U.S. Department of Housing and Urban Development District Office of the Inspector General Office of Audit Richard B. Russell Federal Building 75 Spring Street, SW, Room 330 Atlanta, GA 30303-3388 (404) 331-3369 August 4, 2000 No. 00-AT-201-1803 MEMORANDUM FOR: Boyce Norris, Director, Office of Public Housing, 4APH FROM: Nancy H. Cooper District Inspector General for Audit-Southeast/Caribbean, 4AGA SUBJECT: Design and Construction Management Department Housing Authority of the City of Atlanta Atlanta, Georgia We conducted a survey of certain activities of the Housing Authority of the City of Atlanta (HACA) Design and Construction Management Division. The primary objective of the survey was to determine the validity of an anonymous complaint referred to us by your office. We also determined if HACA had resolved certain procurement and cash management issues reported in our prior audit of HACA’s operations. METHODOLOGY AND SCOPE To accomplish the objectives, we reviewed and analyzed records maintained by HUD’s Atlanta State Office of Public and Indian Housing, HACA, and certain of its contractors. We inspected construction work at several capital project sites and interviewed HUD, HACA and certain HACA contractors. We also requested and obtained legal advice on certain issues to assist us in evaluating HACA’s compliance with requirements. We limited the survey to the review of HACA’s controls and procedures. We did not audit HACA’s costs. The survey generally covered the period July 1, 1997, through August 31,1999. We adjusted the period, when appropriate, to ensure complete development of potential issues. We conducted the survey from August 1999 to December 1999 and revisited HACA in June 2000 to update the status of issues identified prior to issuing this memorandum. We conducted the survey in accordance with generally accepted government auditing standards. SUMMARY An anonymous letter alleged that a consulting firm under contract with HACA was mismanaging the Design and Construction Management Department and was violating procurement regulations. The survey did not reveal any regulatory violations related to the issues cited in the complaint. However, the survey disclosed a need for HACA to continue in its efforts to resolve procurement concerns reported in our prior audit (98-AT-206-1004) issued on March 31, 1998. Specifically, HACA had not established and implemented the controls needed to ensure that private management companies (PMCo) procured goods and services in compliance with requirements. HACA also needed to develop and implement controls to ensure that its staff identifies and reports changes in the scope of construction work and executes change orders when such contract modifications occur in HACA contracting activities. Details of these issues are in Attachment 1. Our prior audit report also found deficiencies with cash management. When conducting this survey, we noted that HACA continued to have cash management difficulties involving its master account. HACA had not promptly reimbursed the master account for expenses paid on behalf of other programs. When the survey began, other programs owed the master account about $15.6 million. As the survey progressed, HACA reduced this balance substantially to $7.5 million by September 30, 1999. When we followed up in June 2000, HACA had reduced the balance owed to the master account from other programs to about $3.2 million. It appears that HACA has made progress, has the matter under control, and no further action is required at this time. We may monitor the balance at some future point to ensure that corrective actions continue in this area. Therefore, we present no findings or recommendations on this matter. We discussed these issues with HACA during the survey and during an exit conference on July 14, 2000. HACA provided its written response on August 2, 2000, which is included as Attachment 2. Within 60 days, please provide, for each recommendation in Attachment 1, a status report on: (1) the corrective action taken; (2) the proposed corrective action and the date to be completed; or (3) why action is considered unnecessary. Also, please furnish us copies of any correspondence or directives issued because of this review. We provided a copy of this memorandum to the Authority. If you have any questions, please contact Terry Cover, Assistant District Inspector General, or me at (404) 331-3369. Attachments: 1 - Finding and Recommendations 2 - Authority Comments 3 - Distribution 2 Attachment 1 RESULTS OF REVIEW Finding 1 - Aspects of HACA’s Procurement Operations Needed Improvement We noted that HACA had improved its procurement process since the date of our last audit. However, HACA needed to establish and implement controls to improve certain aspects of its procurement function. Specifically, when private management companies (PMCos) executed contracts on HACA’s behalf, HACA needed to establish and implement further controls to ensure proper oversight of procurements made by PMCos for compliance with requirements. Also, on HACA executed contracts, it needed to ensure that its staff identify modifications in the scope of construction contracts and execute contract change orders for such modifications. Need to Improve Oversight of PMCos - HACA was required to maintain a contract administration system which ensures that contractors perform in accordance with the terms, conditions, and specifications of their contracts (24 CFR 85.36 (b)(2)). HACA required PMCos to comply with procurement requirements stipulated in 24 CFR 85.36 coupled with a requirement for HACA to review PMCos compliance with requirements on at least a quarterly basis (HACA’s procurement policy, Section IV, paragraphs 4-1 and 4-3). HACA had not established and implemented effective controls over procurements made on its behalf by PMCos. For instance, while accompanied by HACA’s Procurement Director in September 1999, we reviewed two procurements processed by a PMCo for compliance with requirements. In both instances, the PMCo files did not contain proper documentation for cost estimates and the bid process. HACA recognized the seriousness of the conditions and commendably began immediate efforts to address the deficiencies. HACA’s Procurement Director initiated an in-depth review of PMCo procurements. HACA’s review confirmed that PMCos had not established and followed procurement procedures designed to comply with requirements of 24 CFR 85.36. PMCos conducted contracting in a decentralized, fragmented, and inconsistent manner. PMCos did not maintain complete, organized records necessary to support compliance with requirements. In certain instances, HACA could not determine whether PMCos awarded contracts competitively because records were incomplete. HACA officials stated that these conditions had occurred, unbeknownst to HACA, because HACA had assigned staff to monitor PMCo procurements who were not contract specialists. Consequently, the oversight provided by HACA staff did not sufficiently focus on procurement administration. Although HACA officials confirmed that they had provided procurement training to HACA and PMCo staff, those trained did not adequately assimilate the contracting requirements. HACA agreed that further training and refocused oversight were necessary. 3 In a letter to OIG dated October 14, 1999, HACA officials committed to develop and implement controls necessary for HACA monitoring of PMCo procurements to ensure that PMCos comply with required procurement procedures. When we conducted follow-up work in June 2000, HACA had not fully implemented corrective action to address PMCo procurements. At that time, HACA’s Procurement Director said HACA would implement significantly revised procurement procedures, training, and oversight of PMCos in July 2000. Need to Improve Controls over Change Orders - A change order is issued by the Contracting Officer, after the award of the contract, to modify any of the contract terms, including specifications, descriptions of the work, etc., (Procurement Handbook for Public and Indian Housing, 7460.8 REV 1, Chapter 6, paragraph 6-10(B)(1)). If any change causes an increase or decrease in the Contractor’s cost, the Contracting Officer shall make an equitable adjustment and modify the contract in writing (HUD Form 5370, General Conditions for Construction Contracts, Section 29 (d)). HACA was required to maintain a contract administration system designed to ensure that Contractors perform in accordance with their contracts ((24 CFR 85.36 (b)(2)). The survey identified one HACA construction contract in which HACA did not properly identify and document changes in the scope of work by properly executed change orders. We used judgmental methods to select one construction contract executed by HACA to verify, on a test basis, the completion of specified work items. HACA’s representatives accompanied us during the inspection. We noted several instances where the contractor did not complete work specified by the contract which HACA’s inspector did not report as deviations from the contract. As a result, HACA had not amended the contract to reflect the reduced scope and price associated with the undocumented changes in scope. The conditions occurred because the inspector and the contractor informally agreed among themselves to deductive changes in the work. As a result, HACA had not amended the contract to reflect the reduced scope and price associated with the undocumented changes in scope. HACA had not developed and implemented safeguards to detect and deter this type of deviation from the approved specifications. We used judgmental methods to select two additional contracts for limited on-site verification of work items. The review disclosed no additional instances of unsupported deviations from the contract plans and specifications. HACA agreed with our observations and corrected the noted violations while we were on site. HACA also implemented revisions to its procedures effective October 1999 to address the identified weakness. The revised procedures required site verification inspections to ensure that contractors comply with their contract specifications, drawings, and change orders. Because HACA recognized this condition, took commendable action to address the specific violations we noted, and then implemented improved oversight procedures during the survey, we make no recommendations in this area. Housing Authority Comments (Summary)1 1 See Attachment 2 for HACA’s Complete Response. 4 HACA accepts OIG’s recommendations for corrective action. HACA stated that it remains committed to fully implementing procedures and controls necessary to ensure PMCos comply with procurement requirements no later than October 2000. The Authority provided a schedule of actions implemented and forthcoming actions designed to improve its oversight of PMCo procurement and contract administration. For example, HACA has implemented and scheduled the following actions in response to OIG’s recommendations. • July 2000 - PMCo Procurement Guidance Book developed and distributed • July 2000 - Training conducted • August 2000 - Additional training to be conducted • September 2000 - Follow-up training and “spot checks” to be conducted • October 2000 - Continuous quarterly monitoring will begin OIG Evaluation of Response We concur with HACA’s actions taken to date and those actions scheduled for future implementation. Recommendations We commend HACA’s prompt recognition of these conditions and its efforts to correct the issues cited in this finding. We recommend you ensure that HACA: 1A. Complete and fully implement effective procedures for monitoring and ensuring PMCo compliance with procurement requirements. 1B. Provide training to PMCo staff on the improved procurement policy and procedures they must follow. 1C. Provide its staff and consultants with the necessary training on procurement policy and procedures to ensure that their oversight of PMCo contracting is effectively performed to identify any compliance deficiencies. 5 Attachment 2 August 2, 2000 Ms. Nancy Cooper District Inspector General For Audit Southeast/Carribean U.S. Department of Housing and Urban Development District Office of the Inspector General Office of Audit, Box 42 Richard B. Russell Federal Building 75 Spring Street, S.W., Room 330 Atlanta, Georgia 30303-3388 Re: Audit Survey of The Housing Authority of the City of Atlanta, Georgia (AHA) Dear Ms. Cooper: Thank you very much for providing AHA with an opportunity to review the draft memorandum report prepared by your office in connection with an audit survey of AHA conducted during 1999 and 2000. We also appreciated the opportunity to discuss the draft memorandum report at an exit conference on July 13, 2000 with Terry Cover, Keith Huffman and Rob Burgess of your office and Boyce Norris, Sherry Ware, Bob Caravello and Beverly Amburn of the Georgia Office of Public Housing. The meeting was very productive, and in large part, AHA and your office were in agreement on the findings and the steps to be taken by AHA to improve the management of its programs. We were particularly pleased that your office noted for the record the substantial improvements AHA has made in procurement and contract administration since your March 1, 1998 audit report. AHA participants at the exit conference included Renee Lewis Glover, Executive Director; Carol Naughton, General Counsel; Andrea Hartt, Chief Financial Officer; Bob Mascaro, Asset Director; and Bruce Collins, Director of Contracts and Procurement. AHA staff noted that AHA remains on track to continue to develop and implement procedures and controls to ensure that private management companies (PMCOs) managing AHA properties comply with required procurement regulations and their respective policies and procedures, including effective AHA monitoring of PMCO procurements and contract administration. AHA remains committed to fully implementing these procedures and controls no later than October 2000, as represented in our letter to you dated October 15, 1999. Since the need to improve its oversight of PMCO procurement and contract administration activities was first identified by your office in October 1999, AHA has taken substantial steps to thoughtfully design and implement effective procedures and controls, including developing a PMCO Procurement Guidance Book which has now 6 Ms. Nancy Cooper August 2, 2000 Page 2 been distributed to the PMCOs. In fact, last week AHA held additional training for PMCO staff on procurement and contract administration requirements which was well attended and enthusiastically received. Additional training for PMCOs and AHA staff is planned over the next several months, as well as on-going training and quarterly monitoring. Attached is a chart outlining the steps AHA has taken over the past nine months to improve its oversight of PMCO procurement and contract administration activities, as well as on-going training and monitoring activities that we believe will improve both the PMCOs’ procurement and contract administration skills and AHA’s ability to effectively monitor those activities. We remain committed to continually improving as an asset manager and recognize that effective oversight of this function is critical to achieving that goal. We accept the recommendations proposed in the audit report and look forward to providing the Georgia Office of Public Housing with documentation that will evidence that we have fully implemented a comprehensive program designed to improve the procurement and contract administration capacity of the PMCOs and AHA’s ability to effectively monitor those activities. Thank you very much for your excellence and professionalism. Sincerely, Renee Lewis Glover Executive Director Cc: Terry A. Cover Robert Burgess Boyce Norris Carol Naughton Andrea Hartt Lynn Cassell Bob Mascaro Bruce Collins 7 The Housing Authority of the City of Atlanta, Georgia Improvements to Oversight of PMCO Procurement and Contract Administration ACTIONS TAKEN TO DATE 1) October 1999 –AHA revised PMCO Procurement & Contract Administration checklist (hereinafter referred to as “the PMCO Checklist”) and circulated the same to all of the PMCOs. 2) October 1999 – AHA held internal meetings to develop one year timeline for full implementation of action plan. 3) November 1999 – AHA’s C&PD conducts “spot checks” of PMCO’s procurement files to use as the foundation for providing technical assistance. 4) December 1999 – AHA further improved PMCO Checklist and circulated the same to all PMCOs. 5) December 1999 - C&PD and Team PMCO continue meetings to address overall course of action and protocols 6) December 1999 – C&PD improved “spot check” checklist for PMCO Procurement process 7) December 1999 – May 1999 - C&PD and Team PMCO developed PMCO Procurement Guidance Book 8) May 2000 – First draft of PMCO Procurement Guidance Books circulated within AHA for review 9) May 2000 – C&PD performed technical assistance procurement sessions with each PMCO 10) July 2000 – AHA issued PMCO Procurement Guidance Books to PMCOs and initiated procurement and contract administration training to PMCO and DCM/Team PMCO staff. FORTHCOMING ACTIONS 1) August 2000 – AHA will initiate procurement and contract administration training to PMCOs site managers and site based staff. 2) August 2000 - AHA will facilitate “one-on-one” technical procurement sessions with the PMCOs Regional Managers and procurement staff. 3) September 2000 - AHA will conduct technical assistance follow-up and pre-spot check review with PMCOs and DCM/Team PMCO. 4) October 2000 – AHA will conduct quarterly “spot checks” of PMCO’s and DCM/Team PMCO procurement and contract administration files. 5) January 2001 - AHA will conduct quarterly “spot checks” of PMCO’s and DCM/Team PMCO’s files. 6) January 2001/ongoing – AHA will provide technical assistance to PMCOs and DCM/Team PMCO. 8 Attachment 3 DISTRIBUTION Executive Director, Housing Authority of the City of Atlanta 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, X, 1250 Maryland Avenue, SW, Suite 200 Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800 Director, Office of Multifamily Assistance Restructuring, Y, 1280 Maryland Avenue, SW, Suite 4000 Deputy Chief Financial Officer for Finance, FF (Room 2202) (2) Director, Office of Budget, FO (Room 3270) 9 Secretary's Representative, 4AS Director, Office of Public Housing, 4APH 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 10
Design and Construction Management Department, Housing Authority of the City of Atlanta, Atlanta, Georgia
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-08-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)