oversight

the HA of the City of Meridian, Audit of the Grant Programs, Meridian, MS

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-01-03.

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

                                                                         Issue Date
                                                                                 January 3, 2000

                                                                         Audit Case Number
                                                                                 00-AT-204-1002




TO:                George C. Smith, Director, Office of Public Housing, 4GPH


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


SUBJECT:           The Housing Authority of the City of Meridian
                   Audit of the Grant Programs
                   Meridian, Mississippi

We completed an audit of the Housing Authority of the City of Meridian. Our audit objective was to
determine whether the Authority administered its grants in accordance with the Department of Housing
and Urban Development (HUD) requirements.

We focused our audit to evaluate the Authority’s controls and procedures over its administration of its
grants awarded for fiscal years 1994 through 1997. We also performed a limited review of the
Authority’s procurement activities. This report presents three findings that detail the Authority’s need to
improve in these areas. Also, the findings show the Authority has taken proactive steps toward
correcting the cited deficiencies.

Within 60 days, please give us a status report for each recommendation in the report on: (1) 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 Housing
Authority of the City of Meridian.
Management Memorandum
Management Memorandum




                   (THIS PAGE LEFT BLANK INTENTIONALLY)




00-AT-204-1002                 Page iii
Executive Summary
We completed an audit of the Housing Authority of the City of Meridian. Our audit objective was to
determine if the Authority complied with HUD’s requirements in its administration of HUD grant
programs.

Our review disclosed significant weaknesses in the Authority’s ability to support the eligibility of its grant
activities and its procedures relating to contracting and procurement. Specifically, the audit disclosed:

        •   The Housing Authority of the City of Meridian spent $228,877 of Public Housing Drug
            Elimination Program (PHDEP) grant funds on drug prevention activities that were
            unsupported. This occurred because the former Executive Director disregarded HUD’s
            rules and regulations regarding the use of PHDEP grant funds. In addition, the Authority did
            not require vendors to provide the necessary documentation to support invoice payments.
            As a result, we were unable to determine the level of resident participation, or the benefits
            received by the Authority residents.

        •   The Authority spent $110,225 on ineligible and unsupported activities related to its After
            School Youth Development Program. This occurred because the former Executive
            Director disregarded HUD’s eligibility requirements for the PHDEP grants. He believed
            that the PHDEP funds should be used to serve the entire low-income community, both
            public housing and non-public housing residents. As a result, the Authority did not properly
            serve the targeted residents.

        •   The Authority did not procure contracts in accordance with HUD’s requirements or
            perform adequate contract oversight and monitoring. Deficiencies disclosed during our
            review of 20 contracts identified: (1) inadequate contract administration; (2) improper
            solicitation and awarding of contracts; (3) inadequate procurement records; and (4)
            inappropriate contract terms. This occurred because the Authority did not have a
            centralized procurement function and did not always follow the procurement requirements.
            As a result, the Authority had no assurance that they were receiving the necessary services
            to accomplish program objectives.

We presented our findings to the Authority and HUD’s Mississippi State Office officials during the
course of the audit. We held an exit conference on November 23, 1999. The Authority generally
agreed with the findings in this report.

The Authority provided written comments on November 19, 1999. HUD’s Mississippi State Office of
Public Housing provided written comments and suggested recommendations to each of the three
findings. We considered the comments and suggested recommendations in finalizing the report. The
Authority’s comments are summarized within each finding and included in their entirety as Appendix C.




                                                            Page v                             00-AT-204-1002
Executive Summary



We recommend HUD require the Authority to: repay HUD for all ineligible costs; provide proper
supporting documentation for unsupported costs; and implement procurement policies and procedures
to ensure proper contract administration, contract execution, and effective monitoring.




00-AT-204-1002                     Page vi
Table of Contents

Management Memorandum                                                     i


Executive Summary                                                      iii


Introduction                                                              1


Findings

1    The Authority Improperly Charged Grant Funds for
     Expenditures That Were not Adequately Supported                  3


2    The Authority Improperly Spent Grant Funds on its After
     School Youth Development Program                                         9


3    Controls Over Procurement Needed Improvement                         15



Management Controls                                                    21


Follow Up On Prior Audits                                              23

Appendices
     A Schedule of Ineligible and Unsupported Costs               25

     B Summary of Procurement and Contract Administration
       Deficiencies                                              27

     C Audit Comments                                             29




                                       Page vii                00-AT-204-1002
Table of Contents



        D Distribution                                                 37

Abbreviations:

CFR              Code of Federal Regulations
EMC              East Mississippi Center for Educational Development
HUD              Department of Housing and Urban Development
OIG              Office of Inspector General
PHDEP            Public Housing Drug Elimination Program




00-AT-204-1002                        Page viii
Introduction
The Housing Authority of the City of Meridian is a public corporation organized under the laws of the
State of Mississippi. Its primary mission is to provide low-income housing for qualified individuals.

The Authority is governed by a five member Board of Commissioners whose members are nominated
by the Mayor of Meridian and approved by the Meridian City Council. The Board is responsible for
setting Authority policy, approving an annual operating budget, and hiring an Executive Director. During
our review, the Executive Director was terminated and the Chairperson of the Board of Commissioners,
Dr. Judith H. Miller, was serving as acting Executive Director.

HUD’s Mississippi State Office in Jackson, Mississippi, has the responsibility for overseeing the
Authority.

The Authority maintains its records at 2425 E. Street, Meridian, Mississippi. The Authority owns and
manages 17 public housing developments, consisting of 1,297 units. In addition, the Authority
administers two New Construction and two Substantial Rehabilitation Section 8 properties.




                                       Our audit objective was to determine if the Authority
 Audit Objectives, Scope
                                       administered its grant programs in compliance with HUD
 and Methodology
                                       requirements.

                                       To accomplish the objective, we tested for compliance with
                                       program requirements. We interviewed Mississippi State
                                       Office of Public Housing program officials, current and former
                                       Authority staff, and contractors. Specifically, we reviewed the
                                       controls and procedures over the administration of the grants
                                       awarded for fiscal years 1994 through 1997; reviewed grant
                                       applications, grant agreements, financial records and reports;
                                       and reviewed monitoring reviews conducted by HUD’s
                                       Mississippi State Office. To test for the eligibility and proper
                                       support for the Authority’s expenditures, we judgmentally
                                       selected transactions from the Authority’s financial records;
                                       performed a limited review of the procurement activities
                                       focusing on the award and contract administration phases; and
                                       reviewed 20 contracts from the Authority’s contract register as
                                       of August 1999.




                                                         Page 1                           00-AT-204-1002
Introduction


                     Our audit primarily covered the period of October 1994
                     through April 1999. We extended the period as necessary. We
                     performed on-site work from July through September 1999.
                     We conducted our audit in accordance with generally accepted
                     government auditing standards.




00-AT-204-1002   Page 2
                                                                                          Finding 1


The Authority Improperly Charged Grant
Funds for Expenditures That Were Not
Adequately Supported
The Authority spent $228,877 of PHDEP grant funds on drug prevention activities that were
unsupported. This occurred because the former Executive Director disregarded HUD’s rules and
regulations regarding the use of PHDEP grant funds. In addition, the Authority did not require vendors
to provide the necessary documentation to support invoice payments. As a result, we were unable to
determine the level of Authority resident participation or benefits received by Authority residents.



                                       Title 24 Code of Federal Regulations (CFR), part 961.1 and
 Criteria
                                       part 761.1 state the purpose and scope for the Public Housing
                                       Drug Elimination Program is to eliminate drug-related crime and
                                       the problems associated with it in and around the premises of
                                       public and Indian housing developments. Title 24 CFR 961.26
                                       (b) and 761.30 (b) further state that terms of the grant
                                       agreement may not exceed 24 months, unless an extension is
                                       approved by the local Field Office. The maximum extension
                                       allowable for any grant is 6 months. In addition, Title 24 CFR
                                       85.36 (b) (2) requires the Authority to maintain a contract
                                       administration system which ensures that contractors perform in
                                       accordance with the terms, conditions, and specifications of
                                       their contracts.

                                       According to the 1996 PHDEP Notice of Funds Availability,
                                       PHDEP funds may be used for drug prevention programs
                                       designed to reduce the use and distribution of illegal drugs in or
                                       around the premises of the housing authorities. The Notice
                                       further states that the goals of the drug prevention program are
                                       best served by focusing resources directly upon Housing
                                       Authority resident/families.

                                       Office of Management and Budget Circulars A-87, Cost
                                       Principles for State, Local, and Indian Tribal Governments,
                                       provides that costs should be reasonable, necessary, and
                                       adequately supported. These circulars provide that personnel
                                       costs must be supported by payroll documentation approved by
                                       a responsible official. Where the employee works multiple


                                                         Page 3                           00-AT-204-1002
Finding 1


                                activities, the salary distribution must be supported by personnel
                                activity reports signed by the employee.

                                HUD Procurement Handbook for Public and Indian Housing
                                Authorities, 7460.8, Paragraph 4-33 (c) states that for
                                competitive proposal contracts the Authority will request the
                                offerors to submit cost breakdowns. The Authority will be
                                required to perform a cost analysis in order to determine the
                                reasonableness of costs.

                                Public Housing Drug Elimination Program grants are awarded
 Background
                                for 2 year periods. The Authority received grant awards for
                                1994 through 1997. The Mississippi State Office and HUD
                                Headquarters granted extensions for all of the grants except
                                1997. This resulted in the 1994, 1995, and 1996 grants
                                running concurrently. The 1994 grant closed in June of 1998,
                                the 1995 grant closed May 1999, and the 1996 grant was due
                                to terminate in March of 2000.

                                A review of PHDEP transactions disclosed that the Authority
 Unsupported expenditures
                                did not support grant funds for the following items:

                                     Description                                  Unsupported
                                     Boys & Girls Club of Meridian                   $106,500
                                     Meridian Police Department                        51,000
                                     East Mississippi Center for                       22,792
                                       Educational Development (EMC)
                                     Salaries                                         29,471
                                     Rent/Phone                                       18,992
                                     K-Mart                                              122
                                     Total                                          $228,877

                                The Authority used PHDEP grant funds to pay salaries and
                                other expenses of the providers it entered into agreements with
                                to provide drug prevention activities for its residents. It did not
                                obtain payroll and employee activity reports, activity rosters, or
                                participant sign-in sheets to support payments to these drug
                                prevention providers. In some cases, it paid invoices without
                                time sheets or dates in which a particular service was rendered.
                                Examples of some of the unsupported expenditures from our
                                sample included:




00-AT-204-1002              Page 4
                                               Finding 1


Boys and Girls Club of Meridian

In 1988, the Authority contracted with the Boys and Girls
Club of Meridian to implement and operate a Boys and
Girls Club program at one of the public housing sites. We
determined that the Boys and Girls Club made no
distinction between public housing residents and other
community residents when invoicing the Authority. The
Director of the Boys and Girls Club said that although a
majority of their kids come from public housing, a small
portion also comes from the surrounding community. He
said that it was his understanding that the public housing
youth received priority. He further stated that they did not
have a system in place to track what funds were spent on
public housing youth versus the youth outside of public
housing.

The Director also stated that his staff was told by Authority
officials that they were not employees of the Authority, and
therefore did not need to submit time sheets, activity
reports, or sign-in sheets with their invoices. The Boys and
Girls Club submitted invoices to the Authority monthly for
services rendered, staffing, supplies, and equipment. As a
result, $106,500 of PHDEP grant funds were expended
inappropriately and without the necessary supporting
documentation.

Meridian Police Department

The City of Meridian provided security liaisons on a
monthly basis to patrol the public housing sites. The City
did not provide the Authority with incident reports, crime
statistics, or weekly and monthly reports, as set forth in its
contract. During our review we identified instances in which
invoice payments were withheld from the City of Meridian
until documentation was received. Overall, the Authority
expended $51,000 of PHDEP grant funds to pay the City
of Meridian for security services without receiving adequate
supporting documentation.




              Page 5                           00-AT-204-1002
Finding 1


                          Salaries

                          During our review, we identified unsupported salary
                          payments totaling $19,615 in which the Authority did not
                          maintain time sheets to support prorated salaries and fringe
                          benefits of some of the housing operations staff. Based on
                          documentation provided, neither the Secretary nor the
                          Director of Housing Operations maintained time sheets or
                          activity reports to support the amount of time spent on drug
                          elimination activities during the period of July 1997 through
                          April 1998. Additionally, the authority transferred salary
                          costs of $9,856 from the 1995 PHDEP grant to the 1996
                          PHDEP grant. The journal voucher did not provide
                          reasonable justification for the transfer or the activities
                          performed for the PHDEP grant. As a result of these
                          transactions, $29,471 PHDEP funds were charged
                          improperly.

                          East Mississippi Center for Educational Development
                          (EMC)

                          The Authority contracted with EMC for six teachers to
                          provide instruction at the Learning Well Centers. EMC
                          billed the Authority on a monthly basis documenting sites
                          and dates in which its teachers provided instruction to
                          housing residents. The EMC did not submit the quarterly
                          attendance and participation reports, or the reports for each
                          participant containing daily comments and suggestions as
                          specified in the contract. Consequently, the Authority spent
                          $22,792 of PHDEP grant funds to pay EMC without
                          receiving any reports, time sheets, or other pertinent
                          documentation about the program.

                                                    ******

                          The Authority employees stated that the former Executive
                          Director required them to pay invoices and other
                          expenditures   regardless    of    whether    supporting
                          documentation was provided. As a result, the Authority
                          paid $228,877 for activities that were not adequately
                          supported.



00-AT-204-1002   Page 6
                                                                       Finding 1


                    Excerpts from the Housing Authority of the City of Meridian’s
                    comments on our draft findings follow. Appendix C contains
                    the complete text of the comments.


                    The Authority generally agreed with the finding. However, it is
Auditee Comments
                    the Authority’s opinion that it was unfair to characterize the
                    entire $106,500 as unsupported since the primary activities of
                    the Boys and Girls Club took place on Housing Authority’s
                    property and a majority of the children participating were public
                    housing residents.

                    Also, the Authority believes it was unfair to characterize the
                    entire $51,000 as unsupported for the Meridian Police
                    Department, since many of the reports had been received by
                    the Authority. In fact, far more than a majority of the reports
                    had been received since 1997 although some were not timely
                    submitted.

                    Regarding the salaries, a budget revision was requested to
                    reflect an allocation of the time spent by the Director of Housing
                    Operations and the Secretary on PHDEP activities. The budget
                    amendment was approved by HUD.



                    The unsupported payments totaling $106,500 and $51,000
OIG Evaluation of
                    respectively, were based on a sample of invoices selected for
Auditee Comments    review. The invoices were not adequately supported, therefore
                    the amounts were considered unsupported.

                    Although, the Authority obtained approval from HUD to
                    allocate staff salaries to the PHDEP grants, proper
                    documentation was not maintained by the staff to support the
                    allocation of staff time.



Recommendations     We recommend that you require the Authority to:

                    1A. Provide proper supporting documentation or repay the
                        $228,877 of unsupported costs.




                                      Page 7                           00-AT-204-1002
Finding 1


                     1B.   Implement its procurement policies and procedures for
                           contract administration to ensure proper oversight and
                           effective   monitoring      of    service    providers.




00-AT-204-1002   Page 8
                                       Finding 1




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                      Page 9           00-AT-204-1002
                                                                                          Finding 2


 The Authority Improperly Spent Grant Funds on
  its After School Youth Development Program
The Authority spent $110,225 on ineligible and unsupported activities related to its After School Youth
Development Program. This occurred because the former Executive Director disregarded HUD’s
eligibility requirements for the PHDEP grants. He believed that PHDEP funds should be used to serve
the entire low-income community, both public housing and non-public housing residents. As a result,
Authority did not properly serve the targeted residents.



                                       Title 24 CFR, part 761.1 states that one of the purposes of the
 Criteria
                                       PHDEP is to eliminate drug-related crime and problems
                                       associated with it in and around the premises of Federally
                                       assisted low-income housing, and public and Indian housing
                                       developments. In and around is defined as within, or adjacent
                                       to, the physical boundaries of a housing development.

                                       According to the 1996 PHDEP Notice of Funds Availability,
                                       PHDEP funds may be used for drug prevention programs
                                       designed to reduce the use and distribution of illegal drugs in or
                                       around the premises of the housing authorities. The Notice
                                       further states that the goals of the drug prevention program are
                                       best served by focusing resources directly upon Housing
                                       Authority resident/families.
                                       Office of Management and Budget Circulars A-87 provides
                                       that costs should be reasonable, necessary, and adequately
                                       supported. These circulars provide that personnel costs must
                                       be supported by payroll documentation approved by a
                                       responsible official. Where the employee works multiple
                                       activities, the salary distribution must be supported by personnel
                                       activity reports signed by the employee.


                                       The Authority implemented an After School Youth
 Background                            Development Program in 1997. The Authority entered into a
                                       Memorandum of Agreement with the Meridian Public School
                                       System to carry out the After School Program. In this
                                       agreement, the Meridian Public School System agreed to
                                       provide at no cost to the Authority the use of public school
                                       facilities. The Meridian Public School System also agreed to
                                       provide building utilities, maintenance and custodial services.

                                                       Page 11                            00-AT-204-1002
Finding 2


                              School administrators, instructors, transportation staff,
                              secretaries, and program evaluators were selected by the
                              Meridian Public School System to participate in the After
                              School Program. Since the After School Program was not
                              going to be located within the physical boundaries of the
                              housing developments, the Meridian Public School System also
                              agreed to provide buses for transporting students to and from
                              the After School Program.

                              The Authority agreed to purchase equipment, materials, and
                              supplies for the After School Program. Also, the Authority
                              agreed to reimburse the Meridian Public School System for the
                              mileage and transportation expense of the buses.

                              The Authority entered into individual contracts with the staff that
                              the Meridian Public Schools selected to participate in the After
                              School Program. The After School Program began in March
                              1997 and continued through the 1997-1998 and 1998-1999
                              school years.

                              Using PHDEP grant funds, the Authority funded the majority of
                              the costs for the After School Youth Development Program
                              held at the Meridian Public Schools. The After School Youth
                              Development Program served both public housing and non-
                              public housing students.

                              A review of 24 transactions disclosed the Authority
                              inappropriately expended or did not support grant funds for the
                              following items:

                                                                     Ineligible    Unsupported
                 Description                                           Costs         Costs
                 Kate Griffin Junior High School (Supplies)            $    97
                 K-Mart Stores (Supplies)                                  437
                 Meridian Public School                                    615       $ 65,805
                 Jitney Jungle (After School Snacks)                       630
                 Carver Middle School                                    1,418
                 Harris Elementary School Payroll 3/17 - 5/15/97         6,134
                 Carver Middle School Payroll 3/17 - 5/15/97             9,898
                 Carver Middle School Payroll 6/97 - 7/21/97            16,626          8,565
                 TOTALS                                              $ 35,855       $ 74,370




00-AT-204-1002           Page 12
                                                                    Finding 2


                   During a 1997 review by the Mississippi State Office, it was
Ineligible costs   determined that both public housing and non-public housing
                   students were being served at the After School Program. In an
                   April 17, 1998, memo to the Authority, the Mississippi State
                   Office expressed concerns regarding the eligibility of the non-
                   public housing students. As a result, PHDEP funds were frozen
                   and the After School Program was suspended while the matter
                   was under review by the Mississippi State Office.

                   The Mississippi State Office required the Authority to provide
                   cost justification for the After School Program. The Authority
                   was required to provide documentation regarding the number of
                   public housing students participating in the After School
                   Program at each school. Based on documentation provided in a
                   1996 PHDEP budget revision, it was determined that only 34
                   percent of the students attending the After School Program at
                   Carver Middle School were public housing students. Twenty-
                   nine percent of the students attending the After School Program
                   at Harris Elementary School were public housing students.
                   Sixty-six percent of the students attending the After School
                   Program at Kate Griffin Junior High were public housing
                   students. In total, public housing students accounted for only
                   41 percent of the students participating in the After School
                   Programs.

                   Since 59 percent of non-public housing students participated in
                   the After School Program, we determined that only costs that
                   could be attributable to public housing students were eligible
                   expenditures. Therefore, 66 percent of the $42,337 disbursed
                   on supplies and payroll for the After School Program at the
                   Carver Middle School were ineligible. Seventy-one percent of
                   the $8,640 expended on payroll costs for the After School
                   Program at Harris Elementary School were ineligible. Thirty-
                   four percent of the $285 spent on supplies for the After School
                   Program at Kate Griffin Junior High were ineligible. We also
                   determined that snacks, supplies and transportation were
                   provided for non-public housing students. These costs are also
                   considered ineligible. Therefore, the Authority spent a total of
                   $35,855 in PHDEP funds for ineligible activities.




                                    Page 13                         00-AT-204-1002
Finding 2


                         The Authority paid the salaries of the Meridian Public School
 Unsupported costs       System staff that participated in the After School Program. The
                         contracts required the staff to submit time sheets weekly to the
                         Authority for review and approval showing days and hours
                         worked. Our review of the payroll for the Carver Middle
                         School staff for the Summer Enrichment Program held during
                         the period of June through July 1997, disclosed that time sheets
                         were not submitted. Also, sign-in sheets of the participants in
                         the After School Program were not maintained by the schools.
                         As a result, $8,565 of the payroll for this period was
                         unsupported.

                         In 1998, the Authority and the Meridian Public School System
                         entered into a new Memorandum of Agreement in which the
                         Authority agreed to pay $615 per public housing student
                         participating in the After School Program. We reviewed three
                         invoices paid under the new agreement. We found two invoices
                         that did not have the sign in sheets or attendance sheets
                         required for payment. These two invoices totaling $65,805
                         were unsupported.

                         Excerpts from the Housing Authority of the City of Meridian’s
                         comments on our draft findings follow. Appendix C contains
                         the complete text of the comments.


                         The Authority generally agreed with the finding. A number of
 Auditee Comments        sign-in sheets have been found since the audit was completed.
                         Discrepancies noted in this finding have been corrected. The
                         staff was instructed that under no circumstances should
                         payments be made without substantiating documents.



                         We believe the Authority’s actions will strengthen controls over
 OIG Evaluation of
                         the After School Program.
 Auditee Comments




00-AT-204-1002       Page 14
                                                                    Finding 2



                  We recommend that you require the Authority to:
Recommendations

                  2A. Repay HUD from non-federal funds for the ineligible
                      expenses of $35,855.

                  2B.   Provide proper supporting documentation or repay the
                        $74,370 of unsupported costs.




                                  Page 15                           00-AT-204-1002
Finding 2




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00-AT-204-1002          Page 16
                                                                                         Finding 3


              Controls Over Procurement Needed
                        Improvement
The Authority did not procure contracts in accordance with HUD’s requirements or perform adequate
contract oversight and monitoring. Deficiencies disclosed during our review of 20 contracts included:
(1) inadequate contract administration; (2) improper solicitation and awarding of contracts; (3)
inadequate procurement records; and (4) inappropriate contract terms. This occurred because the
Authority did not have a centralized procurement function and did not always follow all procurement
requirements. As a result, the Authority had no assurances that they were receiving the necessary
services to accomplish program objectives.



                                      Title 24 CFR, Part 85.20 (2) and (6) require that grantees
 Criteria
                                      maintain records which adequately identify expenditures and
                                      maintain accounting records supported by source
                                      documentation. Title 24 CFR 85.36 (b) (2) requires the
                                      Authority to maintain a contract administration system which
                                      ensures that contractors perform in accordance with the terms,
                                      conditions, and specifications of their contracts; Section (b) (9)
                                      requires that grantees maintain records sufficient to detail the
                                      significant history of each procurement; Section (c) (1) requires
                                      all procurement transactions be conducted in a manner
                                      providing full and open competition; and Section (f) requires the
                                      Authority to perform a cost or price analysis in connection with
                                      every procurement action including modifications regardless of
                                      the procurement method used.

                                      HUD Procurement Handbook 7460.8, Paragraph 11-1 (A) (1)
                                      states that contracts for services whose initial period exceeds 2
                                      years, and any option, extension, or renewal of a contract for
                                      services which make the total length of the contracts, as
                                      modified, exceed 2 years require prior HUD approval.


                                      Prior reviews by the HUD Mississippi State Office showed a
 Background
                                      history of problems in the Authority’s procurement function.
                                      The Mississippi State Office’s April 1998 review of the
                                      Authority’s grant programs noted procurement deficiencies such
                                      as inadequate procurement records, solicitation deficiencies,
                                      and inadequate contract administration. Prior reviews of the


                                                      Page 17                            00-AT-204-1002
Finding 3


                           Authority’s modernization programs also disclosed similar
                           deficiencies.

                           During our review, we determined that the Authority did not
                           have a centralized procurement function. Some of the
                           Authority’s procurement actions were managed by the
                           Procurement Administrator, while the Maintenance and
                           Modernization Departments managed its procurement actions
                           separately. All three groups handled its procurement actions
                           differently. This resulted in a lack of consistency in the
                           application of HUD’s procurement requirements.


                           The Authority failed to perform adequate contract oversight or
 Inadequate contract
                           monitoring. The Authority did not monitor or assess the
 administration
                           performance of its contractors. As a result, the Authority did
                           not have the necessary information to evaluate the effectiveness
                           of its grant programs.

                           The Authority did not obtain proper supporting documentation
                           before paying contractors. The drug prevention providers did
                           not provide time sheets, sign-in sheets, activity reports or other
                           documentation as stated in their respective contracts.
                           Also, the Authority did not require that the contractor perform
                           in accordance with the terms, conditions, and specifications of
                           their contracts. For example:


                                 •   In the City of Meridian contract for security liaison
                                     services, the security liaison officer was required to
                                     submit weekly crime statistic reports to the Authority.
                                     Our review of the contract files and discussions with
                                     Authority staff, disclosed that the security liaison officer
                                     did not provide a weekly report as required in the
                                     agreement. Monthly reports were provided for some
                                     months. The Authority withheld payments for 7 months
                                     after the security liaison officer failed to provide monthly
                                     reports or perform in accordance with the contract
                                     terms.


                                 •   The East Mississippi Center for Educational
                                     Development contract provided that EMC would
                                     submit attendance and participation reports to the

00-AT-204-1002         Page 18
                                                                               Finding 3


                                    Authority. The Authority paid the EMC invoices
                                    without receiving the attendance and participation
                                    reports.


                            A review of the Boys and Girls Club contract disclosed several
                            deficiencies. The Authority entered in a contract with the Boys
                            and Girls Club of Meridian to provide cultural and enrichment
                            activities for the residents. The original contract was procured
                            using Authority operating funds. Although the contract expired
                            in 1989, the Authority continued to pay the Boys and Girls
                            Club. After realizing in 1994 that the original contract had
                            expired, the Authority executed an amendment nearly 5 years
                            after the contract had expired. Also, the Authority paid the
                            Boys and Girls Club from PHDEP grant funds for drug
                            prevention activities without entering into a contract. During our
                            review of invoices, we observed that the Authority was billed
                            for two invoices each month. One invoice was paid from the
                            Operating Budget and the other was paid from PHDEP funds.


                            The Authority did not properly solicit the contracts procured
Improper solicitation and
                            with the teachers, assistants, principals, and other Meridian
awarding of contracts
                            Public School System personnel hired to work at the After
                            School Program. Instead of publicly advertising the positions,
                            the Authority allowed the school system to select the staff to
                            participate in the Authority’s After School Program. As a result,
                            the Authority incorrectly obtained professional services through
                            non-competitive procurement without prior HUD approval.

                            The Authority did not maintain complete and proper
Inadequate procurement
                            documentation in their procurement files. The contract files did
records
                            not contain supporting documentation to show that the
                            Authority made an independent cost estimate or performed a
                            cost or price analysis for 3 of the 20 contracts reviewed. (See
                            Appendix B for deficiencies).




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Finding 3


                               Our review of the contracts disclosed that the Authority
 Improper contract terms
                               executed contracts with vague contract terms. The contracts
                               did not state specific dates for the contract period. For
                               example, a contract with BCP Inc. showed the following
                               contract period as: “June 21, 1999, and continuing through
                               the submission period for fiscal year 1995 and fiscal year
                               1996 PHDEP’s close out reports, provided funds are
                               available.”

                               Also, we determined that Authority executed contracts for
                               professional and legal services in which the agreement exceeded
                               2 years in length without HUD prior approval. The Cooke
                               Communications & Design contract was executed with a 3 year
                               contract period. The Authority did not obtain HUD’s approval
                               prior to executing the contract. According to the HUD
                               Procurement Handbook, contracts for services whose initial
                               period exceeds 2 years require prior HUD approval. Our
                               review of the Authority’s contract register and other Authority
                               correspondence disclosed that seven other contracts had been
                               improperly executed without prior HUD’s approval.


                               Excerpts from the Housing Authority of the City of Meridian ‘s
                               comments on our draft findings follow. Appendix C contains
                               the complete text of the comments.


                               The Authority generally agreed with the finding. During the
 Auditee Comments              November 19, 1999 Board of Commissioners’ meeting, the
                               Commissioners considered adopting a procurement policy that
                               has been written to conform to 24 CFR 85.36 and HUD
                               Handbook 7460.8



                               The Authority is in the process of implementing steps toward
 OIG Evaluation of
                               correcting its procurement deficiencies. We believe these
 Auditee Comments              actions will bring about significant improvements in its
                               procurement function.




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                                                                    Finding 3




                  We recommend that you require the Authority to:
Recommendations
                  3A. Establish a centralized procurement function.

                  3B. Implement its procurement policies and procedures to
                      ensure proper contract administration, contract execution,
                      and effective monitoring.

                  3C. Provide procurement training to appropriate personnel
                      that covers contract administration, contract solicitations,
                      cost estimates, price analysis and file documentation.




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Finding 3




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00-AT-204-1002          Page 22
Management Controls
In planning and performing our audit, we considered the Authority’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 the following management controls were relevant to our audit objectives:

                Eligibility of grant activities

                Procurement and contracting

We assessed controls in place. We obtained an understanding of the Authority’s procedures and
HUD’s requirements, assessed control risk, land 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 the Authority had significant weaknesses in the management
controls we tested. The specific weaknesses are discussed in the findings.




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Management Controls




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00-AT-204-1002               Page 24
Follow Up On Prior Audits
This was the first Office of Inspector General audit of the Authority‘s grant activities.

The last Independent Auditor’s audit report was completed by Moody & Morgan, Certified Public
Accountants, for the fiscal year ending March 31, 1998. The report issued June 19, 1998, contained a
finding which impacted the objectives of this audit. Finding 98-2 related to unallowable costs charged
to the Youth Sports Grant Program. The costs were deemed unallowable due to the fact the services
provided did not primarily serve the youth from public housing. This issue was resolved at the time of
our review.

Similar issues relating to ineligible charges to grants are reported in the findings section of this report.




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00-AT-204-1002                Page 26
                                                                                        Appendix A


Schedule Of Ineligible and Unsupported Costs

     Recommendations                           Ineligible                        Unsupported

              1A                                                                   $ 228,877

              2A                               $ 35,855

              2B                                                                   $ 74,370

                             Totals            $ 35,855                            $ 303,247




 Ineligible costs are not allowable by law, contract, or Federal, State, or local policies or regulations.

 Unsupported costs are being contested for reasons such as lack of satisfactory documentation.




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Schedule Of Ineligible and Unsupported Costs




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00-AT-204-1002                   Page 28
                                                                                                       Appendix B


Summary of Procurement and Contract
Administration Deficiencies
                                                         CONTRACT               CONTRACT
 VENDOR/ CONTRACTOR                                        DATE                  AMOUNT               DEFICIENCIES
 After School Youth Development Contracts                    03/01/97               various              1, 2, 3
 Allkill Pest Control                                        3/24/97         $2,352.80 per month           6
 Aramark Uniform Service                                     3/24/97           $4.95 per person            6
                                                                                   per week
 BCP                                                         06/21/99               $5,000                 5
 Bourdeaux & Jones                                           12/30/96           $500 per month             6
 Boys And Girls Club                                         04/27/98              $ 100,700              1, 2
 Bradfield Richards & Associates, Architects, Inc.           11/26/96          $1,000 per month            6
 C & A Construction (CGP)                                    10/23/97           $1,486,114.00
 Chambers Waste System of Mississippi                        4/22/97         $1,977.36 per month           6
 Chambers Waste System of Mississippi                        3/25/97         $7.50 per residenceper        6
                                                                                     month
 City of Meridian (Security Liaison)                         08/22/96               $72,000               1, 2
 Connerly Construction (CGP)                                 01/29/97           $1,095,000.00
 Cooke Communications (CGP)                                  03/02/98              $35,000                4, 6
 Dr. Patty Calvert                                           05/05/98             $19,925.00
 Dr. Sheila Wallace                                          05/29/98             $10,695.00
 East Mississippi Center for Educational Development         03/16/95              $ 24,000              1, 2, 4
 Heller, Blosky & Dabagian                                   03/27/98             $11,000.00
 Independent Security Company                                12/18/98             $60,000.00
 Scratch Pest Control                                        3/10/97               $1,182.61               6
 Young's Lawn Landscaping                                    03/27/98          1,250 per month             4




DEFICIENCY EXPLANATIONS:

Inadequate Contract Administration

1.     Deliverables not provided by the contractor
2.     Payments were not supported

Improper Solicitation and Awarding of Contracts

3.     Proposals were not solicited

Inadequate procurement records

4.     No independent cost estimate or cost/price analysis

Inappropriate contract terms

5.     Vague contract terms
6.     Contract executed without prior HUD approval


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Summary of Procurement and Contract Administration Deficiencies




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00-AT-204-1002                   Page 30
                               Appendix C


Authority Comments




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Authority Comments




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          Authority Comments




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Authority Comments




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          Authority Comments




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Authority Comments




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          Authority Comments




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Authority Comments




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00-AT-204-1002              Page 38
                                                                                     Appendix D


Distribution

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 39                            00-AT-204-1002
Distribution




Secretary's Representative, 4AS
Director, Office of Public Housing, 4GPH
State Coordinator, Jackson, Mississippi, 4GS
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
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
Chairman, Board of Commissioners, Housing Authority of the City of Meridian




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