oversight

State of Ohio, Community Housing Improvement Program, Columbus, Ohio

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-06-15.

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

                    AUDIT REPORT




            STATE OF OHIO
COMMUNITY HOUSING IMPROVEMENT PROGRAM

                      COLUMBUS, OHIO

                        00-CH-255-1003

                         JUNE 15, 2000




                    OFFICE OF AUDIT, MIDWEST
                        CHICAGO, ILLINOIS




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                                                                          Issue Date
                                                                                  June 15, 2000

                                                                         Audit Case Number
                                                                                  00-CH-255-1003




TO:             Lana J. Vacha, Director of Community Planning and Development,
                  Ohio State Office


FROM:           Dale L. Chouteau, District Inspector General for Audit, Midwest

SUBJECT:        State of Ohio
                Community Housing Improvement Program
                Columbus, Ohio

We completed an audit of the State of Ohio’s Community Housing Improvement Program. The audit
was conducted as a result of our review of the Community Housing Improvement Program for Fairfield
County, a State subrecipient. The audit objectives were to determine whether the State had adequate
controls for monitoring its Program subrecipients and whether HUD’s rules and regulations were
properly followed.

The State did not have adequate controls over its Community Housing Improvement Program. The
State’s subrecipients we reviewed inappropriately used $463,904 of HUD funds to provide housing
rehabilitation assistance that was not in accordance with HUD’s regulations, the State’s requirements,
and/or the subrecipients’ Policies and Guidelines for the Program. The inappropriate disbursements
included: $290,555 for housing rehabilitation work that was improperly performed or not provided;
$172,181 for rehabilitation work that exceeded our estimates of reasonable costs; and $1,168 to
correct items that did not meet the State’s Residential Rehabilitation Standards after HUD funds were
used to pay for the deficient housing rehabilitation work.

We also found that the State’s subrecipients: (1) did not include $1,534 of needed housing rehabilitation
work in the specifications for three contracts; (2) incorrectly certified that the housing rehabilitation
services provided to 42 houses met the State’s Residential Rehabilitation Standards when they did not;
(3) did not take action to repair items identified by the State that did not meet the State’s Standards; (4)
failed to follow HUD’s regulations or the State’s requirements for full and open competition regarding




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Management Memorandum


the procurement of housing rehabilitation and consulting services; and (5) did not ensure its contracting
policies met HUD’s requirements for the award of fixed-price or cost-reimbursement type contracts.

Within 60 days, please provide us, for each recommendation made in this report, a status report on: (1)
the corrective action taken; (2) the proposed corrective action and the date to be completed; or (3)
why action is considered unnecessary. Also, please provide us copies of any correspondence or
directives issued because of the audit.

Should you or your staff have any questions, please contact me at (312)353-7832.




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Executive Summary
We completed an audit of the State of Ohio’s Community Housing Improvement Program. The audit
was conducted as a result of our review of the Community Housing Improvement Program for Fairfield
County, a State subrecipient. The audit objectives were to determine whether the State had adequate
controls for monitoring its Program subrecipients and whether HUD’s rules and regulations were
properly followed.

The State did not have adequate controls over its Community Housing Improvement Program. The
State’s subrecipients we reviewed inappropriately used $463,904 of HUD funds to provide housing
rehabilitation assistance that was not in accordance with HUD’s regulations, the State’s requirements,
and/or the subrecipients’ Policies and Guidelines for the Program. The inappropriate disbursements
included: $290,555 for housing rehabilitation work that was improperly performed or not provided;
$172,181 for rehabilitation work that exceeded our estimates of reasonable costs; and $1,168 to
correct items that did not meet the State’s Residential Rehabilitation Standards after HUD funds were
used to pay for the deficient housing rehabilitation work.

We also found that the State’s subrecipients: (1) did not include $1,534 of needed housing rehabilitation
work in the specifications for three contracts; (2) incorrectly certified that the housing rehabilitation
services provided to 42 houses met the State’s Residential Rehabilitation Standards when they did not;
(3) did not take action to repair items identified by the State that did not meet the State’s Standards; (4)
failed to follow HUD’s regulations or the State’s requirements for full and open competition regarding
the procurement of housing rehabilitation and consulting services; and (5) did not ensure its contracting
policies met HUD’s requirements for the award of fixed-price or cost-reimbursement type contracts.



                                         The State did not ensure that its subrecipients followed HUD’s
 The State Did Not Ensure                regulations, the State’s requirements, and their guidelines to
 That Units Met Its                      ensure assisted houses met the State’s Residential Rehabilitation
 Standards After Housing                 Standards. The State’s subrecipients inappropriately used
 Assistance                              $290,555 of HUD funds (HOME and Community
                                         Development Block Grant funds) to pay for rehabilitation work
                                         that was improperly performed or that was not provided to 43
                                         houses. One of the State’s subrecipients also did not include
                                         $1,534 of needed housing rehabilitation work in specifications
                                         for three contracts. The Housing Inspectors for the State’s
                                         subrecipients incorrectly certified that the housing rehabilitation
                                         services provided to 42 of the 43 houses met the State’s
                                         Residential Rehabilitation Standards when they did not. The
                                         problems occurred because the State did not have adequate
                                         procedures and controls over the Program to ensure houses
                                         met the State’s Standards after they received housing
                                         rehabilitation assistance.

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                             The State did not maintain an effective system of controls over
 The State’s Controls Over   its subrecipients’ contracting processes. The State did not
 Its Subrecipients’          ensure its subrecipients adequately segregated the duties of the
 Contracting Processes       personnel responsible for awarding housing rehabilitation
 Need To Be Improved         contracts. The State failed to ensure its subrecipients followed
                             HUD’s regulations and the State’s requirements for full and
                             open competition regarding the procurement of housing
                             rehabilitation and consulting services. The contracting policies
                             for the State’s subrecipients did not meet HUD’s requirements
                             for the award of fixed-price or cost-reimbursement type
                             contracts. The problems occurred because the State did not
                             ensure its subrecipients’ top management exercised their
                             responsibilities to implement effective contracting controls.

                             The State did not adequately ensure its subrecipients took
 The State Lacked Adequate   action to repair items that did not meet the State’s Residential
 Controls To Ensure          Rehabilitation Standards and which were identified during the
 Corrective Action Was       State’s monitoring reviews. The State also permitted a
 Taken                       subrecipient to inappropriately use $1,168 in HUD funds to
                             correct items that did not meet the State’s Standards after HUD
                             funds were used to pay for the deficient housing rehabilitation
                             work. The problems occurred because the State did not have
                             adequate controls to ensure its subrecipients took appropriate
                             corrective action regarding deficient housing rehabilitation work.

                             On September 15, 1999, we issued a report on the Fairfield
 Recommendations             County Community Housing Improvement Program (Report #
                             99-CH-255-1803). That report included recommendations to
                             address Fairfield County’s failure to ensure that the housing
                             rehabilitation work was performed correctly or included in the
                             housing contract specifications and deficiencies in its
                             procurement process. Consequently, we are not including
                             recommendations in this report specifically related to the
                             weaknesses in Fairfield County’s Program.

                             We recommend that the Director of Community Planning and
                             Development, Ohio State Office, assures that the State of Ohio:
                             implements controls to correct the weaknesses cited in this
                             report; ensures the housing rehabilitation work that was
                             improperly performed or that was not provided is completed
                             correctly; and reimburses its Community Housing Improvement
                             Program from non-Federal funds for rehabilitation work that
                             exceeded our estimates of reasonable costs and for the

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                    inappropriate use of HUD funds to correct items that did not
                    meet the State’s Residential Rehabilitation Standards.

                    We presented our draft findings to the Manager of the State’s
                    Office of Housing and Community Partnerships and HUD’s
                    staff during the audit. We held an exit conference with the State
                    on February 28, 2000. The State indicated that it would
                    provide a detailed response for the housing rehabilitation that
                    was improperly performed or that was not provided once the
                    final audit report was issued. The State disagreed that its
                    controls over its subrecipients contracting processes needed to
                    be improved. The State agreed that it needed to improve its
                    controls to ensure corrective action was taken by its
                    subrecipients regarding deficient housing rehabilitation work.

                    We included excerpts of the comments with each finding (see
                    Findings 1, 2, and 3). The complete text of the comments are
                    in Appendix B with the exception of 13 attachments that were
                    not necessary for understanding the State’s comments. A
                    complete copy of the State’s comments with the attachments
                    were provided to HUD’s Director of Community Planning and
                    Development, Ohio State Office.




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Management Memorandum                                                       i



Executive Summary                                                          iii



Introduction                                                               1



Findings

1    The State Did Not Ensure That Units Met The Residential
     Rehabilitation Standards After Housing Assistance                     3


2    The State’s Controls Over Its Subrecipients Contracting
     Processes Need To Be Improved                                       17


3    The State Lacked Adequate Controls To Ensure Corrective
     Action Was Taken                                                     35



Management Controls                                                       45



Follow Up On Prior Audits                                                47



Appendices
     A Schedule Of Ineligible Costs                                       49

     B Auditee Comments                                                  51

     C Distribution                                                       67



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Introduction
The State of Ohio established the Community Housing Improvement Program in 1992 to provide
housing rehabilitation assistance to low and moderate income individuals. The State competitively
awards grants to subrecipients interested in providing housing rehabilitation services. The State’s
subrecipients are local governments that do not receive funds directly from HUD. The subrecipients
provide housing rehabilitation assistance to correct items that do not meet the State’s Residential
Rehabilitation Standards.

The State uses HOME and Community Development Block Grant monies from HUD to fund the
Community Housing Improvement Program. HUD awarded the State $24,619,000 in HOME funds
and $56,514,000 in Block Grant funds for Fiscal Year 1997. The State awarded $29,413,200 in
HUD funds to 51 subrecipients for the Fiscal Year 1997 Community Housing Improvement Program.
The Fiscal Year 1997 Program covers the period between August 1, 1997 and July 31, 1999.

The Ohio Department of Development administers the State’s Community Housing Improvement
Program. Within the Department of Development, the Office of Housing and Community Partnerships
handles the day-to-day operations of the Program. Bob Taft is the Governor of the State of Ohio. C.
Lee Johnson is the Director of the State’s Department of Development and William J. Graves is the
Manager of the Office of Housing and Community Partnerships.

The State maintains its Community Housing Improvement Program records at the Office of Housing and
Community Partnerships. The Office is located at 77 South High Street, Columbus, Ohio.



                                      Our audit objectives were to determine whether the State had
 Audit Objectives                     adequate controls for monitoring its Community Housing
                                      Improvement Program subrecipients and whether HUD’s rules
                                      and regulations were properly followed.

                                      We conducted the audit at HUD’s Ohio State Office, the
 Audit Scope And                      State’s Office of Housing and Community Partnerships, and
 Methodology                          nine of the State’s subrecipients. The nine subrecipients were
                                      the Cities of Kenton, Newark, Shelby, and Wellston, and the
                                      Counties of Champaign, Clinton, Fairfield, Knox, and
                                      Pickaway. We performed our on-site audit work between
                                      May 1999 and December 1999.

                                      To determine whether the State had adequate controls for
                                      monitoring its Program subrecipients and whether HUD’s rules
                                      and regulations were properly followed, we reviewed the
                                      State’s: Fiscal Year 1997 Grant Agreements with its
                                      subrecipients; Fiscal Years 1996 and 1997 monitoring and

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                          technical assistance reports; and the Fiscal Years 1997 and
                          1998 audited financial statements. We also reviewed the
                          subrecipients’: Fiscal Years 1997 and 1998 audited financial
                          statements; Program Policies and Guidelines; Program
                          consulting services contracts; and the Fiscal Year 1997
                          Program participants files. We interviewed: HUD’s staff; the
                          State’s officials; the subrecipients’ officials, employees, and
                          their consultants’ staff; and the Program participants.

                          The audit covered the period August 1, 1997 to July 31, 1999.
                          We extended our audit period as necessary. We conducted
                          our audit in accordance with generally accepted government
                          auditing standards.

                          We provided a copy of this report to the Manager for the
                          State’s Office of Housing and Community Partnerships.




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                                                                                             Finding 1


   The State Did Not Ensure That Units Met The
    Residential Rehabilitation Standards After
                Housing Assistance
The State of Ohio did not ensure that its subrecipients followed HUD’s regulation, the State’s
requirements, and the subrecipients’ guidelines to ensure assisted houses met the State’s Residential
Rehabilitation Standards. The State’s subrecipients inappropriately used $290,555 of HUD funds
(HOME and Community Development Block Grant) to pay for rehabilitation work that was improperly
performed or that was not provided to 43 houses. One of the State’s subrecipients also did not include
$1,534 of needed housing rehabilitation work in specifications for three contracts. The Housing
Inspectors for the State’s subrecipients incorrectly certified that the housing rehabilitation services
provided to 42 of the 43 houses met the State’s Residential Rehabilitation Standards when they did not.
The problems occurred because the State did not have adequate procedures and controls over the
Program to ensure houses met the State’s Standards after they received housing rehabilitation
assistance. As a result, HUD funds were not efficiently and effectively used. HUD also lacks assurance
that houses met the State’s Standards after receiving housing rehabilitation assistance.



                                       24 CFR, Subpart F, Part 92.251 requires that housing
  HUD’s Regulations                    rehabilitated with HOME funds must meet all applicable local
                                       codes, rehabilitation standards, ordinances, and zoning
                                       ordinances at the time of project completion.

                                       24 CFR Part 504(a) says the State is responsible for managing
                                       the day-to-day operations of its HOME program, ensuring that
                                       HOME funds are used in accordance with all program
                                       requirements and written agreements, and taking appropriate
                                       action when performance problems arise. The use of recipients,
                                       subrecipients, or contractors does not relieve the State of this
                                       responsibility.

                                       24 CFR Part 24 allows HUD to take administrative action
                                       against housing inspectors who violate HUD’s requirements.

                                       Page 6 of the State of Ohio’s Home Investment Partnerships
  State’s Requirements                 Program Grant Agreements requires its subrecipients to ensure
                                       that all projects and units assisted with HOME funds meet the
                                       requirements set forth in 24 CFR Part 92 Subpart F. Page 3 of
                                       Attachment B of the Grant Agreements requires all rehabilitation


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Finding 1


                                work paid for with HOME funds to meet or exceed the State’s
                                Residential Rehabilitation Standards.

                                The State’s Non-Participating Jurisdiction Housing Handbook,
                                page 29, requires its subrecipients to ensure all rehabilitation
                                work is done in accordance with the State’s Residential
                                Rehabilitation Standards.

                                The Community Housing Improvement Programs’ Policies and
  Subrecipients’ Policies And   Guidelines for the Counties of Champaign, Fairfield, Pickaway,
  Guidelines                    and Clinton and the Cities of Kenton and Wellston say housing
                                units assisted under the Private Rehabilitation Program with
                                Community Development Block Grant funds or HOME funds
                                must meet the State of Ohio’s Residential Rehabilitation
                                Standards after rehabilitation. The City of Kenton and Fairfield
                                County’s Policies and Guidelines require only the item(s) being
                                repaired in housing units assisted under the Home Repair
                                Program be brought up to the State’s Residential Rehabilitation
                                Standards.

                                We selected a sample of 47 of the 121 houses that received
  Sample Selection And          housing rehabilitation funds through the Community Housing
  Inspection Results            Improvement Programs for the Cities of Kenton and Wellston,
                                and Champaign, Clinton, Fairfield, and Pickaway Counties.
                                We selected the 47 houses to determine whether the State’s
                                subrecipients appropriately paid for housing rehabilitation work.
                                The State’s six subrecipients executed 59 housing rehabilitation
                                contracts for the 47 houses between August 1997 and August
                                1999.

                                Twenty-nine of the 47 homeowners indicated in their responses
                                to our questionnaire or through interviews we conducted that
                                their housing rehabilitation work was performed incorrectly or
                                was not provided. Seventeen of the remaining 18 homeowners
                                were selected based upon their availability for an inspection.
                                We also inspected the house of a complainant who requested
                                an audit of Fairfield County. The 47 houses were inspected by
                                our Inspectors between February 12, 1999 and September 2,
                                1999.

                                We provided the inspection results to HUD’s Ohio State Office
                                Director of Community Planning and Development and the


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                                                                                  Finding 1


                           Manager for the State’s Office of Housing and Community
                           Partnerships.

                           The State’s subrecipients used $290,555 of HUD funds to pay
HUD Funds Were Used To     for housing rehabilitation work that was improperly performed
Pay For Rehabilitation     ($205,706) or that was not provided ($84,849). The improper
Work That Was Improperly   work or the work that was not provided occurred at 43 of the
Performed Or Not           47 houses that were inspected by our Inspectors. The State’s
Provided                   subrecipients provided $837,133 in housing rehabilitation
                           assistance to the 47 houses.

                           The 47 houses included 42 that were assisted under the Private
                           Rehabilitation Program for the State’s six subrecipients and five
                           that were assisted under the subrecipients’ Home Repair
                           Program. The improperly performed work and work not
                           provided was 35 percent of the total HUD funding for the 47
                           houses. The State’s subrecipients recorded property liens
                           against 40 of the 43 houses for the housing rehabilitation that
                           was improperly performed or not provided.

                           The following table shows the amount of work that was
                           improperly performed or not provided for the 43 houses.




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Finding 1

                                                                           Work          Work
                                                                         Improperly       Not
                            Address of House                 City        Performed      Provided
                   11139 Rosedale Road                Mechanicsburg          $19,730        $ 0
                   115 Walnut Street                  Mechanicsburg           10,090          950
                   5035 Millerstown Iris Road         Mechanicsburg            6,350          350
                   107 West Race Street               Mechanicsburg            3,200            0
                   31 Willow Street                   Mechanicsburg            8,780          150
                   164 Morgan Street                  Sabina                   2,545            0
                   165 South College Street           Sabina                  11,430            0
                   38 East Washington Street          Sabina                   6,070            0
                   67 Morgan Street                   Sabina                  11,900        1,425
                   277 Washington Street              Sabina                        0       4,500
                   144 Morgan Street                  Sabina                   3,340            0
                   205 West Mound Street              Sabina                        0       4,000
                   171 North South Street             New Vienna               4,156          740
                   544 North Ida Street               Kenton                   2,200            0
                   799 Riverside Avenue               Kenton                   1,063            0
                   218 Gilbert Street                 Kenton                     480            0
                   819 Kohler Street                  Kenton                   4,620        6,690
                   121 North Cherry Street            Kenton                  22,000            0
                   403 West North Street              Kenton                   4,000       13,450
                   511 North Leighton                 Kenton                   4,200        3,550
                   941 West Kohler Street             Kenton                  11,100        3,347
                   810 Kohler Street                  Kenton                        0       3,349
                   3365 State Route 752               Ashville                 1,113        3,365
                   19501 Ringgold Southern Road       Circleville                350        3,055
                   386 Ludwig Drive                   Circleville              2,380        3,700
                   1920 Chippewa Drive                Circleville              1,580          325
                   18140 US 23 North                  Circleville              3,105        2,704
                   103 Driving Park Road              Wellston                12,850        8,400
                   1266 South Vermont Avenue          Wellston                      0       7,200
                   2001 Livingston Avenue             Wellston                20,000            0
                   203 West Broadway Avenue           Wellston                 3,342          165
                   922 South Vermont Avenue           Wellston                 1,600        5,100
                   25 East Tenth Street               Wellston                      0         770
                   401 West D Street                  Wellston                 7,900          430
                   203 North Park Avenue              Wellston                 6,450        4,715
                   5310 Blacklick-Eastern Road        Thornville               2,610        1,725
                   240 North Company Street           Baltimore                2,856            0
                   720 North Main Street              Baltimore                  341           80
                   8585 Lancaster-Thornville Road     Pleasantville              675          100
                   2135 Carroll-Eastern Road          Pleasantville              453          430
                   2170 Pleasantville Road            Pleasantville               47            0
                   12108 Sixth Street                 Millersport                800            0
                   3360 Lakeside Drive                Millersport                 0           84
                                  Totals                                   $205,706      $84,849


                                        The State established its Community Housing Improvement
                                        Program to provide housing rehabilitation assistance to low and
                                        moderate income individuals. The housing assistance was
                                        intended to correct items that did not meet the State of Ohio’s

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                                   Residential Rehabilitation Standards. The Housing Inspectors
                                   for the State’s subrecipients were responsible for assuring that
                                   the housing rehabilitation work was provided in accordance
                                   with the housing rehabilitation contract and that it met the
                                   State’s Standards.

                                   Our Inspectors determined that the Housing Inspectors for the
                                   State’s subrecipients did not assure that the housing
                                   rehabilitation work was performed correctly or, in some cases,
                                   even provided. The housing work that was performed
                                   incorrectly or that was not provided related to such items as
                                   electrical outlets not secured, electrical wiring with open
                                   grounds, new roofing installed over sagging sheathing, and
                                   windows improperly installed. There were also three houses
                                   that should not have received rehabilitation assistance because
                                   the amount of needed repairs exceeded the State’s maximum
                                   amount of assistance and the houses did not meet the State’s
                                   Standards after rehabilitation. The three houses were located
                                   at: 11139 Rosedale Road, Mechanicsburg; 121 North Cherry,
                                   Kenton; and 2001 North Livingston Avenue, Wellston. The
                                   following pictures show examples of housing rehabilitation work
                                   that was improperly performed or not provided.

The house at 2001 Livingston
Avenue, Wellston had a crack in
the foundation that was not
addressed during the housing
rehabilitation work. The amount
of needed repairs for this house
exceeded the State’s maximum
assistance allowance.




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 The house at 2135 Carroll-
 Eastern Road, Pleasantville was
 missing an electrical outlet cover
 plate, the outlet was not secured
 to the wall, and the wiring was
 not replaced as required by the
 housing rehabilitation contract.




 The house at 121 North Cherry
 Street, Kenton had rotted siding
 that did not meet the State’s
 Standards. The house needed
 structural repairs that were not
 included in the housing
 rehabilitation assistance. The
 necessary repairs exceeded the
 State’s maximum rehabilitation
 assistance allowance.




                                      The State of Ohio’s Office of Housing and Community
                                      Partnerships is required to ensure that its subrecipients provide
                                      housing rehabilitation assistance through the Community
                                      Housing Improvement Program that meets the State’s
                                      Residential Rehabilitation Standards. To accomplish this
                                      objective, the State conducts monitoring visits prior to the close
                                      out of its subrecipients’ Grant. The State required its staff to

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                                                                                     Finding 1


                              prepare a Technical Assistance/Monitoring File Review Tool
                              when they sampled households assisted under the Program;
                              however, this was not always done. The State samples
                              approximately 15 percent of the households assisted by its
                              subrecipients to ensure the housing rehabilitation work was
                              performed properly. The State’s staff also performs on-site
                              technical assistance visits of subrecipients to ensure timely and
                              effective Program administration.

                              During their technical assistance visits, the State’s staff
                              conducted inspections of three houses that were also inspected
                              by one of our Inspectors. The three houses were located at:
                              203 North Park Avenue, Wellston; 799 Riverside Avenue,
                              Kenton; and 218 Gilbert Street, Kenton. The State’s
                              inspection reports for the three houses showed that the
                              rehabilitation work was performed correctly. However, our
                              Inspector determined that some of the housing rehabilitation
                              work was improperly performed or not provided. The
                              rehabilitation work that was improperly performed or not
                              provided for the three houses totaled $11,165, $1,063, and
                              $480, respectively.

                              The problems occurred because the State did not ensure that its
                              staff adequately monitored the State’s subrecipients to ensure
                              the rehabilitation work was performed correctly. The State’s
                              Program Manager said he performed supervisory reviews to
                              ensure his staff’s inspections were performed correctly;
                              however, he did not document his reviews. As a result, HUD
                              funds were not efficiently and effectively used.

                              The State did not ensure that one of its subrecipients included
The State Did Not Ensure      $1,534 of needed housing rehabilitation work in specifications
That Housing Rehabilitation   for three contracts. The rehabilitation work was needed to
Work Was Included In          correct deficiencies and to ensure the three houses met the
Contracts’ Specifications     State’s Residential Rehabilitation Standards. The three houses
                              were assisted under Fairfield County’s Private Rehabilitation
                              Program. The houses were located at: 720 North Main Street,
                              Baltimore; 8585 Lancaster-Thornville Road, Pleasantville; and
                              240 North Company Street, Baltimore. One of our Inspectors
                              determined the housing rehabilitation work that was not
                              included in the three contracts’ specifications totaled $1,464,
                              $35, and $35, respectively. The needed rehabilitation work not
                              in the contracts’ specifications included such items as a

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                                   foundation that needed to be sealed, and a chimney that needed
                                   tuck pointing. The following picture shows an example of the
                                   housing rehabilitation work that was not included in the contract
                                   specifications.

 The contract specifications for
 the house located at 720 North
 Main Street, Baltimore did not
 include the sealing of the
 foundation.




                                   The Housing Inspector for the State’s subrecipient said he must
                                   have missed the needed housing rehabilitation work when he
                                   was preparing the deficiency list for the three houses.

                                   The Housing Inspectors for the State’s subrecipients incorrectly
  The Subrecipients’ Housing       certified that the housing rehabilitation services provided to 42
  Inspectors Certified That        of the 43 houses listed in the table shown on page 6 met the
  Rehabilitation Work Met          State’s Residential Rehabilitation Standards when they did not.
  The State’s Standards            The house located at 5310 Blacklick-Eastern Road in
  When It Did Not                  Thornville was not certified as meeting the State’s Standards.

                                   The Housing Inspector for the City of Wellston, who was also
                                   the Housing Inspector for Fairfield County, said he has the
                                   contractors perform as much housing rehabilitation work on the
                                   assisted houses as possible even though he knows the houses
                                   will not meet the State’s Standards after the work is completed.
                                   HUD’s regulation, the State’s requirements, and the
                                   subrecipients’ Policies and Guidelines require that houses
                                   assisted under the State’s Community Housing Improvement
                                   Program must meet the State’s Residential Rehabilitation
                                   Standards at project completion. The Housing Inspector’s
                                   explanation shows a disregard for the Community Housing
                                   Improvement Program’s requirements. The Housing Inspector

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                      was aware of HUD’s regulation, the State’s requirements, and
                      the subrecipients’ Policies and Guidelines for the Program.

                      The Housing Inspectors for the City of Kenton and the
                      Counties of Champaign and Clinton said it was an oversight that
                      they did not identify housing rehabilitation work which was
                      improperly performed or not provided. This occurred because
                      the State lacked adequate controls over its subrecipients to
                      ensure that housing inspectors performed their duties correctly.
                      The State’s Program Manager said the State relies on its
                      subrecipients to obtain adequate housing inspectors.

                      The State did not adequately ensure its subrecipients took
                      action to repair items that did not meet the State’s Standards
                      and which were identified during the State’s monitoring reviews
                      (see Finding 3). The State performs monitoring visits of its
                      subrecipients to ensure the housing rehabilitation work is
                      performed correctly. If problems are identified, the State
                      requires its subrecipients to ensure the housing rehabilitation is
                      corrected according to the State’s Standards. The State lacked
                      procedures to ensure housing inspectors who failed to identify
                      problems that were revealed during the State’s monitoring visits
                      were removed from the Program. As a result, HUD lacks
                      assurance that the houses met the State’s Residential
                      Rehabilitation Standards after receiving housing rehabilitation
                      assistance.



Auditee Comments      [Excerpts from the Manager’s comments on our draft finding
                      follow. Appendix B, pages 51 to 53, contains the complete
                      text of the comments.]

                      The audit report lists $10,201 in work improperly performed
                      and work not provided that were included in the Fairfield
                      County audit. These issues were addressed and the County is
                      currently working with the Office of Housing and Community
                      Partnerships to fulfill the plan of action outlined in the audit
                      response. The Office requests that the final audit report include
                      only issues that are specific to this review and are not included
                      in other audits undertaken by HUD’s Office of Inspector
                      General for Audit. The duplication of the audit material inflates
                      the dollar figures reflected in the audit and provides an unfair
                      representation of the scale of the items in question.

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 OIG Evaluation Of        Our previous audit of the Community Housing Improvement
 Auditee Comments         Program for Fairfield County, a State subrecipient, disclosed
                          that the County did not ensure assisted houses met the State’s
                          Residential Rehabilitation Standards. We made specific
                          recommendations in the Fairfield County audit report to correct
                          the problems identified in that report. The report did not
                          include recommendations to improve the State’s oversight of
                          the Program.

                          The problems at Fairfield County were compounded because
                          the State lacked adequate controls to ensure assisted houses
                          meet the State’s Standards. The State should establish the
                          necessary controls to ensure assisted houses meet the State’s
                          Standards after receiving housing rehabilitation assistance. The
                          recommendations cited in this report do not duplicate the
                          recommendations made in the Fairfield County audit report.



 Auditee Comments         The draft finding listed work identified as improperly performed
                          or work not provided for 35 properties in six communities. A
                          detailed response for each property will be completed once the
                          final audit is issued. The Office of Housing and Community
                          Partnerships will inspect each of the properties identified,
                          review the audit citations, and propose an appropriate response
                          for each property. It is important to note that the properties
                          inspected were households that received assistance from the
                          Fiscal Year 1997 Community Housing Improvement Program.

                          The Office of Housing and Community Partnerships monitors all
                          grants for compliance with State and Federal requirements,
                          including compliance with the Office’s Residential Rehabilitation
                          Standards, prior to the close-out of the grant. At the time the
                          audit inspections were completed, the Office had just begun the
                          process of monitoring the Fiscal Year 1997 grants.

 OIG Evaluation Of        The State’s subrecipients inappropriately used HUD funds to
 Auditee Comments         pay for rehabilitation work that was improperly performed or
                          that was not provided to 43 houses. The actions proposed by
                          the State to inspect each property should assist in ensuring the
                          housing rehabilitation work cited in this finding is corrected.
                          The State should ensure the rehabilitation work is completed as
                          required by HUD’s regulation, the State’s requirements, and the

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                      subrecipients’ Policies and Guidelines. If the State is unable to
                      ensure the rehabilitation work is completed, then the State
                      should reimburse its Community Housing Improvement
                      Program from non-Federal funds the total amount of housing
                      rehabilitation assistance that was provided to the applicable
                      houses and ensure that the applicable liens against the
                      properties are released.

                      We inspected 43 houses assisted under the State’s Community
                      Housing Improvement Program. The State’s staff conducted
                      inspections of three of the 43 houses prior to our inspection to
                      determine whether the housing rehabilitation work was
                      performed correctly. However, those three inspections did not
                      identify the rehabilitation work that was performed incorrectly
                      or was not done as required. Our Inspector determined that
                      the housing rehabilitation work improperly performed or not
                      provided for the three houses totaled $11,165, $1,063, and
                      $480. The State should establish adequate controls to ensure
                      assisted houses meet the State’s Standards after receiving
                      housing rehabilitation assistance.



Auditee Comments      The Office of Housing and Community Partnerships established
                      a rehabilitation training series aimed at raising the expertise and
                      performance level of housing inspectors currently working in the
                      Community Housing Improvement Program. The Office
                      requires that all staff and Program inspectors attend the entire
                      training series. The Office will track course attendance.
                      Grantees or potential grantees who fail to ensure staff
                      attendance and completion of the series will not be approved
                      for future Program funding.

                      The Office of Housing and Community Partnerships monitors all
                      grants for compliance with State and Federal requirements,
                      including compliance with the Office’s Residential Rehabilitation
                      Standards. Monitoring findings are used as part of future
                      funding reviews to evaluate a subrecipient’s ability to comply
                      with all applicable requirements.       Subrecipients’ funding
                      applications are evaluated for the qualifications of the staff
                      proposed to implement the Program, if funded.

                      The Community Housing Improvement Program funding
                      process is extremely competitive. Any loss of points based on

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                          past performance or qualifications of the proposed staff would
                          dramatically affect a subrecipient’s ability to receive future
                          Program funding.

                          The Office of Housing and Community Partnerships is
                          evaluating additional ways of determining the current level of a
                          housing inspector’s performance with the intent of preventing
                          future participation in the Program should improvement not
                          occur. The Office is considering the development of a policy
                          for placing Program staff in a probationary status, closely
                          evaluating their job performance for a set time period, and then
                          taking action to remove an inspector from participating in the
                          Program, if their job performance does not improve.

 OIG Evaluation Of        The actions proposed by the State, if fully implemented, should
 Auditee Comments         ensure that housing inspectors who do not perform correctly are
                          removed from participating in the Community Housing
                          Improvement Program.


 Recommendations          On September 15, 1999, we issued a report on the Fairfield
                          County Community Housing Improvement Program (Report #
                          99-CH-255-1803). That report included recommendations to
                          address Fairfield County’s failure to ensure that $10,201 of
                          housing rehabilitation work was performed correctly and that
                          $1,534 of necessary work was not included in the housing
                          contract specifications. Consequently, we are not including
                          recommendations in this report specifically related to the
                          weaknesses in Fairfield County’s Program.

                          We recommend that the Director of Community Planning and
                          Development, Ohio State Office, assures that the State of Ohio:

                          1A.         Ensures that $280,354 ($290,555 less $10,201
                                  from Fairfield County) of housing rehabilitation work
                                  cited in this finding is completed correctly. If the State
                                  is unable to ensure the rehabilitation work is completed,
                                  then the State should reimburse its Community Housing
                                  Improvement Program from non-Federal funds the total
                                  amount of housing rehabilitation assistance that was
                                  provided to the applicable houses and ensure that the
                                  applicable liens against the properties are released.


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                    1B.     Establishes adequate controls to ensure assisted houses
                            meet the State’s Residential Rehabilitation Standards
                            after receiving housing rehabilitation assistance as
                            required by HUD’s regulation, the State’s requirements,
                            and the subrecipients’ Policies and Guidelines.

                    1C.         Establishes procedures and controls to ensure that
                            housing inspectors who do not perform correctly are
                            properly monitored to ensure their performance
                            improves. If a housing inspector’s performance does
                            not improve, then the State should take action to
                            remove the inspector from participating in the Program.

                    We also recommend that the Director of Community Planing
                    and Development, Ohio State Office:

                    1D.     Takes administrative action against the Housing
                            Inspectors for the City of Kenton and the Counties of
                            Champaign and Clinton, if within six months their
                            performance does not show significant improvement.

                    1E.     Initiates debarment proceedings against the Housing
                            Inspector for the City of Wellston and Fairfield County
                            based upon his disregard for the Program’s
                            requirements.




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    The State’s Controls Over Its Subrecipients’
    Contracting Processes Need To Be Improved
The State of Ohio did not maintain an effective system of controls over its subrecipients’ contracting
processes. The State did not ensure its subrecipients adequately segregated the duties of the personnel
responsible for awarding housing rehabilitation contracts. The State failed to ensure its subrecipients
followed HUD’s regulations and the State’s requirements for full and open competition regarding the
procurement of housing rehabilitation and consulting services. The contracting policies for the State’s
subrecipients did not meet HUD’s requirements for the award of fixed-price or cost-reimbursement
type contracts. The problems occurred because the State did not ensure its subrecipients’ top
management exercised their responsibilities to implement effective contracting controls. As a result,
HUD funds were not used efficiently and effectively, and the procurement transactions by the State’s
subrecipients were not subject to full and open competition.



                                       24 CFR Part 504(a) says the State is responsible for managing
  HUD’s Regulations                    the day-to-day operations of its HOME program, ensuring that
                                       HOME funds are used in accordance with all program
                                       requirements and written agreements, and taking appropriate
                                       action when performance problems arise. The use of recipients,
                                       subrecipients, or contractors does not relieve the State of this
                                       responsibility.

                                       24 CFR Part 85.36(b)(9) requires grantees and subgrantees to
                                       maintain records sufficient to detail the significant history of a
                                       procurement, such as the rationale for the method of
                                       procurement and the basis for the contract price. Part
                                       85.36(c)(1) requires all procurement transactions to be
                                       conducted in a manner providing full and open competition.

                                       24 CFR Part 85.36(d)(2) states that procurement by sealed
                                       bids will be publicly solicited and a firm-fixed-price contract
                                       awarded to the responsible bidder whose bid, conforming with
                                       all the material terms and conditions of the invitation for bids, is
                                       the lowest price. The sealed bid method is the preferred
                                       method for procuring construction services.

                                       24 CFR Part 85.36(d)(3) also says the technique of
                                       competitive proposals is normally conducted with more than
                                       one source submitting an offer, and either a fixed-price or cost-
                                       reimbursement type contract is awarded. If this method is used:

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                          (i) requests for proposals will be publicized; (ii) proposals will
                          be solicited from an adequate number of qualified sources; and
                          (iv) awards will be made to the responsible firm whose
                          proposal is most advantageous to the program, with price and
                          other factors considered.

                          As of June 30, 1997, Section 307.86 of the Ohio Revised
  State’s Requirements    Code requires that anything to be reconstructed by a county at
                          a cost in excess of $15,000 will be obtained through
                          competitive bidding. Prior to June 30, 1997, the State required
                          county contracts in excess of $10,000 to be awarded through
                          competitive bidding. Section 307.87(A) of the Code says
                          when competitive bidding is required by Section 307.86, notice
                          shall be published once a week, for not less than two
                          consecutive weeks preceding the day of the opening of bids, in
                          a newspaper of general circulation within the county.

                          As of March 30, 1999, Section 731.14 of the Ohio Revised
                          Code requires that anything to be reconstructed by a city at a
                          cost in excess of $15,000 will be obtained through competitive
                          bidding. Prior to March 30, 1999, the State required city
                          contracts in excess of $10,000 to be awarded through
                          competitive bidding. Section 731.14 of the Code says when
                          competitive bidding is required, notice shall be published for not
                          less than two consecutive weeks in a newspaper of general
                          circulation within the city. The bids will be opened and read
                          publicly by the city’s clerk at the time, date, and place specified
                          in the advertisement to bidders or specifications.

                          The State of Ohio’s Home Investment Partnerships Program
                          Grant Agreements, page 1 of Attachment D, require
                          subrecipients to comply with 24 CFR Part 85.

                          The State’s Non-Participating Jurisdiction Housing Handbook,
                          page 4, requires that subrecipients request and obtain at least
                          three bids or cost estimates on all rehabilitation work. In limited
                          instances, acceptance of a single bid is permitted, if it is
                          determined that the bid is reasonable (within 10 percent of the
                          staff’s cost estimate).




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                              The State did not ensure that the six subrecipients we reviewed
The Duties For The Award      properly segregated the duties of their staff concerning the
Of Rehabilitation Contracts   award of housing rehabilitation contracts. The State is
Were Not Adequately           responsible for managing the day-to-day operations of its
Segregated                    Community Housing Improvement Program funded with
                              HOME funds. The use of recipients, subrecipients, or
                              contractors does not relieve the State of this responsibility.

                              The Housing Inspectors for the State’s subrecipients performed
                              various activities in awarding housing rehabilitation contracts
                              without adequate internal checks and balances. No one person
                              should have complete control over all phases of any significant
                              transaction. However, the Housing Inspectors for the State’s
                              subrecipients effectively had complete control over the award of
                              housing rehabilitation contracts.

                              The Housing Inspectors for the State’s subrecipients performed
                              an initial inspection of a house to determine the repairs needed
                              under the Community Housing Improvement Program. If the
                              household was eligible for housing rehabilitation assistance, the
                              Housing Inspectors prepared a Deficiency List and Contractor
                              Proposal for prospective contractors. The Housing Inspectors
                              then held a bid meeting with the prospective contractors at the
                              house to be rehabilitated.

                              After the bid meeting, contractors were requested to submit
                              their bids to the Community Housing Improvement Program
                              office for the State’s subrecipients. The Housing Inspectors
                              and a representative of the State’s subrecipients were to open
                              the bids received and award the contract to the lowest bidder.
                              However, the State’s subrecipients did not have any
                              documentation to show that their representative or prospective
                              contractors attended the bid openings. Therefore, the State’s
                              subrecipients unnecessarily increased their susceptibility to
                              Program abuses. The State’s subrecipients had an adequate
                              number of employees to segregate duties so that no one
                              individual needed to have complete control of a transaction.

                              The State did not ensure that the six subrecipients we reviewed
The Award Of Housing          followed HUD’s regulations or the State’s requirements
Rehabilitation Contracts      regarding the procurement of housing rehabilitation services.
Was Not Subject To Full       The six subrecipients awarded 139 rehabilitation contracts for
And Open Competition          121 households between April 1997 and August 1999. Of the

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                             139 contracts, the State’s subrecipients used $1,978,665 in
                             HUD funds (HOME and Community Development Block
                             Grant) for 138 contracts and terminated one contract prior to
                             any funds being disbursed. The State’s requirements and
                             HUD’s regulations required the subrecipients to award the
                             rehabilitation contracts through full and open competition.
                             However, the contract awards were not subject to full and open
                             competition.

                             The Policies and Guidelines for the State’s subrecipients
                             required that homeowners be provided with a listing of the
                             subrecipients’ approved contractors. For contractors to be
                             placed on the approved listings, they were required to provide
                             proof of insurance and business references to the State’s
                             subrecipients. The homeowners were then to select three
                             contractors to bid on their rehabilitation work and provide their
                             selection to the subrecipients’ Housing Inspectors. However,
                             this was not being done.

                             The Housing Inspectors for the State’s subrecipients either
                             suggested to the homeowners which contractors to select, or
                             actually selected the contractors to bid on the rehabilitation
                             work. Contract awards were made by the Housing Inspectors
                             for the State’s subrecipients. The Training and Technical
                             Assistance Supervisor for the State’s Office of Housing and
                             Community Partnerships said if the State’s subrecipients had
                             followed the contracting procedures requiring homeowners to
                             select three contractors to provide bid proposals, then the
                             subrecipients would not be required to follow HUD’s or the
                             State’s procurement requirements. However, she said since the
                             State’s subrecipients carried out the procurement of the
                             rehabilitation services, the subrecipients were required to
                             publicly advertise the rehabilitation contracts for the purpose of
                             soliciting bids.

                             The six subrecipients did not publicly advertise 84 of the 139
 The State’s Subrecipients   (60 percent) housing rehabilitation contracts as required by the
 Did Not Follow State Law    State’s Revised Code. Fairfield County was required by State
 Regarding The Award Of      law to publicly advertise three contracts awarded before June
 Housing Rehabilitation      30, 1997 that exceeded $10,000. After June 1997, State law
 Contracts                   required Champaign, Clinton, Fairfield, and Pickaway Counties
                             to publicly advertise 48 contracts that exceeded $15,000.


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                            The Cities of Kenton and Wellston were required by State law
                            to publicly advertise 25 contracts awarded before March 30,
                            1999 that exceeded $10,000. After March 1999, State law
                            required the Cities of Kenton and Wellston to publicly advertise
                            eight contracts that exceeded $15,000. However, the State’s
                            subrecipients did not publicly advertise the contracts.

                            The State did not ensure that its six subrecipients followed
The State Did Not Ensure    HUD’s and the State’s requirements regarding the award of
HUD’s Regulations And Its   housing rehabilitation contracts. The State’s Program Manager
Handbook Were Followed      said while his staff randomly reviews subrecipients’ files to
                            ensure that three bids are solicited for rehabilitation work, his
                            Office does not verify whether the subrecipients followed
                            HUD’s regulations to publicly advertise the housing
                            rehabilitation contracts.

                            The State’s Non-Participating Jurisdiction Housing Handbook
                            required its subrecipients to obtain bids from at least three
                            contractors. However, the State’s subrecipients did not receive
                            three bids for 113 of the 139 (81 percent) contracts awarded.
                            To determine how contractors were selected to submit bid
                            proposals, we sent a questionnaire to or interviewed 104 of the
                            121 households who participated in the subrecipients’
                            Programs. We did not receive a questionnaire from or were
                            unable to interview 18 households. Of the 104 households, 53
                            (51 percent) informed us that the Housing Inspectors for the
                            State’s subrecipients either selected the contractor, suggested
                            the contractors to obtain bids from, or requested the
                            contractors to bid on the housing contract.

                            The Housing Inspector for Fairfield County and the City of
                            Wellston said good contractors were hard to find to participate
                            in the Program. Fairfield County awarded 24 of the 26
                            rehabilitation contracts to only three contractors. The City of
                            Wellston awarded 10 of the 21 contracts to only one
                            contractor. Clinton County’s Housing Inspector awarded 10 of
                            the 18 rehabilitation contracts to only one contractor.

                            In order to determine whether the amounts paid to the
                            contractors were reasonable, we had two Inspectors evaluate
                            the services received for 59 of the 139 contracts. We selected
                            the 59 contracts based upon the homeowners’ responses to our
                            questionnaire or through interviews we conducted to determine

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                          whether their rehabilitation work was performed correctly. The
                          59 contracts were awarded for rehabilitation services on 47
                          houses. Of the 47, our Inspectors determined that the contract
                          amount was excessive for 34 houses.

                          Our Inspectors determined that the State’s subrecipients paid
                          $172,181 in unreasonable costs for rehabilitation services on
                          the 34 houses. The State’s subrecipients paid $604,846 from
                          HUD funds for the rehabilitation services; however, our
                          Inspectors estimated the services should have cost $432,665.
                          As a result, HUD funds were not efficiently and effectively used.

                          The following table shows the amount of excessive rehabilitation
                          costs paid for each house.




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                                                                   OIG       Amount
                    Address of Household             Contract(s Inspectors’ Excessivel
                                                      ) Amount   Estimate     y Paid
       107 West Race Street, Mechanicsburg                $9,778    $7,525      $2,253
       115 Walnut Street, Mechanicsburg                   15,995     8,366       7,629
       31 Willow Street, Mechanicsburg                    23,820    20,513       3,307
       5035 Millerstown-Iris Road, Urbana                 17,325    12,420       4,905
       38 East Washington Street, Sabina                  21,450    14,397       7,053
       165 South College Street, Sabina                   19,500    11,173       8,327
       67 Morgan Street, Sabina                           22,000    15,020       6,980
       144 Morgan Street, Sabina                          22,000    17,543       4,457
       164 Morgan Street, Sabina                          17,844    15,543       2,301
       277 West Washington Street, Sabina                 19,625    13,966       5,659
       80 Sherman Street, Sabina                          19,160    12,914       6,246
       205 West Mound Street, Sabina                      18,630    11,861       6,769
       171 North South Street, New Vienna                 14,629    11,074       3,555
       103 Driving Park Road, Wellston                    21,900     9,857      12,043
       922 South Vermont Avenue, Wellston                 22,000    14,075       7,925
       1266 South Vermont Avenue, Wellston                19,545    10,466       9,079
       203 West Broadway Avenue, Wellston                 16,800    10,547       6,253
       25 East Tenth Street, Wellston                     20,000    14,851       5,149
       401 West D Street, Wellston                        20,000    13,573       6,427
       203 North Park Avenue, Wellston                    19,450    11,816       7,634
       1920 Chippewa Drive, Circleville                    4,405     3,600         805
       19501 Ringgold Southern Road, Circleville          24,662    18,731       5,931
       386 Ludwig Drive, Circlevillle                     25,020    17,930       7,090
       18140 US Route 23 North, Circleville               24,218    18,556       5,662
       3365 State Route 752, Ashville                     21,083    15,772       5,311
       465 Poplar Street, Ashville                        12,500    10,814       1,686
       403 West North Street, Kenton                      23,000    20,839       2,161
       799 Riverside Avenue, Kenton                        5,000     4,278         722
       218 Gilbert Street, Kenton                          4,880     4,114         766
       941 West Kohler Street, Kenton                     23,000    15,994       7,006
       544 North Ida Street, Kenton                        9,981     8,747       1,234
       819 West Kohler Street, Kenton                     19,701    15,468       4,233
       511 North Leighton Street, Kenton                  20,945    18,038       2,907
       3360 Lakeside Drive, Millersport                    5,000     2,284       2,716
                            Totals                      $604,846  $432,665    $172,181


                                 We also determined that the State’s subrecipients used an
                                 additional $1,091,037 in HUD funds for 75 rehabilitation
                                 contracts that were not competitively procured as required.
                                 The 75 contracts were awarded for rehabilitation services on
                                 70 houses. As a result, the procurement transactions by the
                                 State’s subrecipients were not subject to full and open
                                 competition.

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                          The State did not ensure that the six subrecipients we reviewed
  Consulting Services     properly procured their contracts for housing rehabilitation
  Contracts Were Not      consulting services. Between October 1996 and October
  Properly Procured       1997, the Cities of Kenton and Wellston, and Champaign,
                          Clinton, and Fairfield Counties signed two year contracts with
                          Community Development Consultants of Ohio to provide
                          housing rehabilitation consulting services to individuals
                          participating in their Community Housing Improvement
                          Programs. Pickaway County signed a two year contract in
                          December 1997 with Poggemeyer Design Group to provide
                          similar consulting services to individuals participating in its
                          Program. The six consulting contracts ranged between
                          $98,100 and $117,000. The State’s subrecipients awarded the
                          six consulting contracts without full and open competition.

                          The State’s subrecipients publicly solicited Requests for
                          Qualifications between July 1995 and March 1997 from
                          consulting firms to evaluate their qualifications to administer their
                          Community Housing Improvement Programs.                          The
                          subrecipients received only one or two qualified responses, one
                          of which was from Community Development Consultants or
                          Poggemeyer Design Group.                  However, the State’s
                          subrecipients did not solicit or publicize a Request for Proposal
                          for their Programs’ consulting services as required by HUD’s
                          regulation and the State’s Grant Agreements.

                          The State’s subrecipients should have requested qualified
                          contractors to provide proposals. A Request for Proposal is
                          used to obtain cost estimates from contractors while a Request
                          for Qualifications is used to determine whether a contractor has
                          the necessary skills to provide the required services. The
                          subrecipients also did not maintain records to detail the
                          significant history of the procurement process, such as the
                          rationale for the method of procurement or the basis for the
                          contract price.

                          In order to determine whether the contracts’ prices were
                          reasonable, we compared their prices to cost proposals we
                          obtained from two vendors. The vendors provided us cost
                          proposals ranging from $111,500 to $120,000. The costs
                          charged by Community Development Consultants and
                          Poggemeyer Design Group appear within an acceptable range
                          when compared to the vendors’ quotes.

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                           Although the price paid to Community Development
                           Consultants and Poggemeyer Design Group appears reasonable
                           based upon the two vendors’ quotes we obtained, the State’s
                           subrecipients denied other qualified firms equal opportunity to
                           bid on the consulting services since the subrecipients did not
                           issue a Request for Proposal. The State’s Manager for the
                           Community Housing Improvement Program said his Office does
                           not review the subrecipients’ procurement of consulting services
                           to ensure that Requests for Proposals are issued.

                           The State did not ensure that the contracting policies for five of
Contracting Policies Did   the six subrecipients we reviewed met HUD’s requirements for
Not Meet HUD’s             the award of fixed-price or cost-reimbursement type contracts.
Requirements               The Fiscal Year 1997 Community Housing Improvement
                           Programs’ Policies and Guidelines for the Cities of Kenton and
                           Wellston, and Clinton and Champaign Counties did not require
                           them to issue Requests for Proposals. Fairfield County’s Fiscal
                           Year 1996 Program’s Policies and Guidelines also did not
                           require the County to issue Requests for Proposals regarding
                           professional services. The five subrecipients’ Policies and
                           Guidelines required them to issue either a Request for Proposal
                           or a Request for Qualifications. However, HUD’s regulation
                           requires that Requests for Proposals be solicited from an
                           adequate number of qualified sources for either a fixed-price or
                           cost-reimbursement contract. The Cities of Kenton and
                           Wellston, and Champaign, Clinton, and Fairfield Counties
                           awarded Community Development Consultants fixed-price
                           contracts for their Programs.


Auditee Comments           [Excerpts from the Manager’s comments on our draft finding
                           follow. Appendix B, pages 54 to 61, contains the complete
                           text of the comments.]

                           The Office of Housing and Community Partnerships’
                           subrecipients are following the process outlined in HUD’s CPD
                           Notice 85-2.       The Notice establishes when Office of
                           Management and Budget Circular A-102, Attachment O,
                           applies to Community Development Block Grant assisted
                           rehabilitation activities. HUD encourages local grantees to
                           maximize the participation of property owners in the
                           rehabilitation process.


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                          The Notice clarifies that if the property owner is the procuring
                          party, then Attachment O does not apply. The Community
                          Housing Improvement Program is designed to allow the
                          property owner first-line control over the procurement of
                          rehabilitation services while the Program staff provides technical
                          assistance. The assistance includes performing a property
                          inspection, developing a deficiency list and work specifications,
                          providing the property owner with a list of approved
                          contractors, and collecting and summarizing bids as outlined in
                          Notice 85-2.

                          The Office of Housing and Community Partnerships requested a
                          ruling from HUD’s Ohio State Office whether the guidance
                          provided in the Notice was still applicable. HUD provided an
                          opinion that the guidance provided in CPD Notice 85-2
                          remains applicable.

 OIG Evaluation Of        We agree that CPD Notice 85-2 is applicable. Page 2 of the
 Auditee Comments         Notice says if the property owner carries out the housing
                          rehabilitation procurement transaction, then Office of
                          Management and Budget Circular A-102, Attachment O, does
                          not apply. If the property owner does not carry out the
                          procurement transaction, then Circular A-102 does apply. 24
                          CFR Part 85 replaced Circular A-102. Part 85 requires
                          procurement transactions be conducted in a manner providing
                          full and open competition.

                          The Housing Inspectors for the State’s subrecipients performed
                          an initial inspection of a house to determine the deficiencies that
                          needed to be corrected under the Community Housing
                          Improvement Program. The Inspectors also prepared a
                          Deficiency List and Contractor Proposal for prospective
                          contractors, suggested which contractors to obtain bids from or
                          brought the contractors to the bid meeting, opened the bids
                          received from the prospective contractors, and awarded the
                          housing rehabilitation contract.        The Housing Inspectors
                          effectively had complete control over the scope and award of
                          housing rehabilitation contracts. As a result, the Housing
                          Inspectors, not the property owner, carried out the
                          procurement transaction. Therefore, the contract awards were
                          not subject to full and open competition.



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Auditee Comments       The comments of the State’s Training and Technical Assistance
                       Supervisor are incorrectly summarized. The State’s Supervisor
                       attempted to convey to the Inspector General’s auditor that if
                       the housing rehabilitation services were not procured according
                       to Office of Management and Budget Circular A-102,
                       Attachment O, and CPD Notice 85-2, then the procurement
                       transaction would not qualify for exemption from Attachment O
                       or the Ohio Revised Code.

                       To protect the public’s interest, the State required: (1) at least
                       three contractors who are likely to bid must be contacted; (2)
                       the homeowner must accept the lowest and best bid; and (3) if
                       only one bid is received, then the bid must be within 10 percent
                       of the estimate, accounting for all addenda to the bid package.

                       The draft finding references the State’s failure to comply with
                       Sections 307.86 and 731.14 of the Ohio Revised Code. The
                       report also references the State’s failure to verify whether the
                       subrecipients followed the Revised Code’s requirement to
                       publicly advertise the rehabilitation contracts. The Ohio
                       Revised Code references apply to public procurement and do
                       not apply to rehabilitation contracts awarded by homeowners.

                       It is clear the subrecipients’ procurement Policies and
                       Guidelines were set up to comply with HUD’s procurement
                       requirements.       It appears the Inspector General’s staff
                       concluded that public procurement was required based on a
                       misunderstanding of the comments by the State’s Training and
                       Technical Assistance Supervisor, and the interpretation of the
                       survey and interview responses from the Program participants.
                       In all cases, the subrecipients were not a signatory on any of the
                       rehabilitation contracts.

OIG Evaluation Of      We do not believe we misunderstood the State’s Training and
Auditee Comments       Technical Assistance Supervisor. She said if the State’s
                       subrecipients had followed the contracting procedures requiring
                       homeowners to select three contractors to provide bid
                       proposals, then the subrecipients would not be required to
                       follow HUD’s or the State’s procurement requirements.
                       However, she said since the State’s subrecipients carried out
                       the procurement of the rehabilitation services, the subrecipients


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                          were required to publicly advertise the rehabilitation contracts
                          for the purpose of soliciting bids.

                          Page 4 of the State’s Non-Participating Jurisdiction Housing
                          Handbook requires that subrecipients request and obtain at
                          least three bids or cost estimates on all rehabilitation work. In
                          limited instances, acceptance of a single bid is permitted, if it is
                          determined that the bid is reasonable (within 10 percent of the
                          staff’s cost estimate). However, the State’s subrecipients did
                          not receive three bids for 113 of the 139 contracts awarded.

                          As previously mentioned, the subrecipients’ Housing
                          Inspectors, not the property owners, carried out the award of
                          the housing rehabilitation contracts. In over half the cases we
                          reviewed, the Housing Inspectors determined or influenced the
                          homeowners in determining which contractors were to be
                          solicited. Thus, the State’s subrecipients were required to
                          follow the public procurement requirements of the Ohio Revised
                          Code. The State’s subrecipients did not publicly advertise 84
                          of the 139 housing rehabilitation contracts as required by the
                          State’s Revised Code. As a result, the procurement of the
                          housing rehabilitation services were not subject to full and open
                          competition as required by HUD’s regulations and State law.


 Auditee Comments         The Office of Housing and Community Partnerships will review
                          the current policies of its subrecipients in an effort to encourage
                          the attendance of contractors at bid openings, and a
                          representative of the subrecipient and the homeowner. The
                          Office will recommend that each subrecipient maintains a record
                          of all persons who attend the bid opening.

                          HUD’s procurement guidelines allow subrecipients to perform
                          such technical assistance as providing a list of contractors to
                          homeowners, collecting and summarizing contractors’ bids, and
                          advising the homeowner on how to evaluate a contractor’s
                          proposal or providing information on past work of specific
                          contractors. In an effort to eliminate the possibility that the
                          housing inspector might have an undue influence on contract
                          awards, the Office will recommend that subrecipients develop
                          policies and guidelines to provide additional checks and
                          balances.


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OIG Evaluation Of      The Policies and Guidelines for the State’s subrecipients already
Auditee Comments       require housing inspectors to provide homeowners with a listing
                       of approved contractors, collect and summarize the bids, advise
                       the homeowner on how to evaluate a contractor’s proposal,
                       and award the contract in the presence of the subrecipients’
                       representative.     However, the subrecipients’ Housing
                       Inspectors that we reviewed also suggested or determined
                       which contractors to obtain bids from, brought the contractors
                       to the bid meeting, and awarded the contracts without the
                       subrecipients’ representative being present. The State should
                       ensure that the subrecipients segregate the duties of the
                       personnel responsible for awarding housing rehabilitation
                       contracts. The duties should be segregated to provide checks
                       and balances on all work.


Auditee Comments       The Office of Housing and Community Partnerships monitors all
                       grants to ensure compliance with Federal, State, and local
                       requirements. The Office’s monitoring tracks the number of
                       bids solicited, received, and the bid amounts. The Office looks
                       for documentation of a competitive bidding process.
                       Additionally, we provide a Financial Management Handbook to
                       each of our subrecipients and will continue to offer financial
                       management training.

                       The Office’s Non-Participating Jurisdiction Housing Handbook
                       allows subrecipients that receive less than three bids to award
                       the contract to the lowest and best bidder, if that bid is within
                       10 percent of the housing inspector’s cost estimate. The
                       Handbook cautions that this should be done on a limited basis.
                       Subrecipients that are having difficulty getting three bids are
                       required to take steps, such as recruiting of contractors,
                       soliciting more bids for each contract, and contacting other
                       regional Programs to identify additional contractors. If no bids
                       are received within 10 percent of the cost estimate, the
                       subrecipient is required to rebid the contract. In recent years,
                       the State has experienced difficulty in attracting contractors to
                       bid on Program contracts.

OIG Evaluation Of      The State did not ensure that its subrecipients’ housing
Auditee Comments       rehabilitation contracts were subject to full and open
                       competition. The State’s subrecipients did not publicly
                       advertise the housing rehabilitation contracts as required by

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                          HUD’s regulations and State law. The State’s subrecipients
                          also did not obtain three bids as required by the State’s Non-
                          Participating Jurisdiction Housing Handbook. While the
                          Handbook allows the State’s subrecipients to award contracts
                          in limited instances when less than three bids are received and
                          one bid was within 10 percent of the inspector’s cost estimate,
                          the State’s subrecipients awarded 113 of the 139 contracts
                          without receiving three bids.

                          The State should establish controls over its subrecipients
                          contracting processes to ensure that Community Housing
                          Improvement Program contracts are awarded in a manner
                          providing full and open competition.


 Auditee Comments         It is not the policy of the Office of Housing and Community
                          Partnerships or its subrecipients to recommend or select
                          contractors to receive housing rehabilitation contracts. The
                          audit report states that the subrecipients’ Housing Inspectors
                          either suggested or selected the contractors to bid on the
                          rehabilitation contracts.    This appears to be based on
                          questionnaires sent and interviews conducted by the Inspector
                          General’s auditors. The Office’s staff expressed concerns to
                          the auditors prior to the questionnaire completion that it might
                          lead to unclear responses from the Program participants.

                          The audit staff tabulated the questionnaire results, and then
                          conducted file and unit inspections to verify the results. The
                          audit report contains no indication that the files failed to
                          document the competitive bidding process as outlined in the
                          subrecipients’ Policies and Guidelines. The Office reviewed the
                          file documentation and found it showed that homeowners’
                          selected the contractors to receive a bid packet, collected and
                          tabulated the sealed bids, and awarded the contracts to the
                          lowest and best bidder.

                          The Office of Housing and Community Partnerships will
                          continue to provide technical assistance and monitoring to
                          ensure that its subrecipients comply with the Program’s
                          requirements.

 OIG Evaluation Of        The Housing Inspectors for the State’s subrecipients either
 Auditee Comments         selected the contractors to obtain bids from, suggested the

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                       contractors to obtain bids from, or requested the contractors to
                       bid on the housing contract for 53 of the 104 households we
                       received a questionnaire from or interviewed. In order to
                       address the Office’s concerns regarding our questionnaire, we
                       interviewed 80 of the 104 households to determine how their
                       contractors were selected.        Over 50 percent of the
                       homeowners we interviewed informed us that the Housing
                       Inspectors carried out the procurement of their housing
                       rehabilitation services.

                       The State’s planned actions to ensure its subrecipients comply
                       with the Program requirements, if fully implemented, should
                       improve the award of housing rehabilitation contracts. The
                       State should also ensure that its subrecipients stop
                       recommending or selecting which contractors to use.


Auditee Comments       HUD’s, the State’s, and the subrecipients’ requirements were
                       followed during the award of housing rehabilitation contracts.
                       The Office of Housing and Community Partnerships considers
                       the contract awards to be a measure of the cost reasonableness
                       for each of the subrecipients’ market.

OIG Evaluation Of      As detailed in the finding, the State’s subrecipients did not
Auditee Comments       follow HUD’s regulations and the State’s requirements for the
                       award of housing rehabilitation contracts. The subrecipients did
                       not publicly advertise 84 of the 139 contracts as required by
                       HUD’s regulations or State law. The State’s subrecipients also
                       did not receive three bids for 113 of the 139 contracts as
                       required by the State’s Non-Participating Jurisdiction Housing
                       Handbook. The State should establish controls over its
                       subrecipients to ensure that housing rehabilitation contracts are
                       awarded in a manner providing full and open competition.

                       In order to determine whether the amounts paid to the
                       contractors were reasonable, we had two Inspectors evaluate
                       the services received for 59 of the 139 contracts. Our
                       Inspectors determined that the State’s subrecipients paid
                       $172,181 in unreasonable costs for rehabilitation services on 34
                       houses. The State should reimburse its Community Housing
                       Improvement Program from non-Federal funds for the costs of
                       the unreasonable housing rehabilitation services.


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 Auditee Comments         The Office of Housing and Community Partnerships will
                          continue to work with its subrecipients on their procurement
                          responsibilities, provide training and guidance, monitor for
                          compliance, and seek a remedy when a subrecipient is not in
                          compliance. The Office will cite each subrecipient in its
                          subsequent Program monitoring and will require assurance of
                          compliance in the future.

 OIG Evaluation Of        The proposed actions by the State, if fully implemented, should
 Auditee Comments         ensure that its subrecipients revise their Program Policies and
                          Guidelines to ensure they meet HUD’s regulation regarding the
                          issuance of a Request for Proposal for fixed-price or cost
                          reimbursement type contracts.


 Recommendations          On September 15, 1999, we issued a report on the Fairfield
                          County Community Housing Improvement Program (Report #
                          99-CH-255-1803). That report included recommendations to
                          address Fairfield County’s deficiencies in its procurement
                          process and for the County to reimburse its Program $2,716
                          for the costs of the unreasonable housing rehabilitation services.
                          Consequently, we are not including recommendations in this
                          report specifically related to the weaknesses in Fairfield
                          County’s Program.

                          We recommend that the Director of Community Planning and
                          Development, Ohio State Office, assures that the State of Ohio:

                          2A.     Ensures that its subrecipients segregate the duties of the
                                  personnel responsible for awarding housing
                                  rehabilitation contracts.      The duties should be
                                  segregated to provide checks and balances on all work.

                          2B.     Establishes controls over its subrecipients to ensure that
                                  Community Housing Improvement Program contracts
                                  are awarded in a manner providing full and open
                                  competition as required by HUD’s regulation and the
                                  State’s requirements.

                          2C.         Ensures that its subrecipients stop the practice of
                                  recommending or selecting which contractors to use.


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                    2D.     Reimburses its Community Housing Improvement
                            Program $169,465 ($172,181 less $2,716 from
                            Fairfield County) from non-Federal funds that were
                            paid for the unreasonable housing rehabilitation services
                            cited in this finding.

                    2E.     Ensures that the five subrecipients cited in this finding
                            revise their Community Housing Improvement
                            Programs’ Policies and Guidelines to ensure they meet
                            HUD’s regulation regarding the issuance of a Request
                            for Proposal for fixed-price or cost-reimbursement type
                            contracts.




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 The State Lacked Adequate Controls To Ensure
          Corrective Action Was Taken
The State of Ohio did not adequately ensure its subrecipients took action to repair items that did not
meet the State’s Residential Rehabilitation Standards and which were identified during the State’s
monitoring reviews. The State also permitted a subrecipient to inappropriately use $1,168 in HUD
funds to correct items that did not meet the State’s Standards after HUD funds were used to pay for the
original deficiently performed housing rehabilitation work. The problems occurred because the State
did not have adequate controls over the Community Housing Improvement Program to ensure its
subrecipients took appropriate corrective action regarding deficient housing rehabilitation work. As a
result, HUD lacks assurance that houses met the State’s Standards after housing rehabilitation work
was performed. HUD funds were also not used efficiently and effectively.



                                       24 CFR, Subpart F, Part 92.251 requires that housing
  Federal Requirements                 rehabilitated with HOME funds must meet all applicable local
                                       codes, rehabilitation standards, ordinances, and zoning
                                       ordinances at the time of project completion.

                                       24 CFR Part 92.504(a) says the State is responsible for
                                       managing the day-to-day operations of its HOME program,
                                       ensuring that HOME funds are used in accordance with all
                                       program requirements and written agreements, and taking
                                       appropriate action when performance problems arise. The use
                                       of recipients, subrecipients, or contractors does not relieve the
                                       State of this responsibility.

                                       24 CFR Part 85.22(b) requires that State, local, and Indian
                                       tribal governments follow Office of Management and Budget
                                       Circular A-87, Cost Principles for State, Local, and Indian
                                       Tribal Governments.

                                       Office of Management and Budget Circular A-87, Attachment
                                       A, paragraph C(1)(a), requires that all costs must be necessary
                                       and reasonable for proper and efficient performance and
                                       administration of Federal awards.

                                       Page 6 of the State’s Home Investment Partnerships Program
  State’s Requirements                 Grant Agreements requires its subrecipients to ensure that all
                                       projects and units assisted with HOME funds meet the
                                       requirements set forth in 24 CFR Part 92 Subpart F. Page 3 of

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                          Attachment B of the Grant Agreements requires all rehabilitation
                          work paid with HOME funds meet or exceed the State’s
                          Residential Rehabilitation Standards.

                          The State’s Small Cities Community Development Block Grant
                          Program Grant Agreements, page 4 of Attachment B, require
                          its subrecipients to ensure all rehabilitation work paid for with
                          Block Grant funds meet or exceed the State’s Residential
                          Rehabilitation Standards.

                          The State’s Non-Participating Jurisdiction Housing Handbook,
                          page 29, requires its subrecipients to ensure all rehabilitation
                          work is done in accordance with the State’s Residential
                          Rehabilitation Standards.

                          We selected a sample of seven houses that received housing
  Sample Selection And    rehabilitation funds through the Community Housing
  Inspection Results      Improvement Programs for the Cities of Newark and Shelby,
                          and Knox County. We selected the seven houses to determine
                          whether the State’s subrecipients took corrective action to
                          ensure the houses met the State’s Residential Rehabilitation
                          Standards.     During its monitoring review of the three
                          subrecipients, the State identified 16 deficiencies at the seven
                          houses that did not meet the State’s Standards. The State’s
                          monitoring reviews were performed between June 30, 1998
                          and October 21, 1998.

                          Our Inspector inspected six of the seven houses between
                          December 27, 1999 and December 29, 1999 to determine
                          whether the State’s subrecipients completed the repairs that the
                          State recommended in its monitoring reviews. Our Inspector
                          was unable to inspect one house since the homeowner was not
                          available and the deficiency identified by the State related to an
                          interior item. The house is located at 20 Shelby Avenue,
                          Shelby, Ohio. Our Inspector was only able to inspect the
                          exterior of the house located at 402 7th Avenue, Mt. Vernon,
                          Ohio, since the homeowner was not available for the inspection.
                          There were three interior deficiencies identified by the State at
                          this house for which our Inspector was not able to determine
                          whether corrective action was taken.

                          We provided the inspection results to HUD’s Ohio State Office
                          Director of Community Planning and Development and the

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                                Manager of the State’s Office of Housing and Community
                                Partnerships.

                                The State failed to adequately ensure its subrecipients took
The State Did Not               action to repair items that did not meet the State’s Residential
Adequately Ensure Its           Rehabilitation Standards. The State identified 15 items at six
Subrecipients Made The          houses that did not meet the State’s Standards. The State
Required Repairs                identified the items during its monitoring reviews of three
                                subrecipients. The subrecipients were requested to repair the
                                15 items to ensure the six houses met the State’s Standards.

                                The 15 repair items included such items as the lack of a shut-off
                                valve on the bathroom toilet’s water supply, no discharge pipe
                                to the hot water heater, and no handrail on the back porch
                                steps. The following table shows the number of repair items
                                identified by the State, the number of items inspected by our
                                Inspector, and the items not corrected for each of the six
                                houses.


                              Items      Items Inspected
                           Identified By     By Our
       Address of House      The State      Inspector             Items Not Corrected
           th
      411 7 Avenue,
      Mt. Vernon                1                 1                         None
      206 South Norton
      Street, Mt. Vernon        3                 3                          None
      402 7th Avenue,                                       •   Handrail on back porch steps
      Mt. Vernon                4                 1             was not installed.
      112 Homewood                                          •   Dead bolt lock was keyed on
      Avenue, Newark                                            both sides of the back door.
                                                            •   No shut-off valve was installed
                                                                to the toilet’s water supply.
                                                            •   Electrical outlets in the garage
                                                                were not GFI protected.
                                                            •   The wall access to the furnace
                                4                 4             was open and unfinished.
      23 Jeffrey Avenue,
      Shelby                    1                 1                          None
      33 Shelby Avenue,                                     •   Open spaces still exist in the
      Shelby                    2                 2             electrical panel.
                Totals          15               12




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                            Our Inspector determined that six items at three houses were
                            not corrected. While the Cities of Newark and Shelby, and
                            Knox County advised the State that corrective action would be
                            taken or was taken, the State’s subrecipients failed to ensure
                            the items were corrected. The State did not verify whether the
                            subrecipients corrected the items identified during the State’s
                            monitoring reviews. As a result, HUD lacks assurance that
                            houses met the State’s Standards after housing rehabilitation
                            work was performed.

                            The State allowed a subrecipient to inappropriately use $1,168
  The State Allowed A       in HUD funds to correct items that did not meet the State’s
  Subrecipient To           Residential Rehabilitation Standards. The State performed a
  Inappropriately Use HUD   monitoring review of Knox County on August 21, 1998 to
  Funds                     determine whether the County administered its Community
                            Housing Improvement Program appropriately. During its
                            review, the State determined that the housing rehabilitation
                            work for two houses did not meet the State’s Standards. The
                            two houses are located at 206 South Norton Street, Mt.
                            Vernon, and 402 7th Avenue, Mt. Vernon.

                            The rehabilitation work performed at 206 South Norton Street
                            included $6,660 for the installation of a new furnace, hot water
                            heater, and ground fault circuit interruption outlets in the kitchen.
                            The State determined that repair work was needed to correct
                            three items to ensure the house met the State’s Standards.
                            Knox County executed a contract amendment on October 12,
                            1998 for $482 in HUD funds to correct the three items. The
                            County had already used HUD funds to pay for the completion
                            of the three items in the original rehabilitation contract.
                            Therefore, the County inappropriately used HUD funds to pay
                            for the correction of the deficient housing rehabilitation work
                            that was already paid with HUD funds.

                            The rehabilitation work performed at 402 7th Avenue included
                            $3,630 for electrical work and the installation of a new furnace.
                            The State determined that repair work was needed to the
                            electrical work and furnace to ensure the house met the State’s
                            Standards. Knox County executed a contract amendment on
                            October 13, 1998 for $686 in HUD funds to correct the items
                            identified during the State’s monitoring review. The County
                            again used HUD funds to pay for the correction of the deficient
                            housing rehabilitation work.

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                      Page 6 of the State’s Non-Participating Jurisdiction Housing
                      Handbook states all rehabilitation work must carry at least a
                      one year warranty on materials and labor. Knox County’s
                      Rehabilitation Contracts require that the contractors guarantee
                      the rehabilitation work performed for a period of twelve months
                      from the date of final acceptance of the required work. The
                      two houses discussed previously were covered by the
                      contractors’ warranties. The County should have required the
                      contractors to make the necessary repairs; however, this was
                      not done.

                      The State’s Program Manager said items identified during a
                      monitoring visit that were not included in the scope of the
                      rehabilitation specifications and that needed to be corrected
                      were eligible for reimbursement from available grant funds. He
                      said if the State identified housing rehabilitation work which was
                      part of the contracted services and was not completed
                      correctly, then the contractor would be responsible for
                      corrective action.

                      The State is required to follow Office of Management and
                      Budget Circular A-87. Circular A-87 requires that all costs
                      must be necessary and reasonable for proper and efficient
                      performance and administration of Federal awards. The use of
                      HUD funds by the State’s subrecipient to correct items that
                      were already paid for was not reasonable and necessary.

                      Since our Office advised the State of the inappropriate use of
                      HUD funds, the State started reviewing the need for a new
                      policy regarding the use of HUD funds to pay for the correction
                      of deficient housing rehabilitation work.



Auditee Comments      [Excerpts from the Manager’s comments on our draft finding
                      follow. Appendix B, pages 62 to 66, contains the complete
                      text of the comments.]

                      The draft finding reports that the State’s Program Manager said
                      the State allows its subrecipients to use HUD funds to make
                      repairs to ensure that assisted houses meet the State’s
                      Standards as long as HUD funds are available. This is not an
                      accurate quote. The Program Manager said items identified
                      during a monitoring visit which were not included in the scope of

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                          the rehabilitation specifications were eligible for reimbursement
                          from the available grant funds. If the questioned item was part
                          of the contracted work, the contractor should be responsible
                          for the corrective action. All work completed with Program
                          funds would be required to include a one year warranty period.

                          The Office of Housing and Community Partnerships’ staff
                          contacted the City of Shelby regarding the one unresolved
                          finding. The homeowner verified that the work was completed
                          that same day.

                          The Office contacted the City of Newark regarding the four
                          unresolved findings. The City acknowledged that the items
                          were not corrected and ensured the Office that the contractor
                          would perform the additional work as soon as possible. The
                          Office continues to work with Knox County regarding 206
                          South Norton Street and 402 7th Avenue in Mt. Vernon.

 OIG Evaluation Of        We adjusted our draft audit finding to reflect the statements
 Auditee Comments         made by the State’s Program Manager. The actions taken or
                          planned by the State, if fully implemented, should ensure that the
                          items cited in this finding that did not meet the State’s Standards
                          are corrected.



 Auditee Comments         The audit report stated that the Office of Housing and
                          Community Partnerships did not ensure that its subrecipients
                          completed the corrective actions identified in the State’s
                          monitoring process. The process requires that subrecipients
                          respond in writing to each monitoring finding. The Office
                          reviews the subrecipient’s response and if the response meets
                          the required action, the finding is closed. If the response does
                          not to meet the required action, the finding remains open and
                          the subrecipient may be required to take additional steps to
                          close the finding.

                          Since the audit, the Office amended its process to provide
                          additional oversight to ensure the completion of all corrective
                          action. Subrecipients are required to submit a signed inspection
                          form assuring that all cited rehabilitation work was completed.
                          The Office encourages subrecipients to provide a photo of the
                          completed work.


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OIG Evaluation Of      The actions taken by the State, if fully implemented, should
Auditee Comments       ensure that its subrecipients make the necessary repairs to meet
                       the State’s Residential Rehabilitation Standards cited during the
                       State’s reviews.



Auditee Comments       The Office of Housing and Community Partnerships reviewed
                       the file documentation to determine if Federal funds were used
                       as payment for work included in the project work
                       specifications. If the items identified during the Office’s
                       monitoring visit were not included in the original scope of the
                       rehabilitation specification, the Office considers these costs to
                       be eligible for reimbursement and not a duplication of payment.
                       If the item in question was a part of the contracted work, the
                       subrecipient and contractor should be responsible for the
                       corrective action and these items would not be eligible for
                       reimbursement from Federal funding.

                       The Office’s monitoring report for Knox County cited three
                       items that did not meet the Office’s Residential Rehabilitation
                       Standards for the home at 206 South Norton Street, Mt.
                       Vernon. The subrecipient was required to install a discharge
                       pipe on the hot water heater, a switch for the hall light at the
                       bottom of the stairs, and the required ground fault circuit
                       interruption receptacles in the kitchen. The rehabilitation
                       specifications did not call for installation of a discharge pipe.

                       The rehabilitation specifications called for the house to be
                       rewired to code. This work would include the installation of
                       ground fault circuit interruption receptacles in the kitchen and
                       making the hall light switchable from both the top and the
                       bottom of the stairs. The failure of the contractor to complete
                       these two requirements can only be construed as a failure to
                       fulfill the requirements of the contract. The cost of the
                       corrective actions are not eligible for reimbursement from
                       Community Development Block Grant funds. The Office will
                       require Knox County to repay the $482 using non-Federal
                       funds.

                       The Office’s monitoring report cited four items that did not meet
                       the Office’s Residential Rehabilitation Standards for the home at
                       402 Seventh Avenue, Mt. Vernon. The subrecipient was
                       required to install a discharge pipe on the hot water heater,

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                          shut-off valve on the furnace, a sufficient number of outlets in
                          the upstairs bedroom, and a handrail on the back steps. The
                          specifications called for the installation of a new furnace and hot
                          water heater. However, the bid specifications did not specify a
                          shut-off valve for the furnace or a hot water heater discharge
                          valve. The installation of the handrail was not included in the
                          bid specifications. Since these items were not included in the
                          original scope of the rehabilitation specification, they would be
                          eligible for reimbursement. These items were additions to the
                          scope of work and would not represent a duplication of
                          payment.

                          The electrical specifications required checking the system to be
                          sure it meets code. The bedroom was left with only one
                          receptacle, which did not meet the Office’s Residential
                          Rehabilitation Standards. The work was the responsibility of
                          the contractor as a part of the bid he submitted. The Office
                          considers the electrical corrective actions to a duplication of
                          payment and will seek reimbursement from non-Federal funds.
                          The Office will work with the subrecipient to determine what
                          portion of the questioned costs represent the ineligible
                          expenditures and seek the appropriate reimbursement.

 OIG Evaluation Of        The subrecipient’s use of HUD funds for the installation of the
 Auditee Comments         relief valve and discharge tube on the hot water heater at 402
                          7th Avenue is a duplication of payment. Thus, the use of HUD
                          funds was not reasonable and necessary. Page 21 of the
                          State’s Residential Rehabilitation Standards requires hot water
                          heaters to have a temperature/pressure relief valve with a
                          discharge tube within six inches of the floor. While the bid
                          specifications may not have included the relief valve and
                          discharge tube, the installation of the hot water heater with the
                          valve and tube must occur to meet the State’s Standards. Thus,
                          the State should reimburse its Program from non-Federal funds
                          for the inappropriate use of the HUD funds. The State should
                          also ensure the handrail for the house located at 402 7th Avenue
                          is installed to ensure the house meets the State’s Standards.

                          The actions taken by the State, if fully implemented, should
                          ensure that its subrecipients make the necessary repairs to meet
                          the State’s Residential Rehabilitation Standards. The State
                          should reimburse its Community Housing Improvement


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                                                                             Finding 3


                      Program $1,168 from non-Federal funds for the inappropriate
                      use of HUD funds cited in this finding.



Recommendations       We recommend that the Director of Community Planning and
                      Development, Ohio State Office, assures that the State of Ohio:

                      3A.         Ensures that the items cited in this finding that did
                              not meet the State’s Residential Rehabilitation
                              Standards are corrected as required by HUD’s
                              regulation and the State’s requirements.

                      3B.     Establishes adequate controls to ensure its subrecipients
                              make the necessary repairs to meet the State’s
                              Residential Rehabilitation Standards cited during the
                              State’s reviews.

                      3C.         Reimburses its Community Housing Improvement
                              Program $1,168 from non-Federal funds for the
                              inappropriate use of HUD funds cited in this finding.

                      3D.         Stops allowing its subrecipients to use HUD funds
                              to correct deficient housing rehabilitation work already
                              paid for with HUD funds.

                      3E.     Establishes adequate controls to ensure its subrecipients
                              enforce the terms of their housing rehabilitation
                              contracts, including but not limited to, requiring
                              contractors to repair deficient housing rehabilitation
                              work.




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Management Controls
In planning and performing our audit, we considered the management controls of the State of Ohio in
order to determine our auditing procedures, not to provide assurance on the controls. Management
controls include the plan of the 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 Management                  relevant to our audit objectives:
 Controls
                                      •   Program Operations - Policies and procedures that
                                          management has implemented to reasonably ensure that a
                                          program meets its objectives.

                                      •   Validity and Reliability of Data - Policies and procedures
                                          that management has implemented to reasonably ensure that
                                          valid and reliable data are obtained, maintained, and fairly
                                          disclosed in reports.

                                      •   Compliance with Laws and Regulations - Policies and
                                          procedures that management has implemented to
                                          reasonably ensure that resource use is consistent with laws
                                          and regulations.

                                      •   Safeguarding Resources - Policies and procedures that
                                          management has implemented to reasonably ensure that
                                          resources are safeguarded against waste, loss, and misuse.

                                      We assessed all of the relevant controls identified above.

                                      It is a significant weakness if management controls do not
                                      provide reasonable assurance that the process for planning,
                                      organizing, directing, and controlling program operations will
                                      meet an organization’s objectives.

                                      Based on our review, we believe the following items are
 Significant Weaknesses               significant weaknesses:

                                      •   Program Operations.


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                              The State: (1) did not have adequate procedures and
                              controls over the Community Housing Improvement
                              Program to ensure houses met the State’s Standards after
                              they received housing rehabilitation assistance; (2) did not
                              ensure its subrecipients’ top management exercised their
                              responsibilities to implement effective contracting controls;
                              and (3) did not have adequate controls over the Program to
                              ensure its subrecipients took appropriate corrective action
                              regarding deficient housing rehabilitation work (see Findings
                              1, 2, and 3).

                          •   Compliance with Laws and Regulations.

                              The State did not ensure that its subrecipients followed
                              HUD’s regulations, Office of Management and Budget
                              Circular A-87, the State’s requirements, and their guidelines
                              to ensure that: (1) assisted houses met the State’s Residential
                              Rehabilitation Standards; (2) full and open competition
                              existed regarding the procurement of housing rehabilitation
                              and consulting services; and (3) its subrecipients took action
                              to repair items that did not meet the State’s Standards (see
                              Findings 1, 2, and 3).

                          •   Safeguarding Resources.

                              The State permitted its subrecipients to: (1) inappropriately
                              use $290,555 of HUD funds (HOME and Community
                              Development Block Grant funds) to pay for rehabilitation
                              work that was improperly performed or that was not
                              provided to 43 houses; (2) excessively pay $172,181 for
                              rehabilitation services on 34 houses, (3) use $1,091,037 in
                              HUD funds without adequate documentation to support the
                              reasonableness of 75 rehabilitation contracts that were not
                              competitively procured as required; and (4) inappropriately
                              use $1,168 in HUD funds to correct items that did not meet
                              the State’s Standards after HUD funds were used to pay for
                              the deficient housing rehabilitation work (see Findings 1, 2,
                              and 3).




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Follow Up On Prior Audits
This is the first audit of the State of Ohio’s Community Housing Improvement Program by HUD’s
Office of Inspector General. The latest single audit for the State covered the fiscal year ended June 30,
1998. The report contained 59 findings. None of the findings related to the Community Housing
Improvement Program.




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                                                                                          Appendix A

Schedule Of Ineligible Costs

               Recommendation
                   Number                          Ineligible Costs 1/

                      1A                              $280,354
                      2D                               169,465
                      3C                                 1,168
                     Total                            $450,987


1/         Ineligible costs are costs charged to a HUD-financed or insured program or activity that the
           auditor believes are not allowable by law, contract, or Federal, State, or local policies or
           regulations.




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                                                                                                 Appendix B

Auditee Comments
February 25, 2000

Heath Wolfe, Assistant District Inspector General
U.S. Department of Housing and Urban Development
Office of Inspector General for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 West Jackson Boulevard, Suite 2646
Chicago, Illinois 60604-3507

Subject:         Draft Audit Findings, State of Ohio Community Housing Improvement Program

Dear Mr. Wolfe:

This letter is in response to the draft audit findings as outlined in the January 26, 2000 letter issued by
the Regional Inspector General for Audit. The Ohio Department of Development’s Office of Housing
and Community Partnerships (OHCP) administers the Community Housing Improvement Program
(CHIP), which was the subject of the audit draft findings. The following response is provided based
upon the draft finding as described in the January 26, 2000 letter. OHCP’s response may change if the
final version of the audit finding differs from its present form.

Audit Draft Finding

The State Did Not Ensure That Units Meet The Residential Rehabilitation Standards After
Housing Assistance

The audit report lists $10,201 in work improperly performed and work not provided that were included
in the earlier audit of Fairfield County. These issues were addressed in the earlier audit response and
the county is currently working with OHCP to fulfill the plan of action outlined in the audit response.
OHCP requests that the final audit report include only audit issues that are specific to this review and
have not been included in other audits undertaken by the HUD I.G. Audit. This duplication of audit
materials inflates the dollar figures reflected in the audit and provides an unfair representation of the scale
of the items in question.

The draft finding recommends the Director of Community Planning and Development, Ohio State
Office, assure that the state of Ohio take the following actions:

A. Ensures the $280,354 of housing rehabilitation work cited in this finding is completed
   correctly. If the state is unable to ensure the rehabilitation work is completed, then the
   state should reimburse its Community Housing Improvement Program from non-Federal
   funds the total amount of housing rehabilitation assistance that was provided to the
   applicable houses and ensure that the applicable liens against the properties are released

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The draft finding listed work identified as improperly performed or work not provided for 35 properties
in six communities. A detailed response for each of the properties cited will have to be completed once
the final audit has been issued and OHCP has had an opportunity to inspect each of the properties
identified, review the audit citations, and propose an appropriate response for each property. It is
important to note that the properties inspected for the purposes of this audit are households that
received assistance from the FY ‘97 CHIP program. OHCP monitors all grants for compliance with
state and federal requirements, including compliance with OHCP’s Residential Rehabilitation Standards,
prior to the closeout of the grant. At the time the Audit inspections were completed, OHCP had just
begun the process of monitoring the FY ‘97 grants.

The FY ‘97 grants were for a 24-month period, which included a 22-month time period to complete all
work. Some of the FY ‘97 grants requested and were granted extensions, which would further extend
the grant timelines. For example, the city of Kenton, Grant Numbers A-C-97-137-1 and A-C-97-
137-2; grants began on August 1, 1997 and ended on July 31, 1999. The city requested and was
granted an extension until December 31, 1999. OHCP staff conducted a monitoring visit on November
16 and 17, 1999. Four houses were inspected for compliance with OHCP’s Residential Rehabilitation
Standards and OHCP required the community to make corrections to two of the properties inspected.

B.      Establishes adequate controls to ensure assisted houses meet the State’s Residential
        Rehabilitation Standards after receiving housing rehabilitation assistance as required
        by HUD’s regulations, the State’s requirements, and the subrecipient’s Policies and
        Guidelines.

As detailed in the Item A, OHCP monitors all grants prior to the closeout of the grant. At the time the
Audit inspections were completed, OHCP had just begun the process of monitoring the FY ‘97 grants.

C.      Establishes procedures and controls to ensure that Housing Inspectors who do not
        perform correctly are properly monitored to ensure their performance improves. If a
        Housing Inspector’s performance does not improve, then the state needs to take
        action to remove the Inspector from participating in the Program.

OHCP has established a rehabilitation training series aimed at raising the expertise and performance
level of Housing Inspectors currently working in the CHIP program. OHCP is requiring that all CHIP
Inspectors and OHCP staff attend the entire training series. OHCP will track course attendance.
Grantees or potential grantees who fail to ensure staff attendance and completion of the series will not
be approved for future CHIP funding. As noted in the previous sections of the response, OHCP
currently monitors all grants for compliance with state and federal requirements, including compliance
with OHCP’s Residential Rehabilitation Standards. These monitoring findings are used as a part of
future funding reviews to evaluate the grantee’s ability to comply with all applicable requirements.
Grantee funding applications are also evaluated for the qualifications of the staff proposed to implement
the application if funded.



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This information is also evaluated and is scored as a part of the competitive funding review process.
The CHIP funding process is extremely competitive and any loss of points based on past performance
or qualifications of the proposed staff would dramatically affect the community’s ability to receive future
CHIP funding awards.

OHCP is also evaluating additional ways of determining the current level of Housing Inspector
performance with the intent of preventing the future participation in the program should improvement not
occur. OHCP is considering developing a policy of placing program staff in a probationary status,
closely evaluating their job performance for a set time period, and then taking action to remove the
Inspector from participating in the program, if job performance does not improve.

D.      Take Administrative Action against the Housing Inspectors for the city of Kenton and
        the counties of Champaign and Clinton, if within six months their performance does not
        show significant improvement.

This issue relates back to the units identified in Section A of this draft finding. OHCP will not be
prepared to respond to this issue until the actions proposed in Section A have been completed to
evaluate the scope of the problems identified. If OHCP determines that the Inspectors sited in this
report have failed to complete their duties and maintain the required work standards, OHCP will
consider implementing the actions proposed in Section C of this response.

E.      Initiate debarment proceedings against the Housing Inspector for the city of Wellston
        and Fairfield County.

As stated in the opening of this response, OHCP believes that all references to actions or issues
contained in the Fairfield County Audit are inappropriate for inclusion in the final report issued for the
audit of the state of Ohio Community Housing Improvement Program. OHCP will not be prepared to
respond to the debarment of the city of Wellston’s housing inspector until the actions proposed in
Section A have been completed to evaluate the scope of the problems identified. If OHCP determines
that the Inspectors sited in this report have failed to complete their duties and maintain the required
work standards, OHCP will consider implementing the actions proposed in Section C of this response.

If you have any further questions, please do not hesitate to contact Les Warner, CHIP Supervisor, of
my staff, at (614) 466-2285.

Sincerely,

William J. Graves, Manager
Office of Housing and Community Partnerships

WJG/LW/ps



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March 16, 2000

Heath Wolfe, Assistant District Inspector General
U.S. Department of Housing and Urban Development
Office of Inspector General for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 West Jackson Boulevard, Suite 2646
Chicago, Illinois 60604-3507

Subject:         Draft Audit Findings, State of Ohio Community Housing Improvement Program

Dear Mr. Wolfe:

This letter is in response to the draft audit findings as outlined in the February 17, 2000 letter issued by
the Regional Inspector General for Audit. The Ohio Department of Development’s Office of Housing
and Community Partnerships (OHCP) administers the Community Housing Improvement Program
(CHIP), which was the subject of the audit draft findings. The following response is provided based
upon the draft finding as described in the February 22, 2000 letter. OHCP’s response may change if
the final version of the audit finding differs from its present form.

The draft finding focuses on the state of Ohio’s controls over its sub-recipients’ contracting process.
The report identifies the applicable regulations including both State and Federal requirements. OHCP
CHIP grantees are following a process outlined in CPD Notice 85-2, which establishes when OMB
Circular A-102, Attachment O (current reference is 24 CFR Part 85 “The Common Rule”) applies to
Community Development Block Grant (CDBG) assisted rehabilitation activities. HUD has encouraged
local grantees to maximize the participation of the property owners in the rehabilitation process. The
notice clarifies that if the property owner is the procuring party Attachment O does not apply. The
CHIP program is designed to allow the property owner to have first-line control over the procurement
of rehabilitation services, while the program staff provides technical assistance. The technical assistance
provided includes the inspection of property, the development of a deficiency list and work
specifications, providing the property owner with a list of approved contractors, the collection and
summary of bids as outlined in CDP Notice 85-2. Attached to this response is a copy of the notice and
a letter from OMB to Steven Switzer, Assistant Inspector General for Audit, which states that
Attachment O, Grantee Procurement Standards, OMB Circular A-102 applies to units of local
government and not individuals.

OHCP requested a ruling from the HUD Ohio State Office to verify that the guidance provided in the
“expired” notice was still applicable. Anthony Johnston, Financial Management Division, Office of
Block Grant Assistance, HUD provided an opinion that verified that the guidance provided in CPD
Notice 85-2 remains applicable. The Housing Handbook and local Policies and Procedures manuals
have been designed to implement procurement under this model.



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The comments of the State’s Training and Technical Assistance Supervisor, which were included on
page five, are incorrectly summarized. The state of Ohio obtained its guidance on streamlined
procurement (non-Circular A-102) from HUD’s 1983 publication Streamlining

Rehabilitation Programs and HUD CPD Notice 85-2: Guidelines for Applying OMB Circular A-102,
Attachment O, Procurement Standards. A copy of the Streamlining publication was provided to the
audit staff. The notice states:

“Clearly, if the owner, in fact carries out the procurement transactions, Attachment O does not apply.
In many instances, however, the owner will require the assistance of the unit of government in retaining a
contractor. The grantee may assist the owner by providing technical assistance and preparing or
reviewing cost estimates. At the owner’s request, the grantee may perform such technical assistance as
providing a list of contractors to property owners, collecting, and summarizing contractors bids, advising
the owner on how to evaluate a contractor’s proposal or providing information on past work of specific
contractors. If the owner makes the final contractor selection, and the grantee provides assistance as
described above, Attachment O would not apply.”

This is what the Training and Technical Assistance Supervisor attempted to convey to the Inspector
General’s representative. If <emphasis added> procurement was not substantially conducted in this
manner, then the procurement transaction would not qualify for exemption of Attachment O or Ohio
Revised Code.

As a means to protect the public’s interest, the state of Ohio added the requirements: 1) at least three
contractors who are likely to bid must be contacted, 2) the homeowner must take the lowest and best
bid, and 3) if only one bid is received, then the bid must be within 10% of the estimate, accounting for
all addenda to the bid package. Please note the streamlined process does allow and promote the local
government staff or its consultants to participate in the rehabilitation process within some limitations and
still meet the definition of streamlined procurement.

The draft Audit finding references the state’s failure to comply with Sections 307.80 and Section
731.14 of the Ohio Revised Code. The report also references the state’s failure to verify whether the
sub-recipients have followed the State’s Revised Code’s requirement to publicly advertise the
rehabilitation contracts. The Ohio Revised Code references apply to public procurement and do not
apply to rehabilitation contracts, which are procured by the homeowner.

Based on the evaluation of standard forms, it is clear the sub-recipients’ procurement Policies and
Guidelines were set up to comply with HUD’s definition of streamlined procurement. It appears the IG
staff has come to its conclusion that public procurement was required based on a misunderstanding of
the Training and Technical Assistance Supervisor’s phone comments and its interpretation of survey and
interview response from program beneficiaries. In all cases the local government was not a signatory on
any of the rehabilitation contracts. OHCP provides guidance on this process in the Housing
Rehabilitation Handbook and in all procurement training it has held for its grantees. A sample of CDC
of Ohio’s forms which demonstrate the intent for local homeowner’s involvement are attached.

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The draft finding recommends the Director of Community Planning and Development, Ohio State
Office, assure that the state of Ohio take the following actions:

A.     Ensures that its sub-recipients segregate the duties of the personnel responsible for
awarding housing rehabilitation contracts. The duties should be segregated to provide checks
and balances on all work.

The role of the CHIP program staff includes the inspection of property, the development of a deficiency
list and work specifications, conducting a pre-bid walk through of the unit, and the inspection of work
completed that requires a level of expertise specific to the rehabilitation specialist. The concerns
expressed in the audit relate to the rehabilitation specialist’s role in the awarding of housing rehabilitation
contracts. The bid packet provided to contractors to solicit competitive bids include a notice of the
date of the bid opening and the fact that all bids will read aloud, to avoid collusion of the contractors or
the homeowner and the contractor. The procurement documents signed by the homeowner currently
inform them of their role in the procurement process and encourage, although they do not require, the
homeowner to attend the bid opening. OHCP will review the current policies of local recipients in an
effort to encourage the attendance at bid openings by contractors, a representative of the local grantee,
and the homeowner. OHCP will recommend that each grantee maintain a record of all persons who
attend the bid opening. HUD’s procurement guidelines allow the grantee to perform such technical
assistance as providing a list of contractors to property owners, collecting, and summarizing contractors
bids, and advising the owner on how to evaluate a contractor’s proposal or providing information on
past work of specific contractors. In an effort to eliminate the possibility that the rehabilitation inspector
might have an undue influence in the award of contracts, OHCP will recommend that grantees develop
policies and guidelines to provide additional checks and balances.

B.    Establishes controls over its recipients to ensure Community Housing Improvement
Program contracts are awarded in a manner providing full and open competition as required
by HUD’s regulation and the State of Ohio’s requirements.

OHCP monitors all grants prior to closeout to ensure compliance with applicable federal, state, and
local regulations and guidelines. OHCP’s monitoring format tracks the number of bids solicited,
received, and the bid amounts. The format looks for documentation of a competitive bidding process.
Additionally, OHCP provides a Financial Management Handbook to each of its grantees. The
handbook includes a copy of 24 CFR Part 85 - Administrative Requirements for grants and
Cooperative Agreements to State, Local and Federally Recognized Indian Tribal Governments and
OMB Circular A- 87 – Cost Principles for State and Local Governments. As stated in item A above,
OHCP has offered and will continue to offer training on OMB Circulars and financial management.

OHCP’s Housing Handbook allows grantees that receive less than three bids to award the contract to
the lowest and best bidder if that bid is within 10% of the staff cost estimate. The Handbook cautions
that this should be done on a limited basis. Grantees that are having difficulty getting three bids returned
are required to take steps, such as recruiting of contractors, soliciting more bids for each contract, and
contacting other regional programs to identify contractors working within the region. If no bids are

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received within a 10% range of the cost estimate, the community is required to re-bid the contract. In
recent years Ohio has experienced difficulty in attracting contractors to bid on the local CHIP
rehabilitation projects. Ohio’s healthy economy and the number of new construction starts have made
the task of maintaining a more competitive market difficult. OHCP continues to work with local
grantees in order to maintain and document an open competition as required.

C.     Ensures that its sub-recipients stop the practice of recommending or selecting which
contractors to use.

It is not the policy of OHCP or its sub-recipients to recommend or select the contractors to be awarded
rehabilitation contracts. It is the role of local grantees to provide a list of approved contractors, provide
information of the past performance of specific contractors, and to monitor all contractors to assure their
ability to complete the work specifications. The audit report suggests that the housing inspector for the
State’s sub-recipients either suggested to the homeowner which contractors to select, or actually
selected the contractors to bid on the rehabilitation work. These statements appear to be based on an
interpretation of the surveys and interviews conducted by the I.G. audit staff. OHCP staff expressed
concern to the Audit staff prior to the completion of the survey that the way questions were stated might
lead to unclear or ambiguous responses from CHIP clients. For example, Question #6 on the survey
asks if the homeowner selected the contractors to bid on the home repair work. This question appears
to be clear until you consider that since most homeowners selected contractors off the approved list of
contractors, the homeowner may consider this a selection of the program rather than their own.
Question # 4 asks if the homeowners were asked if any contractors were recommended/suggest? It
would be appropriate for a local staff person to advise the homeowner if contractors on the list were
currently working on a number of other CHIP projects and unlikely to be able to complete the work
within the specified time period.

The audit staff tabulated the survey results and then conducted file and unit inspections to verify the
survey results. The audit report contains no indication that the files failed to document the competitive
bidding process as outlined in the local grantee’s Policies and Guidelines. OHCP has reviewed the
standard file documentation and has found it to have been designed to provide documentation of the
client’s selection of the contractor’s to receive the bid packets, the collection and tabulation of sealed
bids, and the awarding of contracts to the lowest and best bid.

Attachment for Item C

The sample forms attached document the process as described in “The Common Rule”.
Instructions for Obtaining a Contractor/Assistance Request: This form the procurement process and
informs the homeowner that they may implement the process or request the assistance of the local
CHIP program staff. The form is signed by the housing inspector and the homeowner.

 Homeowner Selection of Bidders: This form documents that the program provided the homeowner
with an approved contractor list, that the contractors were selected by the homeowner, and that the
homeowner requested the local program staff to assist in sending out the bid packets, conducting the

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pre-bid walk-through, and receiving and opening the bids. This notice also invites the homeowner to be
present at the bid opening.
Bid Summary: This form documents opened at the public bid opening, the amount of the bid, and also
identifies the lowest bidder. CDC of Ohio has revised this form for the FY ‘99 CHIP program to list
the bid opening attendees.

The examples provided are households that were included in the audit file review. Each of these
households were also included the audit estimate of over expenditures in the prior section of this finding.
The file format provides documentation that the CHIP procurement of rehabilitation services has been
conducted in compliance with the applicable requirements. The survey results have not been verified by
the program documentation and thus, this finding should be closed.

OHCP will continue to provide technical assistance and monitoring to ensure that its sub-recipients
implement the program’s policies in compliance with all applicable requirements.

D.     Reimburses its Community Housing Improvement Program $169,465 from non-Federal
funds that were excessively paid for the housing rehabilitation services cited in this finding.

The audit finding challenges the contract awards for rehabilitation services as being excessive. The
contracts were awarded following the streamlined procurement process (non-Circular A-102) from
HUD’s 1983 publication Streamlining Rehabilitation Programs and HUD CPD Notice 85-2: guidelines
for Applying OMB Circular A-102, Attachment O, Procurement Standards.

The audit staff tabulated the survey results and then conducted file and unit inspections to verify the
survey results. The audit report contains no indication that the files failed to document the competitive
bidding process as outlined in the local grantee’s Policies and Guidelines. The contract amounts reflect
the lowest and best bid received. HUD, state of Ohio, and local requirements were followed in the
awarding of the listed contracts and OHCP considers the contract awards to be a measure of
reasonable cost in each of the local markets.

OHCP’s policy requires that a staff cost estimate of cost be completed prior to releasing the bid
package. OHCP also requires that no award can be made if the bid exceeds the staff estimate by
greater than 10%. With open competitive, an estimate of cost, and a control factor of no award if bid
exceeds 10% it appears to OHCP costs paid were not excessive. OHCP will evaluate the
reasonableness of the staff estimates.

E. Provides documentation to support the reasonableness of the $931,599 of housing
   rehabilitation assistance cited in this finding that was not competitively procured as
   required by HUD’s regulations or the State’s requirements. If adequate documentation
   cannot be provided, then the State should reimburse its Community Housing Improvement
   Program from non-Federal funds for the appropriate amount.



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The contracts were awarded following the streamlined procurement process (non-Circular A-102) from
HUD’s 1983 publication Streamlining Rehabilitation Programs and HUD CPD Notice 85-2: guidelines
for Applying OMB Circular A-102, Attachment O, Procurement Standards.

The contract amounts reflect the lowest and best bid received. HUD, state of Ohio, and local
requirements were followed in the awarding of the listed contracts and OHCP considers the contract
awards to be a measure of reasonable cost in each of the local markets. The grantee files provide
documentation of the implementation of the above referenced procurement process. Sample forms
have been provided to demonstrate the local policies put in place to document this process.

F.     Ensures that the five sub-recipients cited in this finding revise their Community
Housing Improvement Programs’ Policies and Guidelines to ensure they meet HUD’s
regulation regarding the issuance of a Request for Proposal for fixed-price or cost-
reimbursement type contracts.

The audit report indicated that all five communities cited in the report did not request a proposal that
included price or cost as a factor to be evaluated. Each of these programs is completed or nears
completion at this date. However, this audit report also indicated that audit staff have conducted an
evaluation of the reasonableness of the costs and have determined the costs in each case to be
reasonable.

The state of Ohio will continue to work with grantees on their procurement responsibilities, provide
training and guidance, monitor for compliance, and will seek remedy when a community is not in
compliance. The CHIP Policies and Guidelines are specific to local CHIP grant programs and outline
the implementation of the local housing assistance. The local community’s procurement policy for
administrative services would not be included in this document. OHCP will cite each community in its
subsequent program monitoring and will require assurance of compliance in the future.

In addition to monitoring, OHCP currently provides guidance for the procurement of Rehabilitation
Administrative and Implementation Services as follows:

Instructions for procurement of Rehabilitation Administrative and Implementation Services is listed in
OHCP Chapter 12; Procurement; Section 12.30 – Use of Outside Consultants; page 1. This section
states:

“All professional service contracts including those with architects, auditors, engineers, planners, and
program administrators must be competitively procured regardless of dollar value. Procurement of
these services shall be in compliance with state law, local procurement policies

and Section 12.10 of this Handbook. Procurement practices should reflect the guidelines in Attachment
O of OMB Circular A-102 as revised and good business judgement.”



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The handbook advises that the open competitive negotiation method is the most appropriate procedure
to follow in the procurement of professional services. The processes for advertisement, definition of
services required, method for solicitation of proposals, selection process, evaluation process, and
contracting process are also described. Grantees are referred to this handbook for written guidance
concerning public procurement by correspondence, grant agreement, and technical assistance.

Also, on January 12, 2000, OHCP issued a memorandum titled “Procurement of Administrative
Consultants” (attached) to all eligible Community Housing Improvement Program Jurisdictions. Each of
the five sub-recipients mentioned in this report received a copy. The memorandum referred potential
grant recipients to Chapter 12, 24 CFR 85.36 (d)(3), and specifically section 12.30 and encouraged
them to obtain a copy from OHCP if they could not locate a copy. The memorandum covered six
points:

All administrative consulting contracts must be competitively procured and the price or cost must be
requested and evaluated.

If CHIP funds will be used to pay for the application preparation, then procurement for the application
preparation must be done prior to the services being provided.

A consultant cannot offer to prepare an application for free for favorable consideration of a grant
administration contract.

If a community plans to have one consulting firm do both the administrative and engineering or
architectural services, then both scopes of services must be listed in the RFP and there must be
demonstrative evidence of separation of duties.

Contracts for administrative services which are placed in the application will not be evaluated for
compliance with CDBG or HOME requirements nor construed to be acceptable simply because the
application is funded. (The process will be discussed and evaluated during a post award meeting.)

All administrative and professional contracts must contain the necessary federal provisions.

If you have any further questions, please do not hesitate to contact Les Warner, CHIP Supervisor, of
my staff, at (614) 466-2285.


Sincerely,

William J. Graves, Manager
Office of Housing and Community Partnerships

WJG/LW/ps


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cc:    John E. Riordan, Deputy Director, CDD
       Marlo Tannous, Chief Legal Counsel, ODOD
       Doug Garver, Assistant to the Director, ODOD
       Lana Vacha, Director, Ohio Office, HUD




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Appendix B


March 20, 2000

Heath Wolfe, Assistant District Inspector General
U.S. Department of Housing and Urban Development
Office of Inspector General for Audit, Midwest
Ralph H. Metcalfe Federal Building
77 West Jackson Boulevard, Suite 2646
Chicago, Illinois 60604-3507

Subject:         Draft Audit Findings, State of Ohio Community Housing Improvement Program

Dear Mr. Wolfe:

This letter is in response to the draft audit findings as outlined in the February 22, 2000 letter issued by
the Regional Inspector General for Audit. The Ohio Department of Development’s Office of Housing
and Community Partnerships (OHCP) administers the Community Housing Improvement Program
(CHIP), which was the subject of the draft audit findings. OHCP’s response may change if the final
version of the audit finding differs from its present form.

Draft Audit Finding

The State Lacked Adequate Controls To Ensure Corrective Action Was Taken

The draft finding states “that the Program Manager said the state allows its sub-recipients to use HUD
funds to make repairs to ensure that assisted houses meet the State’s Standards as long as HUD funds
are available”. This is not an accurate quote. The program manager stated that items identified during a
monitoring visit which were not included in the scope of the rehabilitation specification were eligible for
reimbursement from the available grant funds. If the item in question was a part of the contracted work,
the contractor should be responsible for the corrective action. All work completed by the CHIP
program would be required to include a one year warranty period. In most cases, a contractor who
hopes to continue to work in the local community will be willing to return to the unit to make the needed
corrections.

The draft finding recommends the Director of Community Planning and Development, Ohio State
Office, assure that the State of Ohio take the following actions:

A.     Ensures that the items cited in this finding that did not meet the State’s Residential Rehabilitation
Standards are corrected as required by HUD’s regulation and the State of Ohio’s requirements.

OHCP has contacted the communities included in the audit review and has asked for a response to the
I.G. inspection findings. OHCP expects to be able to document the completion of all corrective actions
as identified in OHCP’s monitoring reports by the time the final I.G. audit report is issued.


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The following corrective actions have been completed:

•      33 Shelby Ave. - On March 6, OHCP staff contacted the city of Shelby regarding the one
     unresolved finding. In turn, the city contacted the contractor. The owner has verified that the work
     had been completed that same day. A copy of the city’s correspondence to OHCP on this matter
     is attached.

•      112 Homewood - On March 6, OHCP contacted the city of Newark regarding the four
     unresolved findings. The city acknowledged that these items had not been corrected and ensured
     OHCP that the contractor would perform the additional work as soon as possible. On March 10,
     OHCP received notice from the city that the contractor had been authorized to complete the work.
     A copy of that notice is attached. However, due to scheduling problems with the owner, the
     contractor has not yet completed the work. OHCP will provide documentation after the work is
     finished.

OHCP continues to work with the local communities regarding the following properties:

      •     206 S. Norton Street, Mt. Vernon, Ohio
      •     402 7th Avenue, Mt. Vernon, Ohio

B.        Establishes adequate controls to ensure its sub-recipients make the necessary repairs
          to meet the State’s Residential Rehabilitation Standards cited during the State’s
          monitoring reviews.

The audit report stated that OHCP’s CHIP program did not ensure that its sub-recipients completed
the corrective actions identified in the State’s monitoring process. OHCP’s current monitoring process
requires the grantee to respond in writing to each monitoring finding. OHCP staff review the grantee’s
response and if the response meets the required action, the finding is closed. If the response is found
not to meet the required response, the finding remains open and the grantees may be required to take
additional steps to close the finding. Since the audit review, OHCP has reviewed the current process
and amended the process to provide additional oversight to ensure the completion of all requested
corrective actions. Grantees are required to submit an inspection form, signed by the CHIP inspector,
ensuring that all rehabilitation work findings have been completed and inspected. We have encouraged
grantees to also provide a photo of the completed work. As always, when OHCP accepts a monitoring
response and closes a finding, we do reserve the right to re inspect the corrective actions on future
monitoring visits. If a grantee’s monitoring documented multiple findings of a serious nature, OHCP
may choose to inspect the units to verify completion of the additional work and may also choose to
inspect additional units completed during the grant period. Each of the local communities included in the
draft audit report have been asked to follow up on the items and it is anticipated that all corrective
actions will have been completed and documented by the time the final I.G. audit has been issued.

C.        Reimburses its Community Housing Improvement Program $1,168 from non-Federal
          funds for the inappropriate use of HUD funds cited in this finding.

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OHCP has reviewed the file documentation to determine if federal funds were used as payment for
work previously included in the project work specifications. If the items identified during OHCP’s
monitoring visit were not included in the original scope of the rehabilitation specification, OHCP
considers these costs to be eligible for reimbursement and not as a duplication of payment. If the item in
question was a part of the contracted work, the community and contractor should be responsible for the
corrective action and these items would not be eligible for reimbursement from federal funding. OHCP
conclusions are as follows:

Parrish Home, 206 S. Norton Street

OHCP’s October 16, 1998 monitoring report for the Knox County Chip Grants: B-C-96-039-2 and
C-96-039-1 cited three items for corrective action on this unit. The grantee was required to return to
the unit and install a discharge pipe on the hot water heater (HWT), install a switch for the hall light at
the bottom of the stairs, and install the required GFCI receptacles in the kitchen. Review of the rehab
specs revealed that while the HWT was replaced, the specifications did not call for installation of a
discharge pipe, so that could reasonably be considered additional work that could be paid for out of the
grant. The rehabilitation specifications called for the whole house to be re-wired "to code". Re-wiring
to code would include the installation of GFCI receptacles in the kitchen and making the hall light
switchable from both the top and the bottom of the stairs. The failure of the contractor to complete
these two requirements can only be construed as a failure on the contractor’s part to fulfill the
requirements of the contract. The cost of the corrective actions are not eligible for reimbursement from
CDBG funds. OHCP will require Knox County to repay the $481.62 using non-federal funds.

Smith Home, 402 Seventh Avenue

OHCP’s October 16, 1998 monitoring report for the Knox County Chip Grants: B-C-96-039-2 and
C-96-039-1 cited four items for corrective action on this unit. The grantee was required to return to the
unit and install a discharge pipe on the HWT, a handrail on the back steps, a gas shut-off on the furnace,
and a sufficient number of outlets in the upstairs bedroom. The specifications called for the installation
of a new furnace, but did not specify an in-line manual gas shut-off. The bid specifications did not
identify the HWT discharge valve in scope of work. The specifications also did not call for the
installation of a handrail on the back steps. These items were not included in the original scope of the
rehabilitation specification and would be eligible for reimbursement. These items were additions to the
scope of work and would not represent a duplication of payment.

The electrical specifications called for "checking the system to be sure it meets code.” The bedroom
was left with only one receptacle, which did not meet the minimum standards set by the Residential
Rehabilitation Standards. The contractor bid on specifications that required code compliance. It would
appear that this work was the responsibility of the contractor as a part of the bid he submitted. OHCP
considers the electrical corrective actions to a duplication of payment and will seek reimbursement from
non-Federal funds. OHCP will work with the community to determine what portion of the questioned
costs represent the ineligible expenditures and seek the appropriate reimbursement.


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D.      Stop allowing its sub-recipients to use HUD funds to correct deficient housing
        rehabilitation work.

The draft finding states that the Program Manager said the State allows its sub-recipients to use HUD
funds to make repairs to ensure that assisted houses meet the State’s Standards as long as HUD funds
are available. This is not an accurate quote. The Program Manager stated that items identified during a
monitoring visit which were not included in the scope of the rehabilitation specification were eligible for
reimbursement from the available grant funds. If the item in question was a part of the contracted work,
the community and the contractor should be responsible for the corrective action. All work completed
by the CHIP program would be required to include a one year warranty period. In most cases, a
contractor who hopes to continue to work in the local community will be willing to return to the unit to
make the needed repairs.

E.      Establishes adequate controls to ensure sub-recipients enforce the terms of their
        housing rehabilitation contracts, including but not limited to requiring contractors to
        repair deficient housing rehabilitation work.

OHCP’s current monitoring process requires the grantee to respond in writing to each monitoring
finding. If the item in question was a part of the contracted work, the community and contractor should
be responsible for the corrective action. All work completed by the CHIP program would be required
to include a one year warranty period. In most cases, a contractor who hopes to continue to work in
the local community will be willing to return to the unit to make the needed corrections.

The audit report stated that OHCP’s CHIP program did not ensure that its subrecipients completed the
corrective actions identified in the State’s monitoring process. OHCP’s current monitoring process
requires the grantee to respond in writing to each monitoring finding. OHCP staff review the grantee’s
response and if the response meets the required action, the finding is closed. If the response is found
not to meet the required response, the finding remains open and the grantees may be required to take
additional steps to close the finding. Since the audit review, OHCP has reviewed the current process
and amended the process to provide additional oversight to ensure the completion of all requested
corrective actions. Grantees are required to submit an inspection form, signed by the CHIP inspector,
ensuring that all rehabilitation work findings have been completed and inspected. We have encouraged
grantees to also provide a photo of the completed work. As always, when OHCP accepts a monitoring
response and closes a finding, we do reserve the right to re inspect the corrective actions on future
monitoring visits. If a grantee’s monitoring documented multiple findings of a serious nature, OHCP
may chose to inspect the units to verify completion of the additional work and might also chose to
inspect additional units completed during the grant period. Each of the local communities included in the
draft audit report have been asked to follow up on the items and it is our hope all corrective actions will
have been completed and documented by the time the final audit has been issued.

If you have any further questions, please do not hesitate to contact Les Warner, CHIP Supervisor, of
my staff, at (614) 466-2285.
Sincerely,

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Appendix B



William J. Graves, Manager
Office of Housing and Community Partnerships

WJG/LW/ps

cc:     John E. Riordan, Deputy Director, CDD
        Marlo Tannous, Chief Legal Counsel, ODOD
        Doug Garver, Assistant to the Director, ODOD
        Lana Vacha, Director, Ohio Office, HUD




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                                                                               Appendix C

Distribution
Secretary’s Representative, Midwest (2)
Acting Senior Community Builder, Ohio State Office
Senior Community Builder/State Coordinator, Cincinnati Area Office
Director of Community Planning and Development, Ohio State Office (2)
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Assistant Secretary for Administration, A (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Senior Advisor to the Secretary, Office of Public Affairs, W (Room 10132)
Director of Scheduling and Advance, AL (Room 10158)
Counselor to the Secretary, S (Room 10218)
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)
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 of Federal Housing Enterprise Oversight, 0 (9th Floor Mailroom)
Assistant Secretary for Housing-Federal Housing Commissioner, H (Room 9100)
Office of Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Executive Vice President, 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 8206)
Director of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director of Enforcement Center, V (200 Portals Building)
Director of Real Estate Assessment Center, V (1280 Maryland Avenue, SW, Suite 800)
Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Director of Budget, FO (Room 3270)
Internal Control and Audit Resolution Officer, 3AFI (2)
Special Adviser/Comptroller, D (Room 7228) (2)
Departmental Audit Liaison Officer, FM (Room 2206) (2)
Acquisitions Librarian, Library, AS (Room 8141)

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Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy &
    Human Resources, B 373 Rayburn House Office Building, Washington DC 20515
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340
    Dirksen Senate Office Building, United States Senate, Washington DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
    706 Hart Senate Office Building, United States Senate, Washington DC 20510
Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
    Building, United States House of Representatives, Washington DC 20515
Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204 Rayburn
    Building, United States House of Representatives, Washington DC 20515
Ms. Cindy Foglemen, Subcommittee on Oversight and Investigations, Room 212, O'Neil
    House Office Building, Washington DC 20515
Director, Housing and Community Development Issue Area, United States General
    Accounting Office, 441 G Street, N.W., Room 2474, Washington DC 20548 (Attention:
    Judy England-Joseph)
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street,
    N.W., Room 9226, New Executive Office Building, Washington DC 20503
Deputy Director of Community Development Division, State of Ohio Department of
    Development (2)




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