subject of any investigation stemming from acts
which occurred after the current administration took over in December, 1997.
Again, we ask that this misleading statement be removed from the report.
Improvements are evidenced in documents supplied to the OIG, including the
following:
a) Letter from John Blakeman to Hildamar Ortiz dated September 3,
providing a detailed list of steps being taken to improve the
procurement processes. These efforts were already being
implemented at the time of the letter, even though Mr. Blakeman
had been at PRPHA less than a year.
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b) Report from Cardona, Irizarry & Company dated May 21, 1999
explaining new systems which have been put in place in the
finance department
c) Letter from Price Waterhouse Coopers dated October 28, 1999,
indicating that its audit of PRPHA files determined that PRPHA
complied with applicable regulations. This audit reviewed three
times more files from fiscal year 1999 than the audit conducted by
the OIG.
d) Letter from Hildamar Ortiz to John Blakeman dated April 15, 1998
acknowledging that work in the finance department by Cardona,
Irizarry and Company and CVR Puerto Rico had been effective in
improving PRPHA operations. HUD has also publicly
acknowledged to the HUD Assistant Secretary for Public and
Indian Housing the outstanding work performed by these
contractors.
• Executive Summary - page 2 - paragraph 3-4 - In quoting the April 15, 1998
HUD Comprehensive Grant Monitoring Report, the OIG again does not
acknowledge any steps PRPHA has taken toward resolving past findings. The
OIG fails to cite how these new procedures are still deficient, leaving PRPHA to
wonder if they have been reviewed at all. In paragraph 4, the assertion that
findings from the 1996 OIG audit remain unresolved is overbroad. As stated
above, PRPHA has provided several documents illustrating that it has taken
numerous steps to improve its financial and procurement systems.
• History - page 7-8 - At the exit conference, PRPHA and the OIG discussed at
length the lack of balance in this section. Again, PRPHA does not dispute that the
agency has had problems maintaining systems in the past; however, the OIG does
not acknowledge the improvements which have been achieved. Specifically, the
OIG mischaracterizes the exceptions to the 1997 audit and fails even to mention
the unqualified 1998 audit. There is also no mention of the increased and more
qualified staffing of the procurement office, training programs, and more
complete record keeping system. Also not mentioned is the revamping of the
finance department, complete with new internal control systems. Information
evidencing these improvements has been supplied to the OIG.
• Finding 3 - page 26 - 28 - Two of the allegations contained in the revised draft
OIG audit report discuss fraudulent actions of PRPHA employees or their
contractors. Both cases stem from actions which took place in 1995, 1996, and
1997, prior to the current PRPI-IA administration. In the case of the CAER
contracts, it was the current PRPHA Administrator who ordered that PRPHA stop
making payments to the contractor and reported the fraud to the appropriate
authorities. Also, PRPHA, along with its bank, were instrumental in providing
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information which led to the indictments of several individuals involved with
Inter Island Rental Corporation. PRPHA's assistance to law enforcement
agencies in both situations has been publicly acknowledged. Nowhere in the draft
report does the OIG acknowledge PRPHA's work in bringing criminal charges
against these parties. Instead, the report leaves the reader with the false
impression that PRPHA participated in the illegal activities. PRPHA did not
participate in these activities - PRPHA is the victim of them. Despite lengthy
discussions at the exit conference of PRPHA's concerns about this section, it
remains unchanged.
The cited examples also do not support the OIG's unsubstantiated opinion that
there are continued weaknesses in PRPHA's systems. This section also fails to
recognize PRPHA's ongoing efforts to obtain restitution and to collect on its
fidelity bonds. At the very least, the OIG audit report should include a more
balanced description of these events, acknowledging PRPHA's assistance in
bringing those involved to justice, indicating that the circumstances leading to the
indictments occurred during a prior PRPHA administration, and more
importantly, making clear that PRPHA has instituted changes which would
prevent these types of crimes from happening in the future.
Also discussed at the exit conference was the fact that these findings were
contained in earlier OIG reports and HUD Limited Monitoring Reports. PRPHA
has already acknowledged these past problems and has been developing systems
to guard against future such incidents. The draft OIG audit again cites these cases
to support its claim that PRPHA's management controls remain deficient.
However, few, if any, current examples are cited. PRPHA is not aware of any
ongoing law enforcement investigations involving the agency, its contractors, or
employees stemming from activities since December 1997. These findings should
be removed from the draft audit report, as they are redundant and do not provide
grounds for the OIG's assertions about the current management systems.
6. Documents To Be Shared By the OIG with PRPHA Not Received
The OIG's justification of certain findings is not clearly explained in the draft audit
report. At the exit conference, the OIG agreed to provide further information on specified topics
so that PRPHA could better understand and respond to the OIG's positions. However, PRPHA
has received only one document from the OIG since the exit conference on December 7, 1999.
Information which was requested, but still not supplied, include the following:
• Finding 1 - page 17 - paragraphs 2 and 3 -The OIG provides no evidence that fees
charged for bid documents were "excessive" fees and that the result was to restrict
competition, other than the unsupported statement of a disgruntled former PRPHA
employee. While PRPHA agrees that it did not always follow the stated limit in
its procurement policy, it has taken steps to correct this problem. Moreover,
PRPHA's review of the files audited by the OIG does not show any bid packages
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which cost $ 600.00. At the exit conference, the OIG auditor agreed to provide
the list of bid packages reviewed and their costs, including the one reported to be
$ 600.00. PRPHA has yet to receive that information.
• Finding 3 - p. 25-26 - The OIG suggests that PRPHA made excessive payments
totaling $ 920,691 for security through its intergovernmental contract with the
General Services Administration ("GSA") and that an estimated $ 2 million in
ineligible cost may be incurred under this contract in the future. As discussed at
the exit conference, the auditor's conclusion for both prior and future payments is
simply incorrect. The OIG and PRPHA agreed to exchange reconciliations of
these accounts. PRPHA forwarded its summaries to the OIG on December 22,
1999. However, the OIG has not provided any basis for its determination that
these costs were ineligible.
In an effort to obtain the lowest possible cost for security, PRPHA receives its
services through a contract between the Department of Housing and the General
Services Administration ("GSA"). Under this arrangement, the GSA solicits
competitive proposals from security service providers to establish rates to charge
government agencies for each of the identified services. The GSA handles all
aspects of the procurement process, evaluates the proposals, and enters into
contracts with each of the successful bidders to provide services at discounted
rates. Government agencies, including the Department of Housing, are then
provided with a list of those companies. As one of several housing agencies
within the Department of Housing, PRPHA participates in a master contract
between the Department and GSA for security services. Each of the sister
agencies identifies the type of services, location, and quantity to be provided by
each security company at GSA-established rates.
This practice is not only permissible under HUD requirements, it is promoted.
Part 24 C.F.R. 85.36(b)(5) states, "to foster greater economy and efficiency,
grantees and subgrantees are encouraged to enter into State and local
intergovernmental agreements for procurement or use of common goods
and services." PRPHA's procurement of security services simply follows this policy
as the GSA rates secured by the Department of Housing contract are much lower
than those PRPHA could have obtained on its own. The GSA process anticipates
that agencies, such as PRPHA, execute letter agreements with individual
contractors at rates stipulated in the contract. No HUD approval is required.
Contrary to the OIG's assertion, contracts of this nature are registered with the
Puerto Rico Comptrollers Office by the GSA.
The OIG also mistakenly asserts that PRPHA has paid for all security
services provided to the Puerto Rico Department of Housing. Security services for all
Department of Housing agencies are listed on one monthly invoice. That invoice
clearly identifies the project where the services were provided, the type of
services, the cost, and the percentage of the overall bill which is allocated to each
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agency. Although each agency within the Department of Housing receives a copy
of the total bill, that agency is responsible for paying only for the portion of
services which its uses. PRPHA's finance department personnel carefully review
each invoice and pay only the appropriate percentage allocated to PRPHA
properties. PRPHA reconciled these accounts and provided summaries to the OIG.
Although these summaries indicate that PRPHA has made some minor payments
for services received by the Department of Housing, those payments are being
reimbursed to PRPHA and there is no support for the OIG's assertion that there
are $ 920,691 in ineligible costs.
7. Problematic Audit Methodology
The audit method used by the OIG is misleading and does not accurately reflect the
procurement practices of PRPHA. In addition, the OIG's method of recording file deficiencies is
faulty. Issues discussed at the exit conference in this regard -- which have not been resolved –
include the following:
• Introduction - pages 9 -10 - The OIG should explain more clearly that this was
not a random file audit, but that files were "judgmentally selected" or pre-selected
by the OIG for review. PRPHA was given a specific list of contractors who were
targeted by this audit. In addition, in some cases, PRPHA made numerous
purchases from the same contractor. However, only a small number of purchases
were cited in the report as problematic. Nowhere does the draft audit indicate that
the other purchases were reviewed and found satisfactory.
The current explanation leaves the reader with the false impression that the OIG
reviewed a random sample of files and that none were compliant. This simply is not the
case. As Price Waterhouse Coopers and PRPHA can attest, there are many more files
which include all appropriate documentation. Given the faulty audit methodology, none
of the OIG's assertions regarding percent of non-compliant files, percent of funds not
eligible, etc. reflect reality.
• Appendices A-E - The charts prepared by the OIG to catalogue alleged file deficiencies
incorrectly portray the situation. Problems with the accuracy of the appendices are
generally explained as follows:
a. Multiple Citations for One Error - There are several situations where the
OIG's conclusion that PRPHA chose an incorrect method of procurement
result in the auditor to misleadingly citing multiple deficiencies for not
following steps in the process which was not selected, rather than the
single allegedly incorrect selection of a particular procurement process.
For example, the OIG alleges that PRPHA split some purchases between 2
or 3 purchase orders to avoid a more lengthy procurement process.
Whether or not that allegation is true, once its decision was made, PRPHA
followed all of the appropriate steps for a small purchase. The OIG not
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only cites PRPHA for the bid splitting, but also indicates deficiencies for
not advertising twice, not providing sufficient time to respond, and other
infractions which only apply if the competitive proposal process is
applied. This type of reporting gives the appearance that there were
multiple infractions, when there was, at worst, only one.
b. Misconstruing Applicable Requirements - The OIG does not properly
identify or apply the procurement standards and cost allocation standards
to some files. This is particularly true in Appendices C and E, where the
OIG seeks to declare certain costs ineligible as not being allocable to HUD
programs. No justification is cited for determining the cost allowability
questions. Moreover, some are just plainly incorrect or contradictory. For
example, the OIG cites as ineligible PRPHA's use of comprehensive grant
funds for the purchase of passenger vans (See Contract No. 98-073), and
another file indicates that the use of operating funds for this purpose is
also an ineligible use (See Contract No. 99-247). Under these
circumstances, it is impossible to ascertain what the OIG believes is the
correct standard.
The OIG is also of the mistaken impression that HUD must approve
certain procurements. According to the HUD Procurement Handbook,
HUD need only approve contracts in excess of two years in duration.
Only one of the contracts cited falls into this category, despite the fact that
the OIG cites PRPHA repeatedly for violating this inapplicable standard.
c. Factually Incorrect Information - Several alleged deficiencies included in
the appendices are simply wrong. In some cases, the OIG indicates that
the procurement was not advertised twice when two advertisements were
found in the file, that bidders were given insufficient time to respond when
the file indicates they were given time in excess of the 10 days required by
PRPHA Procurement Policy, or that there is no procurement file when it
clearly exists and was reviewed by the OIG. PRPHA provided the OIG
with the documentation needed to correct many of these errors, but again,
few if any changes were made.
d. PRPHA Needs Additional Explanation of Standard From the OIG - A
number of the deficiencies cited by the OIG are not clear. Examples
include citations such as "file did not show complete procurement
history," "excessive cost," and "purchase order incomplete" when PRPHA
files include what the agency believes is complete documentation. The
OIG has not provided PRPHA any guidance as to what it considers to be
deficient in each of these circumstances.
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II. Recommendations
The following are PRPHA's responses to the recommendations contained in the revised
draft audit report, the justifications for which are discussed above:
Finding 1
lA. Per our discussion at the exit conference, PRPHA strongly disagrees with this
finding. PRPHA acknowledges that it has had a troubled past; however, it has
made substantial progress toward recovery in the past two years. These
improvements have been recognized by PRPHA's independent auditors and by
HUD. Instead of taking the extreme approach of dismantling PRPHA and
ignoring all of the recent improvements, PRPHA would be open to more technical
assistance from HUD which would build on the progress which has already been
made. PRPHA is not aware of any instance where a HUD-forced take-over or
break-up of an agency has resulted in permanent reform. In fact, the OIG's semi-
annual audit report dated March 31, 1999, complains that HUD has had numerous
problems managing the recovery of agencies which have been declared in
substantial default. Lasting improvement can only be achieved through the type
of internal changes which PRPHA has already launched and which have proven
effective.
lB. Many of PRPHA's past problems have been caused by bloated bureaucratic
procedures. Adding a HUD cost-reimbursement review to existing systems would
all but paralyze the agency. HUD does not have the capability effectively to
manage a cost-reimbursement system for an agency the size of PRPHA. As HUD
has recognized, PRPHA, with the help of a private contractor, has already made
substantial improvement in the last two years in the area of financial management.
PRPHA would welcome comments from the OIG on ways to improve its current
financial management system. Implementation of a cost reimbursement system
will only impede the agency's progress.
1C. At the exit conference, the OIG's office agreed to remove this recommendation.
1D. Again, PRPHA does not believe that it would be prudent or effective to have
HUD staff review and approve each PRPHA purchase. In the past three years,
PRPHA has averaged approximately 700 separate procurements each year. In its
most recent experience, PRPHA waited four months for HUD Office of General
Counsel to approve its contract for legal services.
Under the new PRPHA Procurement Policy, the decision for competitive awards
will be made exclusively by the [lid Board, which is made up of individuals from
outside PRPHA. PRPHA would welcome additional technical assistance from
HUD on ways to improve its procurement system to ensure compliance with all
applicable requirements.
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IE. As stated above, the OIG has not been able to produce any applicable requirement
that purchases over $10,000 should be done only by contract and not by purchase
order. Much of the language regarding this issue was removed from the revised
draft report per our discussion at the exit conference. We suggest that this
recommendation be deleted as well.
IF. Per our discussion at the exit conference, the new PRPHA Procurement Policy
will not include the current language regarding the cost of bid packages.
Consequently, this recommendation is unnecessary.
1G. PRPHA strongly disagrees with the OIG's determination of ineligible costs to be
reimbursed. As discussed above, the OIG's allegations are largely incorrect and
its methodology for calculating ineligible costs is, in many cases, illogical.
Finding 2
2A. The OIG's office indicated that this recommendation would be removed from the
report as the contract is already terminated and the OIG has provided no evidence
that PRPHA has paid for services not performed.
2B. As explained in 1D, PRPHA does not believe HUD has the capacity to review
each PRPHA procurement for professional services. Ironically, HUD did review
and approve both the staffing proposal and the contracts which the OIG is now
criticizing in Finding 2.
2C. The Emergency Declaration in question is not dispositive in determining the
legitimacy of the sole-source procurements. PRPHA met local and Federal
requirements as it sought approval from HUD for the contracts under either its
emergency power or its discretionary power. Thus, PRPHA has no objection to
ensuring that future declarations are properly supported -- just as this one was.
2D. PRPHA abandoned its procurement of temporary agency services before any firm
was selected; thus, no corrective action is necessary.
2E. For the reasons explained above, PRPHA strongly disagrees with the OIG's
determination of ineligible costs paid to the sole source contractors. The agency
procured these services in accordance with applicable regulations under HUD
approved contracts. Both contractors delivered the services required by the
contract; thus, no reimbursement is warranted.
2F. As stated above, the OIG has not alleged that PRPHA paid for services it did not
receive under these contracts. PRPHA is willing to review the payments made to
date under these contracts with the OIG.
Page 17 of 19
00-AT-201-1003 80
PHA Comments
Finding 3
3A. HUD already reviews PRPHA budgets and financial submissions on an annual
basis to determine program compliance. Moreover, it conducts an annual
monitoring review of PRPHA's comprehensive grant program and a yearly review
of PRPHA's management and financial status under the PHMAP, and now under
the new PHAS system. Although PRPHA would welcome additional technical
assistance from HUD on ways to improve its cost allocation systems, any
additional monitoring would serve no purpose.
3B. PRPHA does not agree with the OIG's determination of ineligible costs. Despite
repeated requests, the OIG has not been able to support many of its justifications
for requiring reimbursement. Moreover, PRPHA provided documents refuting the
OIG's claims that these are ineligible costs. It does not appear that the OIG has
reviewed that evidence.
3C-3D As discussed at the exit conference, PRPHA does not agree that funds lost due to
fraud perpetrated on the agency should be recovered from the agency. PRPHA
was the victim of these crimes. As HUD is already due full restitution per the
plea agreements with the defendants and from monies seized by the FBI, there is
no justification for the recommendation that PRPHA reimburse HUD. Moreover,
this suggestion punishes PRPHA residents twice for the bad acts of a few
individuals by denying them the benefit of both the funds already lost and funds
which would be used to reimburse HUD. Once all of the perpetrators are
sentenced, PRPHA also plans to collect from the issuer of the management
agent's fidelity bond. The provisions of the HUD Financial Management
Handbook prescribe the follow-up and write-off procedures a housing authority
must follow in reporting such financial losses. The OIG's suggestion that PRPHA
should reimburse these amounts to HUD would be contrary to these standards.
3E. As discussed above and at the exit conference, it appears the OIG misunderstands
the payment process for the security contracts.
Finding 4
4A. PRPHA is willing to work with HUD to review and improve its policies and
practices for maintaining property ledger. It will also work with HUD to develop
a reasonable auditing method.
4B. As stated above, PRPHA will work with HUD to review its current property
ledgers and make corrections where necessary.
Page 18 of 19
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4C. PRPHA established new management controls for purchase and contract registers
in early 1998. Additional technical assistance from HUD on ways to improve
these processes is welcome.
4D. The new PRPHA manual has recently been reviewed and approved by HUD for
implementation.
III. Conclusion
As PRPHA stated at the exit conference, the agency has seriously considered the findings
in this report. Since this audit began in May, 1998, many hours of PRPHA staff time have been
dedicated to reviewing the areas of concern cited by the OIG and responding to requests for
information and documentation. The agency has also sought the help of other government
officials and outside experts to assist PRPHA in re-evaluating its own performance. Despite the
information contained in the draft report, the OIG presents little evidence that PRPHA is in
serious violation of applicable procurement requirements. Although PRPHA continues to
improve its procurement and other internal control systems, it whole-heartedly denies that its
current practices are as problematic as portrayed by the OIG.
PRPHA is particularly concemed because the OIG's recommendations are
clearly overbroad. If the OIG's recommendations are implemented, two years of resources, time
and money which have gone into improving the agency will be wasted. This will result in more
confusion and delays which will cause the type of waste, fraud and abuse of which the OIG
complains. Moreover, there is no evidence that more HUD oversight or a reconfiguration of the
agency will improve its operation. The OIG has repeatedly pointed out that HUD has had little
success effecting change. To the contrary, such drastic changes are likely to set back the
progress which has already been made within PRPHA, as HUD oversight will circumvent these
processes. As discussed at the exit conference, PRPHA invites the OIG to reconsider its severe
recommendations and, instead, to offer suggestions which will recognize PRPHA's previous
improvements and target those areas that truly need additional progress.
Page 19 of 19
00-AT-201-1003 82
PHA Comments
INDEX OF DOCUMENTS
OIG DRAFT AUDIT REPORT OF THE
PUERTO RICO PUBLIC HOUSING ADMINISTRATION
SUPPLEMENTAL DOCUMENTS
DECEMBER 22, 1999
Introduction
1) September, 1999 PRPHA Status Report
2) February 17, 1998 Memo to Tomey, Soto, et. al. from Blakeman re: Re-Organization of
the Procurement Office (Draft Procurement Policy and Manual)
3) April 28, 1998 Memo to Tomey from Blakeman re: Work Plan for Procurement Office
4) September 3, 1998 Letter to Ortiz from Blakeman re: activities taken to improve
procurement under 24 CFR §85.36
5) December 21, 1998 Memo to Rivera Nazario from Blakeman re: administrative
personnel changes/creation of office of acquisition of property and contracts (Spanish)
6) List of PRPHA Employees Terminated Since December 1997(Spanish)
7) List of PRPHA Procurement Department Staff As of December 1999
8) November 1, 1999 Letter from Ocasio to Ortiz re: revised procurement manual and copy
of same
9) December 3, 1999 Letter from Oritz to Blakeman re: comments to revised procurement
manual
10) Chart Showing Corrected Status of PRPHA Accounts
Finding 1
11) January 1993 Handbook 7460.8 Procurement Handbook for Public Housing Agencies
(PHAs) and Indian Housing Authorities (IHAs)
12) PRPHA Procurement Policy re: use of purchase order
13) January 1993 Chapter 11. HUD Review Requirements (7460.1 REV-i)
Purchase Order No. 98-703
14) 24 CFR 85.36(b)(5) re: intergovernmental procurements
15) PRPHA Procurement Policy re: purchases through GSA
16) Puerto Rico GSA Contract C-40-192 for purchase of photocopiers by governmental
agencies (Spanish)
17) November 23, 1998 Memorandum from Cordero to all interested parties re: effect of
Puerto Rico GSA Contract C-40-192 (Spanish)
18) December 9, 1997 Letter to Baez Puras from Garcia re: confirming conversation re:
discontinued copier model (Spanish)
19) March 20, 1998 Cost Analysis of Copier Costs Per GSA Contracting Procedure
20) April 17, 1998 Letter to Baez Puras from Garcia re: contract of Xerox copiers to be
installed in the offices of the Administrators of the Public Housing. (Spanish)
1
83 00-AT-201-1003
PHA Comments
21) April 23, 1998 Purchase Order for Xerox Copiers and Maintenance Contracts showing
purchases made through GSA
22) October 20, 1999 Memorandum from Wangen to Colon re: procurement of Xerox
copiers
23) November 23, 1999 Letter to Ramos Ferrer to Garcia re: indicating that due the
discontinuance of' the Xerox copier model originally contracted, the Xerox Corp.
substituted this model for another model as provided for in the GSA Contract (Spanish)
24) September 1998 Buyers Laboratories, Inc. listing of Xerox Copier model 220 DC
showing average cost substantially more than that paid by PRPHA
Purchase Order No. 98-821
25) October 16, 1981 Letter to Pierlusi from Febres Silva re: Elimination of Provision of
Electric Ranges in Public Housing Projects
26) August 23, 1982 Procedure for the Disposition of Stoves in Public Housing by the
Auxiliary Secretary of Administration of Public Housing
27) April 24, 1997 Public Policy and Procedure for the Inspection of Gas Stoves in the Units
of PRPHA (Spanish)
28) January. 30, 1998 Letter to Wangen from Moreta re: gas cylinder in Public Housing
Units (Spanish) and sign-in sheets from series of meetings involving HUD and PRPHA
regarding the PRPHA Improvement Plan in which the policies regarding the stoves and
hot water heaters were developed
29) April 30, 1998 Report of inspection of units for gas stoves and cost analysis of repair of
gas shelters (Spanish)
30) May 8, 1998 Excerpts from PRPHA Improvement Plan regarding plans for purchasing
electric stoves and hot water heaters
31) March 19, 1999 Letter from Ortega to Management Agents re: prohibition on use of gas
stoves (Spanish)
32) 24 CFR 85.36(d)(2) re: sealed bidding requiring agency only consider responsive bidders.
Purchase Order No. 98-822
33) April 23, 1996 Letter from Rodriguez to Saez re: waiver for provision of hot water in
public housing units.
34) May 17, 1996 Memorandum from Saez to Marchman re: waiver for provision of hot
water in public housing units
35) July 23, 1996 Letter from Saez to Rodriguez re: grant of waiver for provision of hot
water in public housing units and suggesting study of alternatives
36) May 14, 1997 Letter to Rodriguez from Del Toro re: history of HUD policies re: hot
water in public housing (Spanish)
37) June 30, 1997 Letter from Wangen to Ortiz re: plan to study installation of hot water in
public housing units
38) Administrative Order authorizing the inspection of public housing units for hot water
heaters
39) July 18, 1997 Letter to Bureau of Property Administration from CORA Management
Group re: Estimates-Quotes for Water Heaters (Spanish)
2
00-AT-201-1003 84
PHA Comments
40) February 28, 1998 Results of inspection of public housing properties in preparation of
procurement of hot water tanks and electric stoves, including identification of units with
double water lines
41) December 9, 1998 Letter from Ortega to Management Agents re: prohibition on use of
shower heaters in public housing units (Spanish)
42) December 30, 1998 Memorandum from Ortega to Management Agents re: information
for study of gas stoves and hot water heaters in public housing units (Spanish)
43) Results of inspection of public housing units for installation of hot water tanks -
44) November, 1999 Updated report on installation of hot water heaters
45) Warranty information on hot water tanks showing overall 5 year warranty
Purchase Order No. 97-3715
46) PR Canon Ethics No. 32 - Professional and notarial services at auction
47) January 1993 HUD Procurement Handbook (7460.8 REV-l) Legal and Other
Professional Services
48) PRPHA Enabling Legislation - Law 66
49) March 8, 1993 Memo to All Government Secretaries from Cifuentes re: standards and
procedures for the contracting of professional and consulting services (Spanish)
50) August 6, 1999 Letter from Buday to Blakeman re: request for concurrence in contracts
for legal services
PRPHA Charged Excessive Fees for Contract Proposal Documents
51) List of Cost of All Bid Packages for contracts cited by the OIG in the draft report.
Large Grant Amounts May Have Contributed to Non-Compliance
52) Chart Showing Corrected Status of PRPHA Accounts (See Number l0 above)
Finding II
53) October 30, 1997 Administrative Order of the Housing Secretary declaring emergency
conditions and authorizing PRPHA to seek approval of sole source procurements of firms
to operate the PRPHA modernization and finance departments under 24 C.F.R.
85.36(4)(i)(b) or (c)
54) November 11, 1997 Letter from Wangen to Oritz proposing sole-source procurements of
firms to operate PRPHA modernization and finance departments
55) November 21, 1997 Letter from Ortiz to Wangen concurring with the PRPHA approach
in using sole source contracts, but requesting the submission of documents before approval
56) December 23, 1997 Letter from Ortiz to Blakeman acknowledging receipt of all
documents required under regulations and giving approval to execute sole source
contracts.
57) April 15, 1998 Letter from Ortiz to Blakeman re: Comprehensive Grant Program (CGP)
Limited Monitoring Review (24 CFR § 968.335)
58) March 9, 1999 Letter from Blakeman to Ortiz re: Amendment to Cardona Irizarry
contract
3
85 00-AT-201-1003
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00-AT-201-1003 86
PHA Comments
59) May 10, 1999 Letter from Ortiz to Blakeman re: Amendment to Cardona Irizarry contract
60) May 21, 1999 Letter and Work Plan from Cardona to Rodfiguez re: Information for OIG
audit and Status of Contract
Finding III
Security Services Contracts
61) Summary of Reconciliation of Contracts for Security Services
62) Summary of Evidence of Payments Made By PR Department of Housing for Security
Services Under GSA Contracts (3 volumes of back-up documentation are available at
PRPHA for review by the OIG upon request)
Contract Number 97-3465
63) January 8, 1998 Contract between CVR Puerto Rico, Inc. and PRPHA for consulting
services related to the modernization department including provision for initial advance
payment and providing that it be deducted in equal parts from each monthly invoices
Fictitious Training Invoices and Management Agent Claims
64) April 15, 1999 Letter from Blakeman to Banco Popular re: efforts to obtain restitution
(Spanish)
65) August 27, 1999 Letter from Luna to Blakeman attaching July 16, 1999 Letter to Banco
Gubernamental de Fomento from Banco Popular re: indicating that the fraud at PRPHA is
not the bank's fault so no money will be paid by the Bank to cover the amount lost in the
fraud; although the money recovered from one of the fraudulent accounts will be returned
to PRPHA (Spanish)
66) Newspapers articles concerning PRPHA cooperation in prosecution of fraud cases
67) Indictment and Plea Agreements in US v. Ruben Monroig; ~; US v. Rios Ramirez; US v.
Rodriguez Tirado
68) Copy of Management Agent contract requiring fidelity bond
69) December 15, 1999 Report from Cardona to Gonzalez re: Status of Changes in Finance
Department
Prior Reviews
70) October 28, 1999 Letter to Blakeman from PriceWaterhouse and Coopers re: Results of
Procurement Audit
4
87 00-AT-201-1003
PHA Comments
INDEX OF DOCUMENTS
OIG DRAFT AUDIT REPORT OF THE
PUERTO RICO PUBLIC HOUSING ADMINISTRATION
SUPPLEMENTAL DOCUMENTATION REGARDING
SUMMARY OF PURCHASE ORDER DEFICIENCIES (APPENDICES B-C) AND
SUMMARY OF CONTRACT DEFICIENCIES (APPENDICES D-E)
DECEMBER 22, 1999
Summary of Purchase Order Deficiencies
1) Bus Rental 97-279B, 97-528,97-578, 97-585
2) Coloraal 97-014
3) DRC 97-585
4) Ferreteria Martin Gonzalez 97-271, 97-299, 97-342, 97-409, 97-592
5) IBM 97-458
6) Michica International 97-032
7) Motorola de PR 97-031
8) Nu Vue Ind. Service 97-056 (97-057)
9) National Security Institute 97-191, 97-220, 97-370, 97-461
10) Plebiscito Storm Shutter 97-231
11) PR Computer Services 97-338
12) Standards Forms Inc. 97-263
13) The Capricorn Group 97-228, 97-267, 97-275, 97-318, 97-341
14) Befra Interiors 97-487
15) Computerlink 97-478
16) Fire Control Corporation 98-723
17) Future Data Visions 98-469, 98-551
18) J&K Printers 98-684
19) KANE Caribbean 98-070
20) Losada Auto Truck, Inc 98-074
21) Mors 98-763
22) MV Electrical Contractor 98-631
23) Office Gallery 98-829, 98-830, 98-566
24) Rafel J. Nido Inc. 98-822
25) Royal International 98-752
26) Royal Motors Inc. 98-071
27) Speedy Office 98-708, 98-707, 98-541
28) The Atmospheric Group 98-595
29) Triangle Dealer 98-073
30) White Westinghouse 98-82l
31) Xerox Corporation 98-405, 98-703
00-AT-201-1003 88
PHA Comments
89 00-AT-201-1003
PHA Comments
32) Abreu Power Cars 99-248
33) Autos Vega 99-246
34) Computerlink 99-326
35) Empresas Losada 99-245
36) Triangle Dealers 99-247
Summary of Contract Deficiencies
1) Cardona, Irrizary & Company 97-6773
2) Cardona, lrrizary & Company 98-2311
3) Cardona, Irrizary & Company 98-3464
4) Cardona, Irrizary & Company UNK
5) Fidler, Gonzalez & Rodriguez 97-3715
6) Gurimar Construction 97-134
7) American Fundware 98-416
8) Analytical Environment 97-811
9) CVR Puerto Rico, Inc. 98-3465
10) Global Panzardi Joint Venture 98-3823
11) Habibe Computer 98-5121
12) Price Waterhouse & Coopers 98-431
13) Domenech Security UNK
14) Domenech Security UNK
00-AT-201-1003 90
PHA Comments
Summary of PRPHA's Response to Finding One
(to be inserted at p. 17)
There is no support for the vast majority of the IG's assertions in Finding One. First, the
IG continues to insist that formal contracts be used rather than purchase orders, even though
PRPHA has demonstrated that the regulations upon which the IG relies do not include such a
requirement, and that PRPHA's use of purchase orders did not circumvent any processes
required by Puerto Rico law or federal regulations. With regard to the specific purchase orders
identified in Finding One:
(1) PRPHA and GSA regulations clearly allow the purchase of the copiers, and the IG
has improperly calculated its supposed disallowance.
(2) The electric stoves were purchased with the full knowledge of HUD, if not with
written HUD approval. In addition, PRPHA has provided the IG with
documentation contradicting the IG's assertions about the alleged deficiencies in
the purchasing of those stoves.
(3) As documented to the IG, PRPHA has been installing the purchased water heaters
and continues to do so. There was absolutely no requirement that the water
heaters be installed by a certain date, and there is therefore no basis for
disallowing the cost of heaters that have not yet been installed.
(4) PRPHA has no information to substantiate the IG's claim that a false quote was
submitted for the desktop computer, and the IG has not provided PRPHA with
documentation to support that claim. Moreover, the computer is in use and is
providing PRPHA with ongoing benefits.
With regard to the two contracts identified in Finding One, the IG is wrong. There is no
justification for the IG's insistence that PRPHA should have selected the lowest bidder for
Contract No. 97-6773, when that bidder was given an unacceptably low score in an assessment
of the various bids. Indeed, an independent Bid Board assessed the scores and proposals of the
six bidders and approved the contractor selected. Moreover, the IG's description of the
contract award process is inaccurate.
With regard to Contract No. 97-3715, the IG's analysis ignores both Puerto Rico law and
the realities of hiring outside contractors. First, Puerto Rico law does not require a competitive
procurement process when prices are regulated by law, and the Government of Puerto Rico has
established rates of $75 to $125 per hour for legal representation of government entities. Second,
those rates are self-evidently reasonable and have in fact been approved by HUD. Third, both
the Cannons of Professional Ethics for Attorneys in Puerto Rico and HUD's regulations
regarding House Counsel for public housing agencies make the OIG's recommendations
inapposite.
91 00-AT-201-1003
PHA Comments
00-AT-201-1003 92
PHA Comments
Summary of PRPHA's Response to Finding Two
(to be inserted at p. 23)
There is absolutely no basis for the IG to criticize PRPHA's actions with regard to
the two contracts identified in Finding Two. Both of those procurements, as well as the contracts
themselves, were approved by HUD based upon extensive documentation provided by PRPHA.
24 C.F.R. § 85.36(d)(4) specifically allows HUD's approval, either because of a public exigency
or emergency or in HUD's discretion. The IG's attempts to find problems with the approval
process and these contracts are completely unfounded.
93 00-AT-201-1003
PHA Comments
Summary of PRPHA's Response to Finding Three
(to be inserted at p. 28)
PRPHA has provided the IG with extensive documentation demonstrating that the IG's
assertions regarding the Security Services Agreements are simply incorrect. With regard to the
fictitious training invoices and fictitious management agent claims, it has been well-documented
that PRPHA completely cooperated with law enforcement officials as soon as these fraudulent
schemes were discovered, and PRPHA has instituted new procedures to prevent a recurrence of
such schemes. The advance payments that the IG seeks to disallow are not prohibited by 24
C.F.R. § 85.36, the cited Treasury regulation, or any other statute or regulation. Moreover, that
payment was approved by HUD. Finally, the IG does not fully and accurately describe either
PRPHA's audit reports or the organizational changes instituted by PRPHA.
00-AT-201-1003 94
PHA Comments
Summary of PRPHA's Response to Finding Four
(to be inserted at p. 31)
PRPHA does not dispute that additional improvements in its property management and
procurement systems are desirable. Indeed, PRPHA welcomes HUD's assistance in instituting
such changes. However, the problems are not nearly so extensive as suggested by the IG audit.
95 00-AT-201-1003
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(THIS PAGE LEFT BLANK INTENTIONALLY)
00-AT-201-1003 96
Appendix H
Distribution
Administrator, Puerto Rico Public Housing Administration
Puerto Rico Secretary of Housing
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Acting Assistant Secretary for Administration, S (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Senior Advisor to the Secretary, Office of Public Affairs, S, (Room 10132)
Deputy Assistant Secretary of Administrative Services/Director of Executive Secretariat, AX
(Room 10139)
Director of Scheduling and Advance, AL (Room 10158)
Counselor to the Secretary, S (Room 10234)
Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Operations, S (Room 10226)
Deputy Chief of Staff for Programs and Policy, S (Room 10226)
Director, Office of Special Actions, AK (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
Senior Advisor to the Secretary for Pine Ridge Project, W, (Room 10216)
General Counsel, C (Room 10214)
Director, Office of Federal Housing Enterprise Oversight, O (9th Floor Mailroom)
Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100)
Office of Policy Development and Research, R (Room 8100)
Inspector General, G (Room 8256)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 3152)
Director, Office of Departmental Equal Employment Opportunity, U (Room 5128)
Director, Office of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Director, HUD Enforcement Center, 451 Portals Bldg, Suite 200, Washington, DC 20140
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building
Deputy Chief Financial Officer for Finance, FF (Room 2202) (2)
Director, Office of Budget, FO (Room 3270)
Page 91 00-AT-201-1003
Distribution
00-AT-201-1003 Page 92
Distribution
Secretary's Representative, 4AS
Area Coordinator, Caribbean Office, 4NS
Director , Office of Public and Indian Housing, 4NPH
Audit Liaison Officer, 3AFI
Audit Liaison Officer, Office of Public and Indian Housing, PF (Room P8202)
Departmental Audit Liaison Officer, FM (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)
Counsel to the IG, GC (Room 8260)
HUD OIG Webmanager-Electronic Format Via Notes Mail (Cliff Jones@hud.gov)
Public Affairs Officer, G (Room 8256)
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W.,
Room 2474, Washington DC 20548 ATTN: Judy England-Joseph
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
United States Senate, Washington DC 20510-6250
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
United States Senate, Washington DC 20510-6250
The Honorable Dan Burton, Chairman, Committee on Government Reform,
United States House of Representatives, Washington DC 20515-6143
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
United States House of Representatives, Washington, DC 20515-4305
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212,
O'Neil House Office Building, Washington, DC 20515-6143
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street, NW,
Room 9226, New Executive Office Bldg., Washington, DC 20503
Sharon Pinkerton, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug
Policy and Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515
Administrator, Office of Federal Procurement Policy, Office of Management and Budget,
Old Executive Office Building, Room 352, Washington, DC 20503
99 00-AT-201-1003
Puerto Rico PHA, Procurement Management, San Juan, Puerto Rico
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-03-06.
Below is a raw (and likely hideous) rendition of the original report. (PDF)