oversight

Housing Authority of the City of New Britain, New Britain, Connecticut

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-06-12.

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

  AUDIT REPORT




HOUSING AUTHORITY OF THE
   CITY OF NEW BRITAIN

NEW BRITAIN, CONNECTICUT

       00-BO-202-1003

       JUNE 12, 2000




 OFFICE OF AUDIT, NEW ENGLAND
    BOSTON, MASSACHUSETTS
                                                                   Issue Date
                                                                           June 12, 2000
                                                                   Audit Case Number
                                                                           00-BO-202-1003




TO: Donna J. Ayala, Director, Office of Public Housing, Massachusetts State Office, 1APH



FROM: William D. Hartnett, District Inspector General, Office of Audit, 1AGA


SUBJECT:       Housing Authority of the City of New Britain
               New Britain, Connecticut


We performed a review of the Low-Income Public Housing and Section 8 Programs of the
Housing Authority of the City of New Britain, Connecticut (PHA). The objective of our review
was to determine if the PHA is operating its programs in an efficient and effective manner.

The report contains two findings. We found that the PHA incurred substantial unnecessary legal
expenses, and they need to improve certain aspects of its administration and management
operations.

Within 60 days, please provide us a status report on: (1) the corrective action taken; (2) the
proposed corrective action and the date to be completed; or (3) why action is not considered
necessary. Also, please furnish us with copies of any correspondence or directives issued related
to this audit.

If you have any questions, please contact our office at (617) 565-5259.
Management Memorandum




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00-BO-202-1003            Page ii
Executive Summary
We performed an audit of the Low-Income Public Housing (LIPH) and Section 8 Programs of the
Housing Authority of the City of New Britain, Connecticut (PHA). The purpose of our review
was to determine if the PHA is administering its programs efficiently and effectively. The specific
objectives were to determine whether the PHA is:

       •   Using its resources and managing its programs and operations efficiently, effectively,
           and economically;

       •   Maintaining its public housing units in a safe, decent, and sanitary manner; and

       •   Complying with the terms and conditions of its Annual Contributions Contract,
           applicable laws, HUD regulations, and other applicable directives.


                                      A review of the PHA’s LIPH and Section 8 Programs
 Audit Results
                                      indicated that the PHA charged excessive legal expenses to
                                      its Federal programs. Further, the PHA needs to improve
                                      its administration of the LIPH and Section 8 programs by
                                      strengthening the procedures used in its: 1) inspection
                                      process; 2) determinations of contract rent reasonableness;
                                      and 3) reporting of Comprehensive Grant Program (CGP)
                                      expenditures.

                                      Since January 1995, the PHA has incurred approximately
                                      $1.5 million dollars in legal expenses and related costs. In
                                      one instance alone, the PHA expended $242,275 for legal
                                      expenses incurred in its defense against a lawsuit filed by a
                                      former Executive Director only to eventually settle the
                                      lawsuit for $150,000. The PHA did not execute a Litigation
                                      Services Contract and did not aggressively seek
                                      reimbursement for legal expenses from its liability insurance
                                      carriers. As a result, the PHA incurred substantial legal
                                      expenses unnecessarily that may have otherwise been
                                      avoided.




                                          Page iii                                  00-BO-202-1003
Executive Summary



                    During inspections of the PHA’s LIPH and Section 8 units,
                    recurring smoke detector violations were noted. In some
                    instances, as much as 62 percent of a development’s units
                    inspected had smoke detector violations, ranging from
                    detectors missing batteries to detectors that were
                    completely missing. To ensure the safety of all of its tenants,
                    the PHA needs to improve its efforts to reduce the number
                    of smoke detector violations and hold those tenants
                    accountable who violate the smoke detector provisions in
                    their lease.

                    Furthermore, the PHA did not demonstrate that its
                    procedures for determining contract rent reasonableness
                    were adequate. The PHA has not performed a current
                    market survey of private unassisted rental units in the area
                    to assure that assisted contract rents are comparable.
                    Lastly, the PHA reported CGP expenditures to HUD which
                    were not reflective of the PHA’s financial records. The
                    PHA’s Individual Public Accountant (IPA) also noted
                    discrepancies between the CGP funds advanced to the PHA
                    and the CGP funds expended by the PHA, as noted in the
                    Audited Financial Statements for the fiscal year ending
                    December 31, 1998.

                    We are recommending that the PHA: 1) be advised in
 Recommendations    writing of the Federal Regulations regarding litigation, or
                    potential litigation matters, and 2) seek reimbursement for
                    legal expenses from its liability insurance carriers and
                    provide status reports indicating their progress. The PHA
                    should also adhere to its new procedures regarding smoke
                    detector violations; document that it has completed a
                    market survey of private unassisted units in the area,
                    including those owned by Section 8 owners; and provide a
                    detailed schedule of drawdowns and expenditures for closed
                    grants under its Comprehensive Grant Program.




00-BO-202-1003          Page iv
                                                        Executive Summary




                  The findings were discussed with the PHA during the
Findings and      course of the audit. On March 14, 2000, we provided the
Recommendations   PHA a copy of the draft audit report for comment. We
Discussed         received the PHA’s response on April 28, 2000. In general,
                  the PHA agreed with the facts in the report but stated its
                  overall administration and management has improved since
                  the current management team took over in 1997.

                  We have included pertinent comments of the PHA’s
                  response in the Findings section of the report. Due to its
                  voluminous content, the PHA’s entire response was
                  forwarded to the program staff under a separate letter.
                  Pertinent excerpts are included in Appendix A.




                    Page v                          00-BO-202-1003
Executive Summary




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00-BO-202-1003       Page vi
Table of Contents

Management Memorandum                                                  i


Executive Summary                                                     iii


Introduction                                                          1


Findings

1     PHA Incurred Substantial Legal Expenses Unnecessarily           3


2     PHA Administration Needs Improvement                           11



Management Controls                                                  19


Appendices
    A Auditee Comments                                               21

    B Distribution                                                   27




                             Page vii                     00-BO-202-1003
Table of Contents


Abbreviations

ACC              Annual Contributions Contract
AMCC             Actual Modernization Cost Certificate
CFR              Code of Federal Regulations
GGP              Comprehensive Grant Program
CIAP             Comprehensive Improvement Assistance Program
FY               Fiscal Year
HQS              Housing Quality Standards
HUD              Department of Housing and Urban Development
IPA              Independent Public Accountant
LIPH             Low-Income Public Housing
OC               Office of Counsel
PHA              Housing Authority of the City of New Britain
REAC             Real Estate Assessment Center
RFP              Request for Proposal




00-BO-202-1003                          Page viii
Introduction
The Housing Authority of the City of New Britain, Connecticut (PHA) was created pursuant to
Section 8-40 of the Connecticut General Statutes. The PHA’s offices are located at 34 Marimac
Road, New Britain, Connecticut 06053. The PHA provides low rent housing for qualified
individuals in accordance with rules and regulations prescribed by the Department of Housing and
Urban Development in accordance with the United States Housing Act of 1937, as amended. The
PHA is governed by a Board of Commissioners appointed by the Mayor, and is chaired by Donald
DeFronzo. The Executive Director, Paul Vayer, is responsible for the administration of PHA
operations.

The PHA operates both federally assisted and non federally assisted housing programs through
the same Board of Commissioners and staff. As of September 30, 1999, the PHA was
administering 1381 Federal units; 756 low-income housing units and 625 Section 8 units. The
PHA was also administering 966 State units; 122 elderly units and 844 moderate rental units.


                                    The overall audit objective was to determine if the PHA is
 Audit Objectives                   operating in an efficient and effective manner. Specific
                                    audit objectives were to determine whether the PHA is:

                                    •   Using its resources and managing its programs and
                                        operations efficiently, effectively, and economically;

                                    •   Maintaining its public housing units in a safe, decent,
                                        and sanitary manner in compliance with HUD’s Housing
                                        Quality Standards (HQS); and

                                    •   Complying with the terms and conditions of its Annual
                                        Contributions Contract, applicable laws, HUD
                                        regulations, and other applicable directives.

                                    We reviewed Federal requirements including Code of
 Audit Scope and                    Federal Regulations, HUD Handbooks, Public and Indian
 Methodology                        Housing Notices and Directives, and the PHA’s
                                    organizational and administrative structure, administrative
                                    plans and personnel policies, and recorded minutes of the
                                    Board of Commissioners meetings.

                                    We reviewed Independent Public Accountant (IPA) reports
                                    for FYs 1996, 1997 and 1998 and PHA financial records for
                                    FYs 1995, 1996, 1997, 1998 and the period January 1, 1999
                                    through September 30, 1999.




                                         Page 1                                  00-BO-202-1003
Introduction


                 We interviewed the PHA’s Executive Director and
                 applicable staff, and staff from the Connecticut State Office,
                 Office of Public Housing.             We also interviewed
                 representatives from the PHA’s Certified Public Accounting
                 Firm.

                 We conducted physical inspections of 14 units, consisting of
                 nine Low-Income Public Housing units and five Section 8
                 units.

                 We reviewed the PHA’s Rent Reasonableness testing
                 procedures to determine if rents were reasonable and in
                 accordance with regulations.

                 We reviewed the PHA’s Section 8 and Low-Income Public
                 Housing Administrative Plans and low-income tenant leases
                 to ensure compliance with the “One-Strike and You’re Out
                 Provisions” of the Housing Opportunity Program Extension
                 Act of 1996.

                 We examined Comprehensive Grant Program final reports
                 submitted by the PHA to determine if reported expenditures
                 agreed with PHA financial records.

                 The audit was conducted between March 1999 and
                 December 1999, and covered the period January 1, 1996
                 through September 30, 1999. Where appropriate, the audit
                 was extended to include other periods.

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




00-BO-202-1003       Page 2
                                                                                           Finding 1


                      PHA Incurred Substantial
                     Legal Expenses Unnecessarily
The Housing Authority of the City of New Britain, Connecticut (PHA) failed to follow HUD
regulations and it’s own procurement policies, relating to litigation services, which led to the PHA
incurring substantial legal expenses. Specifically, the PHA did not:

•     Execute a litigation service contract in a timely manner even after repeated requests to do so
      by the HUD Office of Counsel (OC);

•     Aggressively pursue its Liability Insurance carriers for reimbursement of legal expenses
      incurred ($242,475) despite OC and the State of Connecticut requests to do so; and

•     Properly pursue the State of Connecticut to fund its prorated share of legal expenses paid with
      Federal funds ($38,000) by the PHA.

As a result, the PHA has incurred substantial legal expenses unnecessarily that may have
otherwise been avoided, and which have contributed to the drain of the PHA’s financial resources.
The PHA has mismanaged scarce financial resources intended for the benefit of the low and
moderate income tenants residing at the PHA.


                                        HUD Handbook 1530.1 REV-4 (Litigation), Section 3-3
    Litigation Services
                                        (b)(3) states:
    Contract Required
                                               “PHAs must obtain the concurrence of Regional
                                               Counsel in litigation services contracts with private
                                               attorneys where the fee is expected to exceed
                                               $10,000.”

                                               “...Contracts calling for payments on a per hour or
                                               per diem basis, or a combination of both, are
                                               required to contain at least an estimated maximum
                                               total for budget purposes.”

                                        Additionally, the PHA’s own procurement policy, as
                                        amended by PHA Board of Commissioners Resolution #
                                        873 dated December 11, 1991, in Section III (J)(B)states:

                                               “The Authority shall not, without the prior written
                                               approval of HUD or the Department of Housing,
                                               enter into, execute or approve any agreement or
                                               contract for professional, technical or other kinds

                                            Page 3                                    00-BO-202-1003
Finding 1


                              of services (attorneys, including ADP software and
                              related services) under the following circumstances:

                                         “The Procurement is expected to exceed
                                         $10,000 and is to be awarded without
                                         competition or only one bid or offer is
                                         received in response to Solicitation or
                                         Request for Proposal, or...”

                                         “Where the agreement or contract is for
                                         legal or other services in connection with
                                         litigation.”

                       24 C.F.R. Part 902 (Public Housing Assessment System
                       (PHAS) Amendments; Final Rule), Section 902.79 (a)(1)
                       also states:

                              “HUD may determine that events have occurred or
                              that conditions exist that constitute a substantial
                              default if a PHA is determined to be in violation of
                              Federal statutes, including but not limited to, the
                              Act, or in violation of regulations implementing
                              such statutory requirements . . . .”

                       For the period January 1, 1995 through September 30,
   Universe of Legal   1999, the PHA incurred $1,436,535 ($25,202/month) in
   Expenses            legal expenses and related costs, as reported on the financial
                       data provided by the PHA. Of those costs, we noted
                       problems with the two law firms receiving the highest
                       amount of funds from the PHA. Those two entities
                       represent 54.4 percent of the PHA’s total legal costs:

                                                                       % of
                            Law Firm               Total            Total Costs
                           R & C (1)             $353,933             28.4%
                           A & A (2)             $325,005             26.0%
                           Total Costs           $678,938             54.4%

                              1.         Robinson & Cole; represented PHA in
                                         lawsuit brought by former PHA Executive
                                         Director Croslan.

                              2.         Arnold & Associates;      PHA’s     General
                                         Counsel since FY 1995.



00-BO-202-1003             Page 4
                                                                                Finding 1



                             In response to a lawsuit filed by its then Executive Director
Litigation Services          (Patricia Croslan) in November 1994, the PHA retained the
Contract Not Executed        law firm of Robinson & Cole as legal counsel. The law firm
                             of Robinson & Cole was representing the PHA without a
                             contract, at an hourly rate, in a lawsuit against the PHA
                             filed in 1990 (Cobb vs. PHA). The PHA decided to
                             continue its use of Robinson & Cole. However the PHA
                             failed to execute a litigation services contract with the law
                             firm contrary to HUD regulations.

                             On December 22, 1994, the HUD Office of Counsel (OC)
PHA Was Aware of HUD         acknowledged receipt of the PHA’s letter of December 16,
Regulations                  1994, which advised of the initiated litigation by Executive
                             Director Croslan. The OC letter advised that based on the
                             information provided it appeared that, for the present, the
                             PHA’s insurance carrier would provide the necessary legal
                             counsel. Consequently, the OC advised that they did not
                             anticipate that the PHA would have to expend substantial
                             federal funds in its defense. Nonetheless, the OC’s letter
                             outlined the necessary steps to take if the situation were to
                             change and the PHA required outside legal counsel. Among
                             the items outlined were: 1) the need to enter into an
                             Agreement for Litigation Services when retaining outside
                             legal representation; 2) the need to comply with HUD
                             regulations at 24 C.F.R. 85.36 in its selection process of
                             outside counsel, which calls for a competitive bid process;
                             and 3) the need to obtain OC approval for contracts
                             exceeding $25,000.

                             During the period of March 31, 1995 through March 15,
$142,475 Extended            1996, the PHA paid $142,475 to Robinson & Cole for legal
Without Litigation Service   expenses incurred without ever executing a Litigation
Contract                     Services Contract. This disregard for Federal requirements
                             represents a violation of Federal statute, which in
                             accordance with the PHAS Amendments Final Rule
                             constitutes a “substantial default.” During that same time
                             period, the PHA received $17,145 in insurance
                             reimbursements from one of its liability carriers, Scottsdale
                             Insurance Company.

                             It was not until May 1997, two and a half years after
                             Robinson & Cole began defending the PHA, that the PHA,
                             after OC involvement, finally executed a Litigation Services
                             Contract in the amount of $100,000. The $100,000 was to

                                        Page 5                             00-BO-202-1003
Finding 1


                          cover $75,380 in outstanding invoices dating back to March
                          1996 and up to an additional $24,620 of expenses. On
                          September 19, 1997, the OC approved the Litigation
                          Services Contract and the use of $100,000 of Section 8
                          Administrative Funds to cover the contract with the
                          expectation that the PHA would pursue the State of
                          Connecticut to fund its prorated share of any expenses
                          advanced from the Section 8 Administrative Fund. The OC
                          was not aware that the PHA had already incurred and paid
                          $142,475 prior to the execution of the $100,000 contract.

                          In December 1997, the PHA settled the case with Executive
                          Director Croslan for $150,000. This is after the PHA
                          incurred and paid $242,475 in legal expenses during the
                          approximate three year period of the lawsuit. Had the PHA
                          followed HUD regulations, the excessive legal fees incurred
                          and paid may have been greatly reduced or possibly avoided
                          all together. Instead, the PHA paid approximately $400,000
                          in the defense and settlement of one case.

                          In September 1996, the OC directed the PHA, through
 PHA Directed to Pursue
                          counsel, to immediately make demand for reimbursement of
 Liability Insurance
                          its legal bills through its liability insurance carrier(s). On
                          September 5, 1997, the OC again requested that the PHA
                          pursue its liability insurance carriers to cover the PHA’s
                          legal expenses. Additionally, on January 12, 1998 the State
                          of Connecticut, Department of Economic and Community
                          Development advised the PHA that the State of Connecticut
                          would not consider authorizing project money until
                          information on the liability insurance carriers response was
                          received. The PHA did not provide any response.

                          On April 22, 1997, over two years after Robinson & Cole
 Liability Insurance      began representing the PHA in the Croslan lawsuit,
 Carriers Contacted       Robinson & Cole sent letters out to the PHA’s liability
                          insurance carriers who may have provided insurance policies
                          to the PHA. The letters provided the liability insurance
                          companies written notice of any claims that may have been
                          covered under the policies. However, there is little other
                          correspondence or evidence that the liability insurance
                          carriers responded or were further pursued.

                          In accordance with the Litigation Services Contract
                          executed in May 1997 between the PHA and Robinson &
                          Cole, it was agreed that Robinson & Cole would pursue the

00-BO-202-1003                Page 6
                                                                           Finding 1


                        liability insurance carriers. The Litigation Services Contract
                        stated that Robinson & Cole would commence any action or
                        actions against Colonia Insurance Company and/or United
                        Coastal Insurance Company for payment of any settlement
                        with or judgment in favor of Patricia Croslan; plus all
                        attorneys fees incurred in the defense of same; plus all
                        attorneys fees incurred in prosecuting such claims against
                        Colonia Insurance Company and/or United Coastal
                        Insurance Company; plus any additional compensatory
                        and/or punitive damages available by law.

                        In October 1999, Robinson & Cole contacted one of the
Complaint Issued        liability insurance companies, Colonia Insurance Company.
                        Robinson & Cole advised that there was a possibility that
                        Colonia Insurance Company may provide some up front
                        money as a partial settlement of any claim, but that the
                        PHA’s other liability insurance carrier, United Coastal
                        Insurance, would be pursued first. On October 18, 1999,
                        Robinson & Cole issued a complaint against United Coastal
                        Insurance in the Superior Court of New Britain,
                        Connecticut.      This is approximately five years after
                        Robinson & Cole began representing the PHA in the
                        Croslan lawsuit. Meanwhile, Federal funds were utilized to
                        pay the substantial legal costs of the PHA.

                        On September 19, 1997, the OC approved a Litigation
PHA Fails to Actively   Services Contract and the use of $100,000 of Section 8
Pursue State of         Administrative Funds to cover the contract with the
Connecticut             expectation that the PHA would pursue the State of
                        Connecticut to fund its prorated share of any expenses
                        advanced from the Section 8 Administrative Fund. The
                        State of Connecticut’s prorated share of the $100,000
                        would have been 38 percent ($38,000) based on the total
                        number of Federal and State units operated by the PHA
                        during FY 1997 (Federal - 1598 units, State - 967 units).
                        On September 2, 1999, the OC advised the PHA that, to
                        date they had not heard from the PHA about its efforts to
                        seek reimbursement from the State of Connecticut.

                        On October 5, 1999, the PHA advised the OC that the State
                        of Connecticut, Department of Economic and Community
                        Development has not authorized payment for litigation and
                        settlement costs regarding the Croslan case. Therefore, the
                        PHA has not reimbursed the Section 8 Administrative
                        Program. Simply stated, since September 1997 the PHA

                                   Page 7                              00-BO-202-1003
Finding 1


                            has done nothing to pursue the State of Connecticut to fund
                            its prorated share of legal expenses paid with Federal
                            Section 8 Administrative Program funds. Furthermore,
                            although the PHA identified expenses charged to its State
                            programs, no evidence was provided indicating that the
                            State actually paid for those expenses.

                            Given the substantial outlay of funds for legal expenses over
 Financial and Staff        the last five years, the PHA has mismanaged scarce financial
 Resources Drained          resources intended for the benefit of the low and moderate
                            tenants residing at the PHA. The lawsuits and claims
                            brought against the PHA have also put a strain on the staff
                            resources of the PHA due to the added responsibility of
                            handling the complaints. The PHA staff is forced to spend
                            time receiving, reviewing, monitoring, and following up on
                            those lawsuits and complaints brought against the PHA,
                            which takes away from the amount of time needed to meet
                            the daily needs of the PHA.

                            The role of Public Housing Authorities, in part, is to
 Federal Funds Needlessly   provide decent, safe, and sanitary housing to low and
 Wasted                     moderate income individuals and families.           Although
                            circumstances involving litigation cannot be entirely
                            avoided, they can be minimized. The PHA, since FY 1995,
                            has expended nearly $1.5 million dollars on legal expenses
                            and related costs or approximately $300,000 per year.
                            There is clearly a failure on the part of the PHA to properly
                            manage their litigation expenses and the responsibility of
                            those enormous expenses lies with the PHA. Rather than
                            aggressively pursuing indemnification under its insurance
                            contracts, the PHA used Federal program funds to pay
                            litigation expenses.      The PHA has ignored its own
                            procurement provisions and HUD regulations, which are in
                            place to protect both the PHA and the scarce Federal
                            resources available for those low and moderate income
                            individuals and families residing in public housing. By
                            showing a disregard for HUD regulations, the PHA has
                            shown a disregard toward the needs of its tenants. To
                            continue to do so would go against the very nature of the
                            role of Public Housing Authorities in American
                            communities.




00-BO-202-1003                  Page 8
                                                                       Finding 1




                    The PHA did not dispute the facts in the draft audit report,
Auditee Comments    but stated the errors cited were the responsibility of a
                    previous administration involving different Commissioners
                    and Executive Directors. The PHA made reference to the
                    audit period covering January 1, 1995 through September
                    30, 1999 and believes that the substantial changes made
                    since 1997 should be considered in an analysis of the PHA’s
                    Administration.

                    The PHA states that during the course of the audit, the
                    PHA made a continued and proactive effort to specifically
                    identify administrative changes clearly intended to limit the
                    overall administrative problem areas that existed prior to
                    1997. The PHA provided a partial listing of such changes
                    along with its responses and stated that there appears to be
                    no evidence that these crucial factors were considered to
                    any meaningful extent.

                    The PHA stated that under the current administration,
                    including the Chairman, Commissioners, Executive Director
                    and the staff, the actions of the Authority will conform to
                    Federal and State regulations. The PHA advised that it’s in
                    the process of attempting to finalize suits against two
                    insurance companies with regard to the legal fees incurred
                    and provided copies of the faxes received from its Attorney
                    as evidence of such.


                    We recognized that there was a change in leadership at the
OIG Evaluation of   PHA during the audit period. While the PHA has made
Auditee Comments    administrative changes, it is imperative that the PHA follow
                    the Federal regulations with regard to litigation or potential
                    litigation matters. The current Administration did little, if
                    any, to recoup legal fees incurred as a result of litigation
                    with a former Executive Director, which was resolved in
                    December 1997. It was not until our review that the PHA
                    made any effort to recoup the litigation legal fees incurred
                    from its insurance carriers and the State of Connecticut.



                             Page 9                               00-BO-202-1003
Finding 1




                     The PHA’s response did not address the specifics of the
                     finding other than advising that they do not dispute the
                     facts. The PHA also provided the current status of their
                     efforts to recover litigation legal fees from its insurance
                     carriers.



 Recommendations   We recommend that you:

                   1A.      Advise the PHA’s Board of Commissioners and
                            Executive Director in writing of the Federal
                            requirements regarding litigation, or potential litigation
                            matters, and that failure to adhere to those regulations
                            may result in action to impose appropriate
                            administrative sanctions against the PHA’s
                            Commissioners or Officers deemed responsible for any
                            violations.

                   1B.      Instruct the PHA to provide a comprehensive schedule
                            of outstanding legal matters, their status and expected
                            outcome, including copies of all executed contracts
                            related to such.

                   1C.      Require the PHA to timely follow-up on the status of
                            their claims against their liability insurance carriers until
                            such time as the funds are recovered or the claims are
                            otherwise resolved.

                   1D.      Require the PHA to provide that the applicable Federal
                            and/or State programs were reimbursed should any
                            funds be recovered from the liability insurance carriers.

                   1E.      Advise the PHA to seek reimbursement from the
                            State of Connecticut for its prorated share of legal
                            expenses paid with Federal funds and reimburse the
                            Section 8 Administration Program with any funds
                            obtained.




00-BO-202-1003           Page 10
                                                                                         Finding 2


        PHA Administration Needs Improvement
The Housing Authority of the City of New Britain (PHA) needs to improve the overall
administration of its operations. We found:

•    Repeated smoke detector violations resulting from Housing Quality Standards (HQS)
     inspections;

•    Rent reasonableness not assured;

•    Occupancy provisions of the Housing Opportunity Program Extension Act of 1996 not
     followed; and

•    Comprehensive Grant Program (CGP) expenditures reported inaccurately.

The PHA needs to re-evaluate its administrative procedures to ensure its future operations are
managed efficiently and effectively.



                                        Inspections

                                        Federal regulations require that HQS must be met both
    HQS Required                        at initial occupancy and during the term of the assisted
                                        lease (24 CFR 982.401). Federal regulations also require
                                        that the PHA inspect Section 8 units at least annually,
                                        and at other times as needed, to determine if the unit
                                        meets HQS, and must conduct supervisory quality
                                        control HQS inspections (24 CFR 982.405).

                                        Federal regulations require that each dwelling unit must
    Smoke Detector                      include at least one battery-operated or hard-wired
    Requirements                        smoke detector, in proper working condition, on each
                                        level of the unit (24 CFR 902.23(a)(4)(iv)).

                                        Additionally, the Housing Code of the City of New
                                        Britain, Connecticut, in Article II, Section 13-104(e)
                                        states:

                                             “A smoke detector, even though installed in
                                             accordance with this section, if allowed to be
                                             connected to a switch-off circuit or if inoperable
                                             because of battery deterioration, shall be
                                             considered to be in non-compliance with this
                                             section (Code 1970, 13-4.09; Ord. Of 4-82).”
                                         Page 11                                    00-BO-202-1003
Finding 2



                           A February 1999 Real Estate Assessment Center
 Repeated Smoke Detector   (REAC) inspection of 22 units in seven different
 Violations                developments identified 12 units with smoke detector
                           violations (55 percent). The violations ranged from
                           inoperable detectors, to detectors that were completely
                           missing. The PHA’s outside inspection contractor, Pat
                           Kelson Associates, Inc., during a June 1999 inspection of
                           63 units at the Oval Grove Development identified 39
                           units with smoke detector violations (62 percent).
                           Furthermore, an October 1999 inspection of 129 units at
                           the Mount Pleasant Development by Pat Kelson
                           Associates, Inc. identified 39 units with smoke detector
                           violations (30 percent). Again, the violations ranged
                           from inoperable detectors, to detectors that were
                           completely missing.

                           The PHA requires each of its tenants to sign a “Smoke
                           Detector Agreement” in which the resident agrees that
                           they will not disengage or take down the smoke
                           detectors. However, the Agreement does not cite any
                           penalty for failing to adhere to its provisions, nor does
                           the PHA hold its tenants accountable for violations. As a
                           result, there is no deterrent in place to preclude tenants
                           from violating the smoke detector provisions resulting in
                           unnecessary      dangerous      conditions.   The    PHA
                           acknowledges the potential danger, but lays the blame
                           with the tenants who continually disconnect or remove
                           their smoke detectors. Without adequate administrative
                           controls or actions to minimize the potential life
                           threatening risks, the PHA will continue to be plagued by
                           smoke detector violations and face the very real
                           possibility of loss of life. Through stricter enforcement
                           and penalty, the PHA can greatly reduce the violations
                           and therefore, the threat to its tenants.




00-BO-202-1003              Page 12
                                                                            Finding 2


                            Rent Reasonableness

                            Federal regulations state that PHAs must document for
Knowledge of Current        each unit which it approves a lease, that the contract rent
Rental Market Required      for such a unit is reasonable in relation to rents currently
and Must be Documented      being charged for comparable unassisted units and not in
                            excess of rent currently being charged by the Owner for
                            comparable unassisted units. The PHA must take into
                            account the location, type, quality, amenities, housing
                            services, maintenance, and utilities to be provided by the
                            owner of the unit (24CFR 982.503(B)(1)+)2).

                            The PHA’s Director of Admissions advised that the PHA
No Market Survey or         has not conducted a market survey and does not maintain
Other Documentation         one.      The Director of Admissions advised that
                            knowledge of the rental market is demonstrated by
                            documents that are in each tenant file which exhibits
                            market and current data. A review of 12 tenant files, for
                            assisted units, disclosed that the files contained a
                            “Certificate of Rent Reasonableness”, which disclosed
                            the contract rent of the unit, the name, location and rent
                            of a comparable unit, and a space to indicate whether the
                            contract rent is higher than rents the landlord/owner
                            currently charges for comparable unassisted units. The
                            tenant files did not contain any documentation to support
                            the “Certificate of Rent Reasonableness”.

                            For the 12 tenant files reviewed, the PHA did not verify
Unassisted Unit Rents Not   the current rents charged for assisted units were
Verified                    reasonable in comparison to rents being charged by the
                            landlord/owner for comparable unassisted units. The
                            comparable units and rents disclosed on the “Certificate
                            of Rent Reasonableness” were for other assisted units, as
                            opposed to unassisted units. Therefore, the PHA had no
                            assurance that the assisted rents being charged were
                            comparable to the rents charged for unassisted rents.

                            The PHA’s Director of Admissions advised that the
                            tenant files contained newspaper articles detailing
                            information for unassisted units, which were used by the
                            PHA to determine contract rent reasonableness. The
                            “Certificate of Rent Reasonableness”, for the last two
                            years, had no newspaper articles or other documentation
                            attached for all 12 tenant files reviewed. Upon being
                            informed of the missing articles, the PHA’s Director of

                                   Page 13                              00-BO-202-1003
Finding 2


                          Admissions acknowledged that the articles were not
                          present and subsequently advised that all 12 tenant files
                          had been amended to include recent newspaper articles.
                          Those articles, however, did not disclose the date of the
                          article, the location of the unit, whether the unit was
                          assisted or unassisted, or what facilities and amenities the
                          unit offered. Again, the PHA has not demonstrated that
                          the rents being charged for assisted units are comparable
                          to the rents being charged for comparable unassisted
                          units.

                          Housing Opportunity Program Extension Act
                          of 1996

                          As a result of the Housing Opportunity Program
 “One Strike and You’re   Extension Act of 1996, HUD regulations require that
 Out” Requirements        PHAs, for Section 8 Certificates, Vouchers and
                          Moderate Rehabilitation Programs, must amend their
                          administrative plan to state their policies implementing
                          the   following     provisions     (Notice    PIH    97-
                          27(4)(A)(B)(C)):

                          •     Ineligibility if Evicted for Drug-Related Activity;

                          •     Screening Out Illegal Drug Users and Alcohol
                                Abusers; and

                          •     Terminating Assistance to Illegal Drug Users and
                                Alcohol Abusers.

                          HUD regulations further require that PHAs establish
                          standards to consider the same elements when screening
                          applicants for Public Housing (Notice PIH 97-
                          27(5)(A)(B)(C)).

                          Furthermore, HUD regulations require the following
                          statutory changes regarding Public Housing Lease
                          Provisions (Notice PIH 97-27 (5)(D)):

                                 “Public housing lease forms must be amended
                                 promptly to provide that the following activities by
                                 any resident are grounds for termination of
                                 tenancy:



00-BO-202-1003                Page 14
                                                                           Finding 2


                                        “drug related criminal activity on or off the
                                        premises, not just on or near the premises;
                                        and...”

                                        “alcohol abuse that the PHA determines
                                        interferes with the health, safety, or right to
                                        peaceful enjoyment of the premises by other
                                        residents.”

                                 “Tenants must be required to execute the new
                                 lease/addendum no later than their next
                                 reexamination.”

                          The PHA has not amended its Section 8 Administrative
Administration Plan Not   Plan, which was last revised in September 1997, to state
Amended                   their policies implementing the provisions of the Housing
                          Opportunity Program Extension Act of 1996, as required by
                          HUD regulations. The PHA’s Tenant Select Supervisor
                          advised that no further revisions to the Section 8
                          Administrative Plan had been completed since the last
                          revision.

                          PHA policies including, but not limited to, eligibility,
Low-Income Public         evictions, and leasing are included in the PHA’s “Statement
Housing Policies Not      of Policies Governing Admission to and Continued
Amended                   Occupancy of the Housing Projects Operated by the
                          Housing Authority of the City of New Britain” (PHA Plan),
                          last revised in January 1995. The PHA Plan does not,
                          however, include the policies implementing the provisions
                          of the Housing Opportunity Program Extension Act of 1996
                          regarding the screening of tenants. The PHA’s Tenant
                          Select Supervisor advised that the PHA was in the process
                          of updating the plan.

                          Although PHAs were mandated to update their Low
Leases Not Amended        Income Public Housing (LIPH) leases, including
Timely                    outstanding leases, in accordance with the Housing
                          Opportunity Program Extension Act of 1996, the PHA has
                          not done so in a timely manner. As of September 1999, the
                          PHA had updated its lease form for all new tenants and
                          were able to amend the outstanding leases for all of their
                          LIPH elderly tenants. However, the PHA had not updated
                          the outstanding leases for all of their LIPH family tenants.




                                    Page 15                            00-BO-202-1003
Finding 2


                             Comprehensive Grant Program

                             Federal regulations require that upon expenditure by the
 Grant Requirements          PHA of all funds, or termination by HUD of the activities
                             funded in a modernization program, a PHA shall submit the
                             Actual Modernization Cost Certificate (AMCC) to HUD
                             (24 CFR 968.145(a)). The AMCC discloses the original
                             funds approved, the funds disbursed, and the actual funds
                             expended.

                             Federal regulations also require for any FY in which a PHA
                             has received assistance, the PHA shall submit a Performance
                             and Evaluation Report describing its use of assistance in
                             accordance with the approved Annual Statement (24 CFR
                             968.330).

                             Despite Federal regulations requiring accurate reporting, the
 Expenditures Inaccurately   PHA’s AMCCs submitted to HUD do not reflect the actual
 Reported                    expenditures reported on PHA financial records. Instead
                             the AMCC submitted to HUD, for those grants closed as of
                             December 31, 1998, reflects expenditures mirroring the
                             amount of funds awarded and disbursed by HUD. The
                             PHA’s financial records disclose expenditures that differ, at
                             times substantially, from the expenditures reported on the
                             AMCC. The AMCC and the PHA’s financial records
                             should coincide with one another.

                             Since FY 1992, the PHA was awarded annual CGP grants.
                             As of December 31, 1998, the PHA submitted AMCCs for
                             the following grants closed prior to December 31, 1998:

                                         Grant          `                           `
                                       Awarded                   Expenditures
                                          and      Expenditure    per PHA’s
                              CGP      Disbursed         s         Records      Difference
                                                    per AMCC
                               701    $1,387,333    $1,387,333    $1,587,571    ($200,238 )
                               702    $1,532,846    $1,532,846    $1,466,604     $ 66,242
                               703    $1,995,958    $1,995,958    $2,350,355    ($354,397)
                               704    $1,931,413    $1,931,413    $2,010,313    ($ 78,900)

                             The PHA’s Accounting Manager maintains that the AMCCs
                             submitted to HUD for the above grants accurately reflect
                             project expenditures. As shown above, the PHA financial
                             records did not agree with AMCCs. The PHA was asked to
                             provide a reconciliation, but failed to do so. Without

00-BO-202-1003                   Page 16
                                                                              Finding 2


                          accurate accounting and reporting, the PHA cannot provide
                          assurance to HUD that the goals of its grant programs are
                          being met, and that grant funds are being spent in
                          accordance with Federal regulations.

                          Competent administrative policies and procedures
Administrative Policies   incorporated by a PHA aid the effectiveness and efficiency
Need Strengthening        of its operations. More importantly, the adherence to and
                          delegation of those procedures by PHA administrators
                          ensures the integrity of PHA operations and promotes
                          adherence to applicable regulations. Federal regulations
                          exist not only to guide PHAs in their decision making, but
                          also to protect the interests of the PHA and its tenants. It is
                          up to PHA administrators to ensure that those regulations
                          are adhered to and be willing to take appropriate action
                          when they are not. The PHA, either through inadequate
                          policies and procedures or administrative decisions, allowed
                          deficiencies to occur in a number of areas. The PHA needs
                          to reevaluate its current policies and procedures, and their
                          implementation, to minimize or prohibit future deficiencies.


                             The PHA’s response indicated that efforts were made to
Auditee Comments             address the draft audit report recommendations.
                             Specifically, the PHA stated that it: 1) has revised its
                             “smoke alarm agreement” which aggressively takes action
                             against lease-holders, household members or their guests
                             who tamper with, dismantle or otherwise alter a smoke
                             detector within the rental unit; 2) has contracted for a
                             current market study of private unassisted rental units within
                             the City of New Britain, Connecticut, and 3) has updated its
                             Section 8 Administrative Plan and LIPH Admissions and
                             Continued Occupancy Policy to include applicable
                             provisions of the Housing Opportunity Program Extension
                             Act of 1996, and has updated all of its LIPH leases.

                             Additionally, the PHA recognized and agreed with the
                             discrepancies noted regarding its Comprehensive Grant
                             Program expenditures. The PHA lays the blame with the
                             constant change in upper management in the early and mid
                             1990s, which resulted in several Comprehensive Grant
                             Programs being opened at the same time and several
                             contracts being split between programs. The PHA further
                             states that the PHA’s general ledgers need to be corrected
                             to reflect what is on the Actual Modernization Cost

                                    Page 17                                00-BO-202-1003
Finding 2


                       Certificate and that the corrections needed can be very
                       easily done by journal entry after the proper research is done
                       and the documentation is verified.


                       The PHA’s response, for the most part, addresses the
 OIG Evaluation of     finding’s recommendations. We recognize the efforts of the
 Auditee Comments      PHA to address the concerns noted and have amended our
                       recommendations accordingly. However, revised written
                       policies and procedures are effective only when followed.
                       The PHA should take great care to ensure that the policies
                       and procedures implemented are adhered to.



 Recommendations     We recommend that you require the PHA to:

                     2A.      Adhere to its new procedures regarding smoke
                              detector violations, including the assessment of
                              applicable charges against those tenants in non-
                              compliance.

                     2B.      Provide evidence that the market survey of private
                              unassisted rental units in the New Britain, Connecticut
                              area, including those owned by Section 8 owners, was
                              performed and is adequate.

                     2C.      Provide a detailed schedule of drawdowns and
                              expenditures for Comprehensive Grants 701 through
                              704 and explain the reasons for discrepancies between
                              the reported expenditures and those listed on the
                              PHA’s general ledgers.




00-BO-202-1003             Page 18
Management Controls
In planning and performing our audit, we considered management controls of the Housing Authority of
the City of New Britain (PHA), specifically as related to its Low-Income Public Housing and Section 8
Programs, in order to determine our auditing procedures and not to provide assurance on management
controls.

Management controls consist of a plan or organization and methods and procedures adopted by
management to ensure that resource use is consistent with laws, regulations, and policies; that
resources are safeguarded against waste, loss, and misuse; and that reliable data is obtained,
maintained, and fairly disclosed in reports.


                                      We determined the following were relevant to our audit
 Relevant Management
                                      objectives:
 Controls
                                          •   General Administration Accounting

                                          •   Management Controls over Program Expenditures

                                          •   Management      Controls    over    Procurement    and
                                              Contracting

                                          •   Admissions and Occupancy

                                          •   Comprehensive Grant Program Reporting

                                      A significant weakness exists if management controls do not
 Assessment Results                   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 is obtained, maintained, and fairly disclosed in
                                      financial statements and reports.

                                      Our review identified significant weaknesses over the
 Significant Weaknesses               PHA’s ability to properly administer certain aspects in its
                                      Low-Income Public Housing and Section 8 Programs.
                                      Specific weaknesses were identified in all the management
                                      control areas disclosed above. These weaknesses are
                                      described in the Findings section of this report.




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Management Controls




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00-BO-202-1003         Page 20
                               Appendix A

Auditee Comments




                   Page 21   00-BO-202-1003
Appendix A




00-BO-202-1003   Page 22
                 Appendix
A




    Page 23   00-BO-202-1003
Appendix A




00-BO-202-1003   Page 24
                 Appendix
A




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Appendix A




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00-BO-202-1003    Page 26
                                                                                   Appendix B

Distribution
Deputy Secretary, SD, Room 10100 (1)
Chief of Staff, S, Room 10000 (1)
Special Assistant to the Deputy Secretary for Project Management, SD, Room 10100 (1)
Acting Assistant Secretary for Administration, S, Room 10110 (1)
Assistant Secretary for Congressional and Intergovernmental Relations, J, Room 10120 (1)
Senior Advisor to the Secretary, Office of Public Affairs, S, Room 10132 (1)
Director of Scheduling and Advance, AL, Room 10158 (1)
Counselor to the Secretary, S, Room 10234 (1)
Deputy Chief of Staff, S, Room 10226 (1)
Deputy Chief of Staff for Operations, S, Room 10226 (1)
Deputy Chief of Staff for Policy, S, Room 10226 (1)
Deputy Chief of Staff for Programs, S, Room 10226 (1)
Deputy Assistant Secretary for Public Affairs, W, Room 10222 (1)
Special Assistant for Inter-Faith Community Outreach, S, Room 10222 (1)
Executive Officer for Administrative Operations and Management, S, Room 10220 (1)
Senior Advisor to the Secretary for Pine Ridge Project, W, Room 10216 (1)
General Counsel, C, Room 10214 (1)
Director, Office of Federal Housing Enterprise Oversight, O, 9th Floor Mailroom (1)
Assistant Secretary for Housing/Federal Housing Commissioner, H, Room 9100 (1)
Office of Policy Development and Research, R, Room 8100 (1)
Inspector General, G, Room 8256 (1)
Assistant Secretary for Community and Development, D, Room 7100 (1)
Government National Mortgage Association, T, Room 6100 (1)
Assistant Secretary for Fair Housing and Equal Opportunity, E, Room 5100 (1)
Chief Procurement Officer, N, Room 5184 (1)
Assistant Secretary for Public and Indian Housing, P, Room 4100 (1)
Chief Information Officer, Q, Room 3152 (1)
Director, Office of Departmental Operations and Coordination, I, Room 2124 (1)
Chief Financial Officer, F, Room 2202 (1)
Director, Enforcement Center, V, 200 Portals Building (1)
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800 (1)
Director, Office of Multifamily Assistance Restructuring, Y, 4000 Portals Building, (1)
Secretary’s Representative, 1AS (2)
Senior Community Builder for Connecticut, 1ES (1)
Assistant Deputy Secretary for Field Policy and Management, SDF, Room 7108 (2)
Deputy Chief Financial Officer for Finance, S, Room 2202 (1)
Director, Office of Budget, FO, Room 3270 (1)
Primary Field Audit Liaison Officer, 3AF1(2)
Headquarters Audit Liaison Officer, PF, (Room 5156) (2)
Departmental Audit Liaison Officer, FM, Room 2206 (2)
Acquisitions Librarian, Library, AS, Room 8141 (1)
Assistant Inspector General for Audit, GA, Room 8286 (1)
Deputy Assistant Inspector General for Audit, GA, Room 8286 (1)
Assistant Inspector General for Investigation, GI, Room 8274 (1)

                                        Page 27                                 00-BO-202-1003
Appendix B


Appropriate Special Agent-In-Charge, 1AGI (1)
Director, Program Research and Planning Division, GAP, Room 8180 (1)
Director, Financial Audits Division, GAF, Room 8286 (1)
Director, Information Systems Audit Division, GAA, Room 8172 (1)
Counsel to the Inspector General, GC, Room 8260 (1)
Central Records, GF, Room 8256 (4)
Semi-Annual Report Coordinator, GF, Room 8254 (1)
Office of Inspector General Webmanager - Electronic Format (1)
Public Affairs Officer, G, Room 8256 (1)

Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Office Blldg., Washington, DC 20515

The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
Senate Office Building, United States Senate, Washington, DC 20510 (1)

The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706
Hart Senate Office Bldg., United States Senate, Washington,DC 20510 (1)

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515 (1)

Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204 Rayburn Bldg.,
House of Representatives, Washington, DC 20515 (1)

Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neill House
Office Building, Washington, DC 20515 (1)

Director, Housing and Community Development Issue Area, United States General Accounting
Office, 441 G Street, NW, Room 2474, Washington, DC 20548 (Attention: Judy England-
Joseph) (1)

Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street, NW,
Room 9226, New England Executive Office Building, Washington, Dc 20503 (1)




00-BO-202-1003                         Page 28