oversight

Pinellas County Housing Authority, Clearwater, Florida

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-03-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                                    Issue Date
                                                                            March 23, 2000
                                                                   Audit Case Number
                                                                            00-AT-202-1004




TO:            Karen Cato-Turner, Director, Office of Public Housing, 4DPH


FROM:          Nancy H. Cooper
               District Inspector General for Audit-Southeast/Caribbean, 4AGA


SUBJECT:       Pinellas County Housing Authority
               Clearwater, Florida

We have completed a review of the Pinellas County Housing Authority (PCHA). The purpose of
our review was to evaluate the efficiency and effectiveness of PCHA operations. Specifically, we
evaluated PCHA’s: (1) use of Section 23 leased housing funds remaining after program
termination, (2) controls over property and Section 8 reserve funds donated to a nonprofit entity,
(3) calculation of Section 8 administrative fees, and (4) compliance with procurement policies and
procedures.

Our report includes three findings requiring follow up action by your office. We will provide a
copy of this report to PCHA.

Within 60 days, please furnish a status report for each recommendation 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 related to the review.

Should you or your staff have questions, please contact James D. McKay, Assistant District
Inspector General for Audit, at (404) 331-3369 or Sam Daugherty, Senior Auditor, at (904) 232-
1226.
Management Memorandum




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00-AT-202-1004                  Page ii
Executive Summary
We have completed a review of PCHA operations. Our objective was to evaluate the efficiency
and effectiveness of PCHA operations. Based on survey work, we focused our review on
evaluating PCHA’s: (1) use of Section 23 leased housing funds remaining after program
termination, (2) controls over property and Section 8 reserve funds donated to a non-profit entity,
(3) calculation of Section 8 administrative fees, and (4) compliance with procurement policies and
procedures.

PCHA did not obtain U.S. Department of Housing and Urban Development’s (HUD) approval to
use residual Section 23 Leased Housing Program funds for rebuilding Crystal Lakes Manor
Apartments (CLM). Further, PCHA did not ensure CLM would remain affordable to low income
families because PCHA: (1) donated the property without a required deed restriction, (2) did not
plan to use a $2 million escrow fund, and (3) did not have adequate control over $3.2 million
donated Section 8 fees. As a result: (1) PCHA used $1.3 million of residual Section 23 leased
housing funds to pay construction costs rather than offset public housing operating subsidies; and
(2) PCHA may not maximize assistance to low income families.

PCHA did not calculate its Section 8 administrative fee for Housing Authority owned/substantially
controlled units correctly. As a result, the 1998 ongoing administrative fee was excessive by
about $143,834 and HUD continues to pay excessive administrative fees because the current
budget is incorrect.

PCHA’s procurement of services and equipment did not comply with policies and procedures.
This occurred because PCHA’s local procurement policy did not include sufficient and detailed
guidance commensurate with procurement policy and because the PCHA expedited procurements.
As a result, the PCHA procured in a manner that created the appearance of favoritism, lessened
competition, and increased the likelihood of protests and litigation. Competition on future
procurements may be adversely affected if the PCHA continues to conduct its procurement in such
a manner.

Exit Conference

We discussed the results of our review with the staff of the Florida State Office, Office of Public
Housing on February 9, 2000, and solicited their input for recommended corrective actions.

We also discussed the findings with the PCHA staff during the course of the review and at an exit
conference on February 11, 2000, attended by the Chairman of the Board of Commissioners,
PCHA Counsel, Executive Director and PCHA staff. PCHA provided us written comments on
March 2, 2000, which we considered in preparing the final report. PCHA substantially agreed
with the issues in findings 1 and 3. PCHA did not agree with the issues in finding 2. We
summarized and evaluated the comments following each finding and included PCHA’s full
comments in Appendix B.




                                                 Page iii                          00-AT-202-1004
Executive Summary




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00-AT-202-1004                  Page iv
Table of Contents

Management Memorandum                                              i


Executive Summary                                               iii


Introduction                                                     1

Findings

1    PCHA Used Program Funds Without HUD Approval and Did
     Not Ensure CLM Would Remain Affordable Housing    3

2    Incorrect Calculation of Section 8 Administrative Fee             9

3    Procurement Activities Did Not Comply With Policies and
     Procedures                                                            11


Management Controls                                           17

Follow Up On Prior Audits                                      19

Appendices
      A Schedule of Ineligible and Unsupported Costs             21
      B Auditee Comments                                           23
      C Distribution                                               27




                                   Page v                    00-AT-202-1004
Table of Contents


Abbreviations

       ACC          Annual Contributions Contract
       CFR          Code of Federal Regulations
       CLM          Crystal Lakes Manor Apartments
       DHA          Dunedin Housing Authority
       ED           Executive Director
       HA           Housing Authority
       HUD          U.S. Department of Housing and Urban Development
       LIH          Low Income Housing
       PIH          Public and Indian Housing
       PLV          Palm Lake Village Apartments
       PCHA         Pinellas County Housing Authority
       QBS          Qualification Based Selection
       RFP          Request For Proposals
       VCA          Voluntary Compliance Agreement




00-AT-202-1004                      Page vi
Introduction
Background

PCHA is a public body organized under Chapter 421 of the laws of the State of Florida. Its
mission is to provide low rent housing for qualified individuals in accordance with the rules and
regulations prescribed by HUD and other Federal agencies. A five member Board of
Commissioners governs PCHA. The Board of Commissioners is responsible for implementing a
comprehensive public housing program, setting policy, approving an annual operating budget, and
hiring an Executive Director (ED). The Executive Director is responsible for daily operations and
oversees a staff of about 70 employees. The former Executive Director retired in February 1999.
The Board promoted Ms. Helen Piloneo from the position of Assistant Executive Director for
Finance to Executive Director. The current Chairman for the Board of Commissioners is Mr.
Herbert L. James.

PCHA operates four Low Income Housing (LIH) developments with 595 units controlled under an
Annual Contributions Contract (ACC) with HUD. HUD provides an annual operating subsidy of
about $1.2 million. For our review period, PCHA received approximately $700,000 in
Comprehensive Grant Program funds. PCHA’s Section 8 Program includes about 2,128
certificates and 456 vouchers for low income families. HUD provides annual housing assistance
payments of about $10 million.

PCHA manages the day-to-day operations and maintains the books and records for Dunedin
Housing Authority (DHA). DHA has 50 units of LIH. HUD provides an annual operating subsidy
of about $126,272. In addition, DHA received about $354,739 in Comprehensive Improvement
Assistance Program funds for the year ending June 30, 1998.

PCHA also manages the day-to-day operations and maintains the books and records for Palm Lake
Village Apartments (PLV) and CLM. Both properties are owned by Palm Lake Village Housing
Corporation, a non-profit corporation. The nonprofit is an instrumentality established by PCHA.
PLV and CLM were former Section 23 leased housing program properties that HUD subsequently
approved for disposition. The disposition approval included demolition and replacement of all
units on a one for one basis. PLV has 475 units and CLM has 236 units. PLV was completed in
September 1990 and the final phase of CLM was completed in July 1999.

PCHA also is the Section 8 contract administrator for two Section 8 New Construction projects
with project-based Section 8 rental assistance. Oceanside Estates has 104 units and is located in
Pinellas Park, Florida. Cypress Courts Apartments has 68 units and is located in Fort Myers,
Florida.

HUD conducted a compliance review July through September 1997. The review focused on the
application taking process, tenant selection and assignment, and maintenance services, as well as
physical accessibility of PCHA housing and facilities. On September 30, 1997, HUD issued a
letter of findings and concluded that PCHA was not in compliance with Title VI and Section 504
and their respective implementing regulations. To resolve the issues, PCHA made no admission
to any past violation but entered into a Voluntary Compliance Agreement (VCA). The terms and
conditions required PCHA to obtain an Agreement Administrator and VCA Contractor to assist the

                                                 Page 1                           00-AT-202-1004
Introduction


PCHA in resolving the matters. The Agreement Administrator receives $60,000 per year and the
VCA Contractor was awarded a contract for $118,241.

HUD completed a consolidated management review on December 19, 1997, and issued a report
dated February 2, 1998. The review contained 28 findings related to management operations and
occupancy for the LIH and Section 8 programs. Resolution of the findings is dependent on
completion of the VCA. PCHA is submitting quarterly progress reports required by the VCA and
HUD is monitoring VCA progress.

In January 2000, HUD presented the PCHA a Secretary’s Commendation in recognition as a
successful performer in providing decent, safe, and affordable housing.

Audit objectives

The purpose of our review was to evaluate the efficiency and effectiveness of PCHA operations.
Based on survey work, we focused our review on evaluating PCHA’s: (1) use of Section 23
leased housing funds remaining after program termination, (2) controls over property and Section 8
reserve funds donated to a nonprofit entity, (3) calculation of Section 8 administrative fees, and (4)
compliance with procurement policies and procedures.

Audit scope and methodology

Our review methodology included examination of records and files, interviews with HUD, PCHA
current and former staff, and review of Independent Public Accountant reports. During our review
of the Board of Commissioner’s minutes, we identified 22 procurements for the period January 1,
1998 through January 1999. We judgmentally selected six procurement actions to determine
whether the PCHA followed procurement policies and procedures.

Our review generally covered the period January 1, 1998, though May 31, 1999. However, we
reviewed activity in other periods as necessary. Field work was conducted between April and
July 1999.

The audit was conducted in accordance with generally accepted government auditing standards.




00-AT-202-1004                        Page 2
                                                                                    Finding 1



     PCHA Used Program Funds Without HUD
     Approval and Did Not Ensure CLM Would
           Remain Affordable Housing
PCHA did not obtain HUD approval to use residual Section 23 Leased Housing Program funds for
rebuilding Crystal Lakes Manor. Furthermore, PCHA lacked assurance the project will remain
affordable to low income families because PCHA: (1) donated the Crystal Lakes Manor property
without a required deed restriction, (2) did not plan to use a $2 million escrow fund, and (3) did
not have adequate control over $3.2 million donated Section 8 fees. As a result, PCHA
improperly used $1.3 million of residual Section 23 leased housing funds to pay construction costs
rather than offset public housing operating subsidies, and may not maximize assistance to low
income families.



                                     HUD Handbook 7430.01, Chapter 5-8, specifies that cash
 HUD approval not                    remaining at the time of final close-out of a Section 23
 obtained for use of                 Program must be used, with prior written authorization from
 $1.3 million residual               HUD, to offset operating subsidies payable by HUD for the
 Section 23 funds                    low income housing program. The Handbook also provides
                                     guidance and accounting entries to dispose of Section 23
                                     assets and close the books for a terminated Section 23
                                     Program.

                                     PCHA did not properly transfer remaining funds from a
                                     terminated leased housing program to the public housing
                                     program or use the funds to offset operating subsidies
                                     payable by HUD. Instead, PCHA transferred left over
                                     trustee funds ($634,106.08) and deferred maintenance trust
                                     funds ($702,119) to a non-profit corporation to use in
                                     rebuilding Crystal Lakes Manor. PCHA did not obtain HUD
                                     approval to transfer the funds to the non-profit corporation.
                                     Accordingly, PCHA did not use approximately $1.3 million
                                     of left over funds as required by HUD.

                                     Background

                                     PCHA, through its not-for-profit corporation (Crystal Lakes
                                     Housing Corporation), issued bonds ($2,320,000) in
                                     November 1972 to purchase a 236 unit prefabricated
                                     apartment project known as Crystal Lakes Manor. The
                                     PCHA operated the project under the Section 23 Leased
                                     Housing Program.

                                                 Page 3                           00-AT-202-1004
Finding 1



                 The non-profit corporation merged with another non-profit
                 corporation (Florida Leased Housing Corporation). In May
                 1976, Florida Leased Housing Corporation issued bonds in
                 the amount of $5,585,000 to refund first mortgage bonds
                 issued by predecessor corporations. On May 18, 1993, the
                 Trustee (Nations Bank), disbursed $634,106.08 representing
                 the remaining funds from the trust accounts to another non-
                 profit corporation (Palm Lake Village Housing
                 Corporation). PCHA deposited and recorded the funds to
                 the non-profit books and records.

                 According to the trust indenture, the funds became the
                 property of PCHA. Furthermore, Sections 312 and 313 of
                 Part Two of the ACC with HUD include provisions that, in
                 effect, made the residual funds a part of PCHA’s assets, and
                 prohibited their disposition or use without HUD approval.
                 Therefore, the funds should have been recorded to PCHA’s
                 books and records.

                 In March 1995, PCHA improperly transferred $702,119
                 from a Maintenance Trust Fund to a non-profit corporation
                 (Palm Lake Village Housing Corporation). The funds did
                 not belong to the non-profit corporation. The trust funds
                 were originally set up to fund extraordinary maintenance or
                 equipment replacement for Crystal Lakes Manor during the
                 Leased Housing period. However, the funds were never
                 used, and in effect, the balance represented a payable to the
                 Leased Housing Program. Again, the residual funds were a
                 part of PCHA’s assets, and the ACC prohibited disposition
                 or use without HUD approval. The funds should have been
                 recorded to the Leased Housing Program and the program
                 closed out in accordance with Handbook 7430.01, Chapter
                 5-8.

                 We also noted that the PCHA had not recorded the necessary
                 entries or closed the books for the terminated Section 23
                 program. At our audit completion date, the books and
                 records showed the program had operating reserves of
                 $29,378 which should be transferred to the low income
                 program.




00-AT-202-1004   Page 4
                                                                              Finding 1



                              In November 1993, PCHA submitted a disposition plan to
Deed restrictions not clear   rebuild Crystal Lakes Manor and continue its use as a low
                              rent housing development for low income elderly. PCHA
                              proposed to deed the 236 unit property back to the non-profit
                              corporation for the purpose of demolishing and rebuilding
                              the project. PCHA agreed the donation and transfer
                              documents would contain a reversionary provision that the
                              entire development would revert back to PCHA if the non-
                              profit corporation at any time did not continue with the low
                              rent/low income housing purpose.

                              In July 1994, HUD approved the disposition plan. HUD
                              also required that if the property were transferred to a non-
                              profit, the deed should contain a covenant that the units are
                              reserved for occupancy for 15 years for low-income
                              families who may be required to pay no more for rent than is
                              required of families in the Section 8 Program.

                              PCHA transferred the property to Palm Lake Village
                              Housing Corporation by a deed executed February 16, 1995.
                              The deed did not contain the required covenant. Instead, it
                              contained a statement that the grantee retained a reversionary
                              interest in the real property and was entitled to re-enter and
                              retake the property in the event the grantee no longer
                              qualified for or received HUD subsidized funding. PCHA
                              also entered into a management services agreement with the
                              non-profit. The agreement did not contain the required
                              restriction.

                              The deed restriction does not meet HUD’s intent to ensure
                              that the units are reserved for occupancy for 15 years to
                              low-income families. PCHA should consider amending the
                              documents or executing additional documents with the non-
                              profit corporation to ensure the low-income nature of the
                              property over the 15 year period.


$2 million escrow fund not    As part of the disposition approval process, HUD agreed to
used as required              provide 118 Section 8 tenant based certificates. PCHA
                              agreed to establish an escrow fund of $2 million to ensure
                              the remaining 118 tenants would not be required to pay more
                              than 30 percent of income for rent.




                                           Page 5                           00-AT-202-1004
Finding 1



                            PCHA is in the process of renting the units. PCHA officials
                            were of the opinion that all 236 units can be rented to
                            Section 8 tenants. They contended the $2 million escrow
                            account is merely a guarantee put in place in case PCHA
                            runs out of Section 8 certificates/vouchers.

                            We believe HUD’s disposition approval clearly states that
                            118 units would be assisted by the $2 million local program.
                            If PCHA does not use the $2 million local program, then the
                            funds will continue to build in the non-profit corporation,
                            which will not benefit any tenants. Also, use of 236 units of
                            Section 8 instead of the local program will deprive 118
                            other tenants of assistance.

                            We believe PCHA should use the local funds to subsidize
                            118 units as intended by HUD’s approval, and use the other
                            118 Section 8 certificates/vouchers to provide assistance to
                            other needy residents.

                            Title 24 of the Code of Federal Regulations (CFR) 982.155
  Inadequate control over   (b)(1) allows a housing authority to use Section 8
  $3.2 million donated      administrative fee reserves for housing purposes permitted
  Section 8 reserves        by State and local law.

                            PCHA donated Section 8 administrative fee reserves to a
                            non-profit corporation (Palm Lake Village Housing
                            Corporation) as a way to set aside money for the
                            reconstruction of Crystal Lakes Manor. PCHA started
                            donating its Section 8 administrative fee reserves to the non-
                            profit corporation in 1988. It ceased in 1997 at which time
                            it had transferred a total of about $6.8 million. When the
                            need arose, PCHA used the Section 8 administrative fee
                            reserves to pay Crystal Lakes Manor construction costs.
                            Approximately $3.2 of the $6.8 remains on deposit with the
                            non-profit corporation.

                            To improve control over the funds, we believe the funds
                            should remain at PCHA until they are actually needed.
                            Accordingly, we believe the $3.2 million remaining at the
                            non-profit corporation should be returned to PCHA along
                            with accrued interest.




00-AT-202-1004              Page 6
                                                                     Finding 1



                    PCHA officials believed they followed HUD’s approval to
PCHA Comments       transfer the property to the non-profit through a no cost
                    transfer. They believed the transfer should include all cash
                    as well as the property. They said they had now recorded
                    the necessary entries to transfer the operating reserves to the
                    low income program.

                    PCHA officials agreed the deed restriction was not clear,
                    and agreed to revise it. They said the deed restriction will
                    contain a covenant to restrict the occupancy for 15 years to
                    low-income families.

                    PCHA officials said they were committed to serving the low
                    income elderly, and would use the $2 million escrow fund to
                    assist low income tenants. They said they would make sure
                    that low income tenants did not pay more than 30 percent of
                    adjusted monthly income retroactive to the date of
                    admission.

                    PCHA officials agreed to strengthen controls over the $3.2
                    million donated Section 8 funds. They said they would
                    consider forming an interlocking board with the non-profit.



                    PCHA’s application and information submitted to HUD did
OIG Evaluation of   not disclose the amount of cash that remained after
PCHA Comments       termination of the Section 23 Program. Accordingly HUD
                    was not aware that substantial cash remained. Furthermore,
                    PCHA did not seek HUD approval to transfer the funds to
                    the non-profit as required by the HUD Handbook.

                    PCHA’s other planned actions are responsive to the other
                    issues. If timely and adequately implemented, the actions
                    should correct the deficiencies discussed in the finding.




                                 Page 7                            00-AT-202-1004
Finding 1




 Recommendations   We recommend you require PCHA to

                   1A.          Analyze its overall financial position (including
                            the nonprofit) and submit a request with justification
                            for any planned use of the improperly retained funds.
                            If the funds are not needed or justified, your office
                            should require the funds ($1,336,225) be used to
                            offset operating subsidies payable by HUD.

                   1B.      Submit copies of the accounting entries to close out
                            the Section 23 Program. Your office should assure
                            the reserves of $29,378 were properly transferred to
                            the low income program.

                   1C.      Submit the proposed deed revision for your review
                            and approval. Your office should assure the
                            covenant ensures the low-income nature of the
                            property over the 15 year period.

                   1D.      Provide your office with the procedures they
                            propose to follow regarding use of the $2 million
                            escrow for low income tenants. Your office should
                            assure the PCHA uses the escrow to subsidize 118
                            units as intended by HUD’s approval letter.

                   1E.      Return the Section 8 donated funds and accrued
                            interest to the PCHA’s books and control. Your
                            office should consider whether any additional
                            controls should be implemented.




00-AT-202-1004     Page 8
                                                                                  Finding 2



Incorrect Calculation of Section 8 Administrative
                       Fee
PCHA did not correctly calculate its Section 8 administrative fee for Housing Authority
owned/substantially controlled units. As a result, PCHA received an excessive fee of $143,834
for 1998 and HUD continues to pay excessive administrative fees because the current budget is
incorrect.



                                   Public and Indian Housing (PIH) Notice 92-59, dated
 Criteria                          November 10, 1992, provides guidance for calculating the
                                   administrative fee for units owned by the HA or
                                   substantially controlled by the HA administering the ACC.
                                   The Notice states the HA must calculate the administrative
                                   fee for owned units and non-owned units separately. It
                                   points out the on-going administrative fee is lower for HA-
                                   owned and/or substantially controlled units because the HA
                                   is not responsible for many administrative functions such as
                                   oversight of the owner, approval of initial contract rents,
                                   approval of contract rent adjustments, owner briefings, and
                                   sanctions against owners. The fee for owned units will be
                                   three percent of the two-bedroom Existing Housing Fair
                                   Market Rents. This percentage is based on the fee HUD
                                   pays for private owner/HA units where HAs administer the
                                   Section 8 contracts for HUD. PIH Notice 98-27 also
                                   provides guidance for calculating the administrative fee and
                                   shows that the calculation is based on the administrative fee
                                   rates published in the Federal Register for the Federal
                                   Fiscal Years.

                                   The PCHA’s fiscal year ends December 31. For fiscal year
                                   ending December 31, 1998, PCHA calculated and received
                                   an administrative fee of $1,162,941. The PCHA based its
                                   calculation on the rate for non HA-owned units of $45.21 for
                                   the first 7,200 units and $42.19 for the remaining units.

                                   The PCHA did not use the reduced rate for calculating the
 PCHA used higher rates            administrative fee for units at Palm Lake Village and Crystal
 for substantially controlled
                                   Lakes Manor (HA-owned/substantially controlled units).
 units                             Also, the PCHA failed to claim the higher rates in effect for
                                   the months of October, November, and December (Federal
                                   Fiscal Year 1999). For Federal Fiscal Year 1998, the rate
                                   for HA-owned units was $18.08 per unit. For non HA-

                                               Page 9                           00-AT-202-1004
Finding 2


                     owned units, the rates were $45.21 for the first 7,200 units
                     and $42.19 for the remaining units. For Federal Fiscal Year
                     1999, the rates were $18.60, $47.44, and $43.41
                     respectively. Our calculation showed the PCHA would be
                     entitled to a fee of $1,019,107. The net effect of the errors
                     amounted to an excess administrative fee of $143,834.

                     The 1999 Section 8 program budget includes the HA-
                     owned/substantially controlled units at the higher rates.
                     Consequently, the PCHA continues to receive an excessive
                     monthly administrative fee based on the non HA-owned
                     rates.


                     PCHA officials contended they were entitled to the higher
 PCHA Comments       administrative fee because they maintained the waiting list,
                     did the leasing, and performed HQS inspection of the units
                     for the non-profit property. They said the responsibilities
                     were similar to their responsibilities with other private
                     Section 8 landlords.



 OIG Evaluation of   We contend PCHA has substantial control over the units at
 PCHA Comments       Palm Lake Village and Crystal Lakes Manor that receive
                     Section 8 assistance. The HUD Notice pints out the
                     administrative fee is lower for substantially controlled units
                     because the HA does not provide oversight of the owner,
                     approval of contract rents, approval of contract rent
                     adjustments, owner briefings, and sanctions against owners.



 Recommendations     We recommend you require PCHA to

                     2A.          Use the lower 3 percent fee for computing the
                               Section 8 administrative fee for Palm Lake Village
                               and Crystal Lakes Manor.

                     2B.       Recalculate the Section 8 fee earned since January 1,
                               1998, at the lower rate and reimburse HUD for the
                               excess amount received.




00-AT-202-1004       Page 10
                                                                                    Finding 3




   Procurement Activities Did Not Comply With
            Policies and Procedures
PCHA’s procurement of services and equipment did not comply with HUD policies and
procedures. PCHA used hybrid procurement methods, restricted competition in its solicitations,
improperly evaluated bids and proposals, and failed to properly maintain contract logs and files.
This occurred because PCHA’s local procurement policy did not include sufficient and detailed
guidance commensurate with HUD requirements. As a result, PCHA procured in a manner that
created the appearance of favoritism, lessened competition, and increased the likelihood of
protests and litigation. Competition on future procurements may be adversely affected if the
PCHA continues to conduct its procurement in such a manner.



                                     Procurement is one of the most important and, in many
 Procurement handbook                instances, most complex functions that a housing authority
 establishes procedures              must perform. Competition is the cornerstone of successful
                                     procurement. Housing authorities must vigorously seek,
                                     through the use of their policies and procedures, to maximize
                                     competition and minimize opportunities for favoritism and
                                     collusion. HUD prepared a Procurement Handbook for HAs
                                     (7460.8 REV-1), which is designed to be a complete
                                     reference document for any type of procurement method
                                     undertaken.

                                     Sealed bidding is the appropriate procurement method for
                                     construction contracts and supplies above the small purchase
                                     limitation. This method of procurement requires authorities
                                     to write specifications that describe the requirements
                                     clearly, accurately, and completely. The authority holds a
                                     public bid opening and bases the evaluation of bids and the
                                     award of the contract on the lowest responsive bid
                                     submitted.

                                     While sealed bidding is the preferred method for
                                     conventional construction contracting, HAs should use the
                                     competitive proposal method of procurement when small
                                     purchases and sealed bidding are not appropriate, such as
                                     when contracting for professional services.             The
                                     procurement file should indicate the reason for choosing the
                                     competitive proposal method over sealed bidding.



                                               Page 11                            00-AT-202-1004
Finding 3


                            Under the competitive proposal method, the HA issues a
                            request for proposals (RFP) soliciting price and technical
                            proposals from potential sources; evaluates the proposals;
                            establishes a competitive range; and negotiates with those in
                            the competitive range. The HA then receives and evaluates
                            best and final offers from those in the competitive range.
                            The HA awards the contract based on the most advantageous
                            proposal, considering price and the technical factors stated
                            in the RFP.

                            An alternate process called qualification-based selection
                            (QBS) is for architect-engineer contracts. The best firm is
                            selected on the basis of qualifications. Then, the HA
                            negotiates a fair and reasonable price with the best qualified
                            firm.

                            We reviewed six PCHA procurement actions and identified
 Five of six procurements   deficiencies with five. The Director, Office of Public
 exhibited deficiencies     Housing, Florida State Office, provided direct oversight and
                            guidance to PCHA for the only procurement action
                            performed correctly. The following table shows the results:

                                         Amount of
                            Contractor   Contract     Deficiencies Identified
                                 A       $68,160      Hybrid procurement method, RFP not
                                                      in file, all other proposals obtained
                                                      after PCHA selected contractor A,
                                                      appearance of pre-selection.
                                 B       $71,432      Hybrid        procurement       method,
                                                      proposals accepted via facsimile, no
                                                      date-time stamp, proposals opened
                                                      publicly and tabulated as if they were
                                                      bids.
                                 C       $92,356      Hybrid procurement method, prepared
                                                      RFP instead of invitation for bids,
                                                      negotiated bids after opening.
                                 D       $30,403      Invitation for bids specified brand
                                                      name and unnecessary specifications,
                                                      no evidence that PCHA disseminated
                                                      solicitation, only one bid received.
                                 E       $118,241     No deficiency: (Florida State Office
                                                      oversaw the procurement)
                                 F       $6,500,000   Hybrid procurement method, RFP not
                                         (budgeted)   in file, evaluation and basis for
                                                      selection not disclosed, did not
                                                      negotiate with competitive range,
                                                      appearance of favoritism.




00-AT-202-1004              Page 12
                                                                     Finding 3


                       PCHA developed hybrid procurement methods for four of
“Hybrid” procurement   six procurements. Most often, PCHA used combinations of
methods were used      various procurement methods for the same procurement
                       action (contractors A, B, C, and F). For example, PCHA
                       procured construction management services using elements
                       of QBS and competitive proposal methods (contractor F).
                       The contracting official explained the architectural firm
                       hired by PCHA to design the project conducted the
                       procurement. We concluded that because QBS is mandated
                       for selection of architects, it followed that the firm would
                       impose QBS methods.            Nonetheless, the competitive
                       proposal method was the correct method, not the hybrid
                       method used.

                       PCHA staff could not explain why they had used mixed
                       methods for the other procurement actions.

                       Some of the most common procurement improprieties that
                       limit or prevent obtaining maximum open and free
Solicitation needed    competition occur when HAs do not use formal advertising
improvement            and when HAs write specifications to restrict competition.
                       For example, using brand name purchase descriptions and
                       specifications tailored or restricted to favor a particular
                       supplier is improper. Four of the six procurements
                       reviewed were deficient as to bid solicitation (contractors
                       A, C, D, and F).

                          •       PCHA included a brand name, “Ford F150” and
                                  specifications that were unnecessarily unique and
                                  restrictive giving the appearance of limiting
                                  competition. Predictably, the PCHA received
                                  only one bid in response to the solicitation
                                  (contractor D).

                          •       In another sealed bidding procurement action,
                                  PCHA prepared the solicitation for bids as an
                                  RFP instead of an invitation for bids (contractor
                                  C).




                                  Page 13                          00-AT-202-1004
Finding 3



                                                  •        Solicitations for two procurements were not in
                                                           the contract files and could not be located.
                                                           (contractors A and F).1

                                             A fundamental public contracting principle is to evaluate
    Receipt and evaluation of                competing contractors only on the factors stated in the
    bids and proposals needed                solicitation. To award a contract based on factors not made
    improvement                              public risks losing industry’s confidence in the HA’s
                                             fairness. Housing authorities can only maintain public trust
                                             when they consistently evaluate all offers in accordance with
                                             the terms of the solicitation. PCHA did not properly receive
                                             and evaluate responses to solicitations for five of six
                                             procurements (contractors A, B, C, D and F). For example,
                                             PCHA:

                                                  •        Followed inconsistent and unclear evaluation
                                                           factors giving appearance of pre-selection and
                                                           favoritism (contractors A and F). PCHA staff
                                                           said they preferred the contractors based on
                                                           personal knowledge of their skills and character
                                                           of each contractor. Personal knowledge is
                                                           excluded from the initial technical evaluation.

                                                  •        Accepted several proposals via facsimile
                                                           machine and did not date-time stamp bids
                                                           (contractor B). Sealed bids must be stored
                                                           securely until the appointed bid opening. Each
                                                           bid must be date-time stamped in order to
                                                           document its eligibility for consideration.

                                                  •        Negotiated both the bid price and product
                                                           specifications after opening sealed bids
                                                           (contractor C). An important difference between
                                                           sealed bidding and competitive proposals is the
                                                           finality of initial offers. Under competitive
                                                           proposals, alterations in the nature of a proposal
                                                           and in prices may be made after proposals are
                                                           opened; such changes are not allowed in sealed
                                                           bidding.     The contracting official believed
                                                           negotiations after bid opening were acceptable.




1
    PCHA obtained a draft copy of one solicitation from its architectural firm. The solicitation was not signed or
    dated and it had blank spaces for key information. It was not a copy of the actual solicitation.

00-AT-202-1004                               Page 14
                                                                             Finding 3


                            PCHA staff prepared contract registers for calendar years
Contract register was       1997 and 1998; however, these registers were incomplete.
incomplete                  No register existed for calendar year 1999. In addition, the
                            registers listed contracts that were not approved by the
                            Board of Commissioners according to the minutes.
                            Likewise the minutes revealed approved contracts that were
                            not listed in the registers. HUD requires HAs to have a
                            management information system for procurement, which may
                            be as simple as an automated procurement log or register.
                            However, PCHA’s policy had no such requirement. The ED
                            said PCHA would begin maintaining a complete contract
                            register.

                            Well-organized, accurate, and complete procurement files
Contract file maintenance   provide a historical record of procurement activity, and are
was inadequate              required of all HAs (24 CFR 85.36(b)(7)). PCHA did not
                            maintain organized contract files that provided a complete
                            record of its procurements. Contract files lacked key
                            documentation such as the solicitation, evidence of its
                            dissemination, and/or responses to the solicitation. The
                            contracting official accepted responsibility and conducted
                            most of the contracting function with minimal assistance
                            from others. Maintenance of the procurement file was not a
                            priority. PCHA staff acknowledged that contract file
                            organization and documentation needed improvement. The
                            ED recognized the need for a contract administrator and was
                            planning to hire a new staff member whose duties would
                            include contract administration.

                            The deficiencies occurred primarily because PCHA’s local
                            procurement policy did not include sufficient and detailed
                            guidance to ensure compliance with HUD’s requirements.
                            Consequently, the PCHA obtained services and equipment in
                            a manner that created an environment conducive to fraud,
                            waste, and abuse. Although we did not detect such
                            occurrences, the PCHA’s procurement activities cannot
                            continue to rely solely on integrity of its staff. PCHA’s faulty
                            procurement methods also increased the likelihood of
                            protests and litigation, created the appearance of favoritism,
                            and lessened competition. Such methods do not instill
                            public trust and confidence. Procurement controls must
                            therefore be improved. The Executive Director agreed the
                            HA’s policy was poor and indicated her commitment to
                            revise it.




                                        Page 15                             00-AT-202-1004
Finding 3


                     PCHA officials substantially agreed with this finding. They
 PCHA Comments       said a Modernization Coordinator has been hired and a
                     construction log is now maintained. They also said the
                     procurement policy is being revised.


                     PCHA’s comments and actions are responsive to the finding.
 OIG Evaluation of   If timely and adequately implemented, the actions should
 PCHA Comments       correct the deficiencies discussed in the finding.




 Recommendations     We recommend that you follow up to assure PCHA:

                     3A.          Revises the procurement policy and submits it to
                               your office for review and approval.

                     3B.       Implements the new policy and complies with HUD
                               procurement policies and procedures.




00-AT-202-1004       Page 16
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit objectives. We considered PCHA’s management control systems to
determine our auditing procedures and not to provide assurance on management controls.
Management is responsible for establishing effective management controls. Management controls
include the organization plan, methods, and procedures adopted to ensure that 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 the following management controls were
 Relevant Management
                                    relevant to our audit objectives:
 Controls
                                       -    Section 23 leased housing close out procedures
                                       -    Section 8 administrative fee reserves
                                       -    Procurement and contracting
                                       -    Cost allocation

                                    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.

                                    Our review identified weaknesses in PCHA’s administration
 Significant Weaknesses             of its programs. These weaknesses included improper use
                                    of program funds, incorrect calculations of Section 8
                                    administrative fees, and not following procurement policies
                                    and procedures. These weaknesses are discussed in the
                                    Findings section of this report.




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Management Controls




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00-AT-202-1004                 Page 18
Follow-Up On Prior Audits
We reviewed PCHA’s audited financial statements for the year ending December 31, 1997. A
public accounting firm conducted the audit. The report contained no findings.




                                           Page 19                        00-AT-202-1004
Follow-Up On Prior Audits




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00-AT-202-1004                 Page 20
                                                                                             Appendix A


Schedule Of Ineligible and Unsupported Costs


        Recommendation                      Ineligible2                Unsupported3

        1A                                                             $ 1,336,225
        2B                                  $ 143,834
        Totals                              $ 143,834                  $ 1,336,225




2
    Ineligible amounts obviously violate law, HUD or local agency policies or regulations.
3
    Unsupported amounts do not obviously violate, law, contract, policy or regulation, but warrant
    being contested for various reasons such as the lack of satisfactory documentation to support
    eligibility and HUD approval.

                                                 Page 21                                     00-AT-202-1004
Schedule Of Ineligible and Unsupported Costs




                       (THIS PAGE LEFT BLANK INTENTIONALLY)




00-AT-202-1004                     Page 22
                             Appendix B


Auditee Comments




                   Page 23   00-AT-202-1004
Auditee Comments




00-AT-202-1004     Page 24
          Auditee Comments




Page 25         00-AT-202-1004
Auditee Comments




00-AT-202-1004     Page 26
                                                                                Appendix C


Distribution
Executive Director, Pinellas County Housing Authority, Clearwater, Florida
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




                                             Page 27                             00-AT-202-1004
Distribution




Deputy Chief Financial Officer for Finance, FF (Room 2202) (2)
Director, Office of Budget, FO (Room 3270)
Secretary's Representative, 4AS
State Coordinator, Florida State Office, 4DS
Director, Office of Public Housing, 4DPH
Senior Community Builder, Tampa Area Office, 4OS
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




00-AT-202-1004                     Page 28
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