AUDIT REPORT
HOUSING AUTHORITY OF THE
CITY OF SAN ANTONIO
PROCUREMENT ACTIVITIES
SAN ANTONIO, TEXAS
00-FW-201-1004
AUGUST 9, 2000
OFFICE OF AUDIT, SOUTHWEST DISTRICT
FORT WORTH, TEXAS
Issue Date
August 9, 2000
Audit Case Number
00-FW-201-1004
TO: Diana Armstrong
Director
Office of Public Housing, 6JPH
FROM: D. Michael Beard
District Inspector General for Audit, 6AGA
SUBJECT: Procurement Activities
Housing Authority of the City of San Antonio
San Antonio, Texas
As requested by your office, we conducted an audit of certain procurement activities of the San Antonio
Housing Authority. We received indications of the need for an audit from City officials and newspaper
articles. Also, our audit of the Authority’s HOPE VI Program, report number 99-FW-201-1003,
dated January 29, 1999, identified weaknesses requiring some additional audit coverage in the
procurement area. During this audit of procurement activities we focused on concerns expressed and
weaknesses previously identified. This audit contains one finding.
Within 60 days please give us, for each recommendation 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 furnish us copies of any correspondence or directives
issued because of the audit.
If you have any questions, please contact Jerry Thompson, Assistant District Inspector General for
Audit, at (817) 978-9309.
Management Memorandum
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INTENTIONALLY
00-FW-201-1004 Page ii
Executive Summary
We conducted an audit of the San Antonio Housing Authority to find the extent of
procurement irregularities affecting HUD programs involving: (1) purchases from the
Authority’s affiliated nonprofit corporations; (2) child-care services purchased from a former
resident commissioner; (3) furniture purchased from a local nonprofit corporation; and (4) the
Economic Development Program. We found the Authority violated federal conflict of interest,
procurement, and cost requirements and used HUD program funds to pay about $865,409 in
questionable costs.
Managers entered into a noncompetitive arrangement with their
Noncompetitive affiliate, the San Antonio Housing Assistance Corporation
procurement (SAHAC) resulting in HUD programs paying questioned costs
arrangement with of about $822,508 for 3 fiscal years ending June 30, 1999.
affiliate. HUD programs paid: excessive disposal service fees of about
$336,865; the affiliate’s disposal service operating costs of
about $461,028; and about $24,615 for debris removal at non-
HUD properties. Authority managers also permitted the affiliate
to use HUD equipment and facilities without paying rental or
utility costs.
Excessive fees to a The Authority paid excessive fees to a former commissioner for
former commissioner for child-care services provided to residents of Springview
child-care services. Apartments, a HUD property. The former commissioner over-
billed for the services by about $31,352. Authority managers
paid the excessive billings using HUD funds and although they
were aware of the over-billings as early as 1997, they have not
yet reimbursed HUD programs from non-federal funds.
Due to a conflict of interest, the Authority paid $25,000 to a
Excessive costs of local nonprofit organization for furniture appraised at only
furniture purchased from $12,175. The Authority’s former Board Chairperson
a nonprofit organization. negotiated the purchase while occupying positions on both the
nonprofit and Authority boards. The former President/CEO
approved the payment, apparently knowing the appraised value
of the furniture. Authority managers allocated costs of about
$11,549 in excess of the appraised value to the HUD Low
Rent, Drug Elimination, Comprehensive Grant, Hope VI, and
Section 8 Programs.
Page iii 00-FW-201-1004
Executive Summary
Our HOPE VI audit 1 recommended HUD require the Authority
Authority officials did not
to implement policies and procedures to ensure compliance with
follow their procurement
federal procurement requirements. Managers developed
policy and requirements.
adequate policies and procedures but did not follow them. We
are recommending actions to correct the problem, the
repayment of ineligible costs of about $810,692, and the
Authority provide support for, or repay, salaries and benefits
expenses of about $54,717. We are also recommending HUD
to consider taking administrative sanctions against those
Authority officials and Commissioners involved in the conflict-
of-interest decisions.
Our audit also included an examination of the Authority’s
No outstanding issues
Economic Development Program. The former Economic
remain regarding the
Development Program Director did not follow procurement
Economic Development
guidelines, properly monitor a consultant, and opened
Program.
unauthorized bank accounts. Authority management conducted
a review and took appropriate actions. Although the program
had problems, no outstanding issues existed at the completion
of our audit.
We provided a draft report to the Authority officials on
Finding discussed with
June 20, 2000, and they issued their response on July 14,
Authority officials.
2000. We had an exit conference on July 20, 2000. Authority
managers disagreed that they violated federal conflict of interest,
procurement, and cost requirements regarding the
noncompetitive procurement arrangement with its affiliate, the
San Antonio Housing Assistance Corporation. They said the
disposal service fees were not excessive. They said HUD had
approved the arrangement. However, they agreed to reimburse
HUD programs for over $480,000 for costs attributable to the
disposal service operations and debris removal from non-HUD
properties. They generally agreed that the Authority had
overpaid for child care services and furniture and that HUD
programs should be reimbursed. We summarized their
response in the findings and included a copy of the response,
without attachments, as Appendix B.
1
Report No. 99-FW-201-1003, dated January 29, 1999.
00-FW-201-1004 Page iv
Table of Contents
Management Memorandum i
Executive Summary iii
Introduction 1
Finding
1 The Authority’s Conflict-of-Interest Arrangements 3
caused HUD Programs to Pay Questionable Costs of
About $865,409
Management Controls 21
Follow Up on Prior Audits 23
Appendices
A Schedule of Questioned Costs 25
B Auditee Comments 27
C Distribution 47
Page v 00-FW-201-1004
Table of Contents
Abbreviations
ACC Annual Contributions Contract
CFR Code of Federal Regulations
HUD U.S. Department of Housing and Urban Development
OIG Office of Inspector General
OMB Office of Management and Budget
SAHAC San Antonio Housing Assistance Corporation
00-FW-201-1004 Page vi
Introduction
Texas statute established the Housing Authority of the City of
Background
San Antonio in 1937. During our review period, a five-member
Board of Housing Commissioners provided general oversight of
Authority activities. Currently, the authorized number of board
members is 11, including the Chairperson. Mr. Melvin Braziel,
President and Chief Executive Officer, and Richard Martinez,
Chief Operating Officer, are in charge of day-to-day
operations. The Authority’s administrative offices and records
are located at 818 S. Flores in San Antonio, Texas.
The Authority administers over 8,000 public housing units and
provides rental assistance to about 10,000 families in privately-
owned residences. During fiscal year 2000, HUD provided
over $94,000,000 in assistance for the Authority’s Low Rent,
Section 8, Comprehensive Grant, Public Housing Drug
Elimination Grant, and HOPE VI Programs.
In 1981 the Authority created a nonprofit affiliate, the San
Antonio Housing Assistance Corporation (SAHAC), to dispose
of solid waste at Authority-managed properties. All of the
Authority’s commissioners also serve on the affiliate’s board.
We issued an audit report on January 29, 1999, on the
Authority’s HOPE VI Program that disclosed the Authority did
not comply with HUD procurement regulations and
requirements. The report included recommendations for HUD
to require the Authority to: (1) develop a comprehensive
procurement policy and (2) take steps to ensure full and open
competition and purchases are only for eligible expenditures.
This audit addresses some of the same issues and concerns
related to procurement.
The Audit objective was to find the extent of irregularities
Audit Objective, Scope
involving the Authority’s procurement of goods and services
and Methodology
from: (1) affiliated, nonprofit corporations; (2) a former
resident commissioner; (3) a local nonprofit corporation; and
(4) participants in the Authority’s Economic Development
Program.
To accomplish the objective, we:
• Interviewed U.S. Department of Housing and Urban
Development (HUD) and Authority employees, former
Page 1 00-FW-201-1004
Introduction
Housing Commissioners, former employees and directors of
the local nonprofit corporation, and other individuals as
necessary;
• Analyzed and compared disposal service fees the Authority
paid to their affiliate, the San Antonio Housing Assistance
Corporation, to fees the Authority paid local commercial
disposal companies for disposal services;
• Obtained information from the Authority’s Internal Audit
Department detailing excessive child-care payments to the
former commissioner totaling about $31,352. We relied on
the Department for this information and limited our work to
a review of the relevant agreement, certain accounting
documents, and interviews. We did not review all of the
documentation to verify the accuracy of the amount
overcharged;
• Obtained and reviewed the HUD Procurement Handbook,2
federal regulations, State law, the Authority’s procurement
policy, the Annual Contributions Contract, contract files,
financial records, correspondence, ownership documents,
and Tampico warehouse acquisition and development costs
records;
• Obtained and analyzed annual audited financial statement
information; and
• Issued subpoenas to financial institutions to obtain financial
records relating to the Authority’s Economic Development
Program.
We substantially performed field work at the Authority from
Audit Period
February 1998 through November 1999. Our work was
periodically interrupted due to other higher priority assignments
or other personnel conflicts. The audit generally covered 3
fiscal years ending June 30, 1999, although we extended the
review period when appropriate. We conducted the audit in
accordance with generally accepted government auditing
standards.
2
Procurement Handbook for Public and Indian Housing Authorities , Directive Number 7460.8, effective January 14,
1993.
00-FW-201-1004 Page 2
Finding
The Authority’s Conflict-of-Interest
Arrangements Caused HUD Programs to Pay
Questionable Costs of About $865,409
The Authority entered into excessive, noncompetitive, and conflict-of-interest procurement
arrangements involving: an affiliate, the San Antonio Housing Assistance Corporation
(SAHAC); a children’s day care operation, Dora’s Sure Care; and a nonprofit agency, the
Partnership for Hope. Authority managers and Board members had conflicts of interest in the
arrangements. As a result, managers used HUD program funds to pay questionable costs of
about $865,409. Specifically, this amount includes $336,865 in excessive disposal service
fees, $461,028 in the affiliate’s disposal service operating costs, about $24,615 charged to the
Low Rent Program to remove debris from non-HUD housing projects, $31,352 in excessive
tenant child-care fees, and $11,549 in excessive furniture costs. Managers also allowed the
affiliate to use Low Rent Program facilities and equipment without paying rent or utility costs.
Also, the conflict-of-interest arrangements resulted in: an increase in the affiliate’s retained
earnings of about $335,000 for the period July 1, 1996, through June 30, 1999, apparent
additional income to a former resident Board member, and the discharge of a possible debt of
a Board chairperson. All occurred at the expense of HUD programs.
The Annual Contribution Contract (ACC) between HUD and
Requirements
the Authority incorporates by reference the regulations for
Public and Indian Housing Authorities contained in Title 24 of
the Code of Federal Regulations (CFR). Title 24 of the CFR,
part 85, establishes the uniform administrative rules for Federal
Grants and cooperative agreements and sub-awards to State,
local and Indian tribal governments. This part also establishes
OMB Circular A-87 as the cost principles for housing
authorities to follow when determining allowable costs to federal
programs.
Regarding conflicts of interest, the ACC, Part A, Section 19,
Subsection (A)(1), provides that neither the Housing Authority
nor any of its contractors or their subcontractors may enter into
any contract, subcontract, or arrangement in connection with a
project under this ACC in which any of the following classes of
people has an interest, direct or indirect, during his or her tenure
or for one year thereafter:
Page 3 00-FW-201-1004
Finding
(i) Any present or former member or officer of the governing
body of the Housing Authority, or any member of the
officer’s immediate family...;
(ii) Any employee of the Housing Authority who formulates
policy or who influences decisions with respect to the
project(s), or any member of the employee’s immediate
family, or the employee’s partner; or
(iii) Any public official, member of the local governing body, or
State or local legislator, or any member of such individual’s
immediate family, who exercises functions or responsibilities
with respect to the project(s) or the Housing Authority.
The requirements of this Subsection (A)(1) may be waived by
HUD for good cause, if permitted under State and local law.
No person for whom a waiver is requested may exercise
responsibilities or functions with respect to the contract to which
the waiver pertains.
Applicable procurement regulations, Title 24 of the CFR,
Section 85.36 (b)(3), prohibit an employee, officer, or agent of
the Authority to participate in the selection, award, or
administration of a contract if a conflict of interest, real or
apparent, would be involved. Such a conflict would arise when:
(i) The employee, officer or agent;
(ii) Any member of his immediate family;
(iii) His or her partner; or
(iv) An organization which employs, or is about to employ, any
of the above, has a financial or other interest in the firm
selected for award.
The regulations3 require all procurement transactions be
conducted in a manner providing full and open competition.
Situations considered to be restrictive of competition include:
(1) non-competitive pricing practices between firms or between
affiliated companies and (2) any arbitrary action in the
procurement process.
OMB Circular A-87, Cost Principles for State and Local
Governments,4 requires costs to be necessary and reasonable
for proper and efficient performance and administration of
3
Title 24 of the Code of Federal Regulations, Section 85.36(c).
4
OMB Circular A-87, Attachme nt A, Part C. Basic Guidelines.
00-FW-201-1004 Page 4
Finding
federal awards. A cost is reasonable if, in its nature and
amount, it does not exceed that which would be incurred by a
prudent person under the circumstances prevailing at the time
the decision was made to incur the cost. In determining
reasonableness, considerations include:
a. Whether the cost is of a type generally recognized as
ordinary and necessary...;
b. The restraints or requirements imposed by such factors as:
sound business practices; arms length bargaining; Federal,
State and other laws and regulations; and terms and
conditions of the Federal award;
c. Market prices for comparable goods or services;
d. Whether the individuals concerned acted with prudence in
the circumstances considering their responsibilities to the
governmental unit, its employees, the public at large, and the
Federal Government; and
e. Significant deviations from the established practices of the
governmental unit which may unjustifiably increase the
federal award’s cost.
Also, OMB Circular A-87 provides that costs are allocable to
a particular cost objective if the goods or services involved are
chargeable or assignable to such cost objective in accordance
to the relative benefits received.
Authority managers entered into a non-competitive arrangement
HUD programs paid
with their affiliate, the SAHAC, causing HUD programs to pay
excessive disposal
excessive disposal service fees totaling about $336,865 for
service fees of about
fiscal years 1997, 1998, and 1999. Authority managers
$336,865.
operate the affiliate and the Authority’s governing board
members also serve on the affiliate’s Board creating a conflict-
of-interest relationship as defined by HUD regulations.5 The
Authority did not, however, request a conflict-of-interest waiver
from HUD as required.
Managers did not require the affiliate to compete for disposal
work and instead determined the affiliate’s service fees during
an annual budgeting process. The Authority’s current President
and Chief Executive Officer told us he prepared the initial
proposal and implemented the affiliate’s solid waste disposal
5
Title 24, Code of Federal Regulations, Section 85.36(b).
Page 5 00-FW-201-1004
Finding
operations in 1981. He said he studied the situation and found
the costs of operating their own disposal service (exclusive of
start up costs) would be less than what the Authority paid for
contract services. The affiliate provided disposal service at
Authority developments until January 1997 when the Authority
awarded a contract for disposal services at nonprofit and
elderly developments. The Authority solicited bids for this
contract in October 1996. Authority officials said they
reviewed the affiliate’s revenues and expenses annually but did
not consider market commercial disposal service rates when
setting the affiliate’s disposal service fees. The affiliate receives
all of its disposal service revenues from the Authority and other
affiliates.
We noted the affiliate’s Annual Financial Statements contained
an evaluation of disposal service fees showing a cost saving to
the Authority’s properties. However, the evaluation included a
comparison of the affiliate’s fees to the City of San Antonio’s
per-unit disposal fees. The City’s rates were based on a
garbage can for each unit. However the actual method used for
garbage disposal required the tenants to place trash into large
garbage bins. Disposal service employees would then empty
the bins into garbage trucks with lift equipment. The evaluation
did not compare the affiliate’s rates with local disposal
companies’ commercial rates for comparable services. We
found no evidence to indicate the Authority had ever compared
the affiliate’s rates with other rates for comparable services.
We also noted the affiliate’s financial statements showed an
increase in retained earnings of about $335,000, from about
$671,000 to $1,006,000, during the fiscal years 1997 through
1999.
We compared the affiliate’s disposal service fees to commercial
fees on a cost-per-yard basis; that is, total cost divided by the
total volume of all disposal bins emptied during the period.
Commercial disposal service fees remained generally consistent,
on a per-yard basis, regardless of bin size and service
frequency. For this reason, and because we believe cost-per-
yard is an accurate measure of service provided for fee paid,
we used cost-per-yard to compare the affiliate’s disposal
service fee with commercial fees. The affiliate’s per-yard fee
exceeded commercial fees by about $336,865 for the 3-year
period ending June 30, 1999, as shown in the table below.
00-FW-201-1004 Page 6
Finding
Commercial- Affiliate Excessive Annual Yards Excessive
Year cost-per-yard cost-per-yard cost-per- Collected 6 Annual fees 7
yard
1997 $ 1.958 $ 2.67 $ 0.72 240,032 $172,823
1998 2.479 2.70 0.23 206,748 47,552
1999 1.8910 2.58 0.69 168,826 116,490
Total fees paid in excess of commercial rates $336,865
The affiliate also provided less service when compared to
commercial contracts. Commercial contracts in force during the
review period required: emptying disposal bins up to three
times per week; steam-cleaning bins every 30 days; removing
excess debris from around disposal sites; and included landfill
fees. In comparison, for its fee, the affiliate emptied bins only
twice each week, did not steam clean bins, did not remove
debris from dump sites, and did not pay landfill fees.
Authority managers used HUD funds to pay the affiliate’s
HUD programs paid
disposal service operating costs of about $461,028 including:
affiliate’s disposal
landfill fees estimated to be about $387,629; disposal service
service operating costs of
employees’ salaries and benefits of about $18,682; and other
about $461,028.
unsupported salaries and benefits expenses of about $54,717.
HUD properties, already paying the affiliate’s disposal service
Disposal operation’s
fee, also paid landfill fees of about $387,629 that related to the
landfill fees of about
affiliate’s disposal service. Commercial service fees, which
$387,629 charged to
were comparatively lower, included landfill costs. The affiliate’s
HUD programs.
disposal service fees, if competitive, should have included
landfill fees as well. The Authority allocated landfill fees totaling
about $430,699 to HUD properties for the 3-year period
ending June 30, 1999. However, we estimate about 90 percent
of this amount, or $387,629, relates to the affiliate’s ongoing
disposal operations. We estimated the remaining 10 percent
applied to debris removal not covered by comparable disposal
service.
Authority managers allocated landfill fees during the 3-year
period to HUD property accounts entitled “dump fees." These
6
By the affiliate only.
7
Excessive fee-per-yard multiplied by annual yards collected.
8
January 1997 commercial contract.
9
September 1997 commercial contract.
10
Includes costs for roll-off fees and a September 1999 commercial disposal agreement.
Page 7 00-FW-201-1004
Finding
“dump fees” consisted of landfill fees for the disposal of: (1)
debris such as discarded furniture, appliances, and tree limbs
removed from HUD properties and (2) refuse removed from all
properties as part of the affiliate’s disposal operation. 11
Managers did not separately account for these “dump fees” by
garbage disposal and debris removal and do not know how
much relates to the various activities. We reviewed about 30
percent of these charges, or about $128,000 of the costs, by
examining landfill invoices during spring, summer, fall, and
winter months. The supporting documentation identified the
trucks delivering the waste material to the landfill. Therefore,
we could estimate the costs of garbage and debris dumped.
Based on our review, we concluded that about 90 percent of all
invoiced amounts related to the affiliate’s disposal operation.
Therefore, we estimated about $387,629 of the costs should
have been charged to the affiliate's disposal operation.
Authority managers said they reallocated dump fees of about
$147,885 from Low Rent accounts to the affiliate via journal
voucher # 0081, dated October 18, 1999. The voucher
established a payable by the affiliate to the Low Rent Program.
Authority managers, however, did not provide the requested
additional documentation verifying the repayment of “dump
fees” to HUD Low Rent Program accounts. Therefore, our
estimate of landfill costs related to the affiliate’s disposal
operation include these reallocated dump fees.
The Low Rent Program paid $18,682 in salary and benefits for
Questionable salary and
an affiliate disposal service crew member and about $54,717 in
benefit costs for disposal
salary and benefits for a general maintenance helper who
service employees
worked with the disposal service crew and sometimes with the
amount to $73,399.
debris crew. The disposal service crew operates the affiliate’s
disposal equipment and performs other duties related to the
affiliate’s ongoing disposal operations. The debris crew cleans
around disposal bins and picks up tree limbs, discarded
furniture, and other items at HUD and non-HUD properties.
No one kept track of the time the maintenance helper spent on
each activity. Since the HUD properties are already paying the
affiliate’s disposal service fees, we considered the salary and
benefits of the disposal worker, $18,682, to be ineligible costs
11
The Authority allocates these costs using the Authority’s “80-” allocation method where costs are only allocated
to Low Rent properties.
00-FW-201-1004 Page 8
Finding
to the HUD programs. Also, since part of the salary and
benefits of the general maintenance helper should be allocated
to the affiliate for disposal work and to non-HUD properties for
the time spent on the debris crew at those properties, we
consider these charges, $54,717, to be unsupported.
Other than the salary and benefits of the general maintenance
The Authority failed to
helper mentioned above, we estimated the Authority incorrectly
properly allocate costs of
charged HUD programs about $24,615 in costs of debris
debris collection
collection that should have been charged to non-HUD
activities.
programs during the 3 fiscal years 1997 through 1999. We
estimated about $21,662 in salary and benefits and $2,953 in
fuel and repair costs should have been charged to non-HUD
activities.
Authority managers charged salary and benefit costs totaling
about $170,344 for five debris crew employees solely to HUD
program accounts. A portion of these costs should have been
allocated to non-HUD accounts because debris crew members
spent part of their time at non-HUD properties. We had to
estimate the salaries and benefits expenses related to non-HUD
properties because Authority managers did not require crew
members to maintain detailed time records.
We determined the relative number of disposal bins at each
property was a reasonable basis for estimating salary and
benefit costs related to debris work at non-HUD properties.
We determined the percentages of disposal bins at HUD and
non-HUD properties for each year and applied the percentage
at non-HUD properties to the total to arrive at the costs that
should have been charged to non-HUD properties. The total
salary and benefits, the percentage of bins, and estimated salary
and benefit costs related to work performed at non-HUD
properties are shown in the following table:
Page 9 00-FW-201-1004
Finding
Fiscal Total Salary/ Percentage 12 Estimated
Year Benefits Ineligible
1999 $105,520 15% $15,828
1998 10,77013 9% 969
1997 54,054 9% 4,865
Totals $170,344 ---- $21,662
Managers used HUD funds of about $2,953 to pay repair and
Low Rent Program paid
fuel charges for debris removal from non-HUD properties.
for repair and fuel costs
Authority managers charged all of the fuel and repair costs to
for debris removal at
HUD program accounts, although as indicated above, the
non-HUD properties.
debris crew works at HUD and non-HUD properties. Using
the same methodology as mentioned above in estimating the
debris activity salary costs, the relative percentage of disposal
bins at non-HUD sites, we estimated fuel and repair costs that
should have been charged to non-HUD properties. Our table is
shown below:
Fiscal Total fuel & Applicable 12 Estimated
Year repair costs Percentage Ineligible costs
allocation
1999 $14,007 15% $2,101
1998 16,841 9% 25314
1997 6,656 9% 599
Totals $37,504 $2,953
Authority managers allowed the affiliate to use two Authority-
Managers provided HUD
owned warehouses and an authority-owned truck without
program facilities to the
paying rent and utility costs. The affiliate worked out of the
affiliate free of rent and
Brazos warehouse15 until December 1997 and then moved to
utility costs.
the recently renovated Tampico warehouse in January 1998.
The Authority used Low Rent and Comprehensive Grant funds
of about $32,878 and $762,190,16 respectively, to purchase
and renovate the Tampico warehouse. The Authority also used
HUD Low Rent funds of $10,760 to purchase a container-lift
truck in March 1986 that the affiliate used exclusively in its
disposal operations. The Authority transferred the truck to the
affiliate and set up a payable to the Low Rent Program on
12
The pe rcentage of disposal bins at non-HUD properties.
13
Total salaries and benefits expenses for 2 months only.
14
Since the debris crew worked only 2 months at non-HUD properties this amount is calculated:
$16,841 X .09 X 2/12.
15
The Authority used Section 8 reserves to purchase the Brazos warehouse.
16
1993 and 1994 Comprehensive Grant funds of about $32,849 and $729,341, respectively.
00-FW-201-1004 Page 10
Finding
March 20, 2000. The Authority used additional HUD Low
Rent funds of about $40,09817 to pay utility costs at the
Tampico and Brazos warehouses. The Authority should
determine and require the affiliate to repay Low Rent accounts:
(1) reasonable utility costs and rental fees for the use of
Authority facilities and (2) lost interest revenue for the purchase
price of the truck ($10,760) for the 14-year period ending
March 20, 2000.
Authority managers used Springview Property (Low Rent
Managers used HUD Program) funds to pay excessive child-care costs totaling about
funds to pay $31,352 in $31,352. The former President/CEO entered into a contractual
excessive child-care fees agreement in 1994 with Dora’s Sure Care to provide child-care
to a former services at the Springview Apartments.18 The owner of the
commissioner. child-care service lived in the Springview Apartments when they
made the agreement, and was a member of the Authority’s
Board of Commissioners during 1996 and 1997. Managers
allowed the commissioner to use Springview facilities for the
child-care business without paying rent or utilities expenses.
The former commissioner agreed to provide day care, on a
part-time basis (approximately 8 hours per week per child), for
children of Springview residents attending G.E.D. classes, not
to exceed the maximum capacity of 12 allowed at any one time.
The rate per child was $35 a week. The commissioner
increased fees from $35-per-child-per-week to $81 per-child
without formal approval, and requested fees for “spaces that
could have been used.” Springview Apartments closed in
August 1997 and the commissioner “sub-contracted” child-care
to HUD tenants. Authority managers realized they were making
excessive payments to the former commissioner in September
1997 and brought the matter to the attention of the Internal
Audit Department. In a February 16, 1998 letter, the Authority
discontinued “direct child care service payments” but offered
the former commissioner additional space to use as a child care
facility. The Authority instituted a new payment procedure
whereby residents could select a child care provider of their
choice. The Authority managers have not yet required
reimbursement to HUD programs for the excessive child care
payments. The commissioner was generally non-cooperative
17
As of June 30, 1999.
18
Springview is a HUD property.
Page 11 00-FW-201-1004
Finding
with Authority staff and would not provide verifiable billing
information.
The Authority’s Internal Audit Department interviewed HUD
tenants and examined the commissioner’s billing information.
They determined that from March 1994 to March 1998 the
Authority paid child-care fees to the commissioner totaling
about $56,988. However, based on their review, the
commissioner should have been paid only about $24,605. The
difference in the amount paid and the amount that should have
been paid consisted of amounts billed over $35 per child per
week, amounts billed for vacant slots, and errors or double
billings.
During 1996, a local nonprofit organization, the Partnership for
Managers used HUD Hope, had to sell its furniture to meet outstanding obligations.
funds of about $11,549 to The Authority’s Board Chairperson at the time also held a
discharge a position on the nonprofit’s Board and was personally liable for
Commissioner’s personal a portion of the nonprofit’s outstanding debt. The former
liability. Chairperson negotiated with Authority managers for the
purchase of the nonprofit’s furniture. Shortly thereafter, the
former President/CEO agreed to pay the nonprofit $25,000 for
used office furniture appraised at only $12,175. Although the
Managers were aware of the appraised value, they made the
$25,000 payment, and allocated 90.05 percent of purchase
price to the Low Rent, Drug Elimination, Comprehensive Grant,
Hope VI, and Section 8 Housing Programs. The amount HUD
programs paid in excess of appraised value equals about
$11,549 ($25,000 - $12,175 X .9005).
Our HOPE VI audit 19 recommended HUD require the Authority to implement a comprehensive
procurement policy with procedures to ensure full and open competition, and purchases for eligible
program expenditures. The Authority developed, but did not follow, a procurement policy for the
purchase of disposal services from its affiliate. The Authority’s policy requires compliance with federal
regulations and requirements which: prohibit conflict-of-interest relationships; require full and open
competition; and require costs be reasonable and necessary.
Based on our review of the San Antonio Housing Assistance Corporation’s (SAHAC’s) Audited
Financial Statements for 1998 and the unaudited Financial Statements for 1999, we believe the conflict-
19
Report No. 99-FW-201-1003, dated January 29, 1999.
00-FW-201-1004 Page 12
Finding
of-interest and noncompetitive garbage disposal arrangement resulted in the increase in SAHAC’s
retained earnings at the expense of HUD programs. According to the financial statements, the SAHAC
had retained earnings of $1,145,304 as of June 30, 1998. SAHAC’s retained earnings amounted to
$1,006,163 in 1999 according to the unaudited financial statements. The 1996 audited financial
statements show the amount of SAHAC’s retained earnings was $671,426. So, during fiscal years
1997 through 1999 the SAHAC has shown a net profit of $334,737 without providing services
comparable to services that could be obtained for less from commercial waste disposal companies. All
of SAHAC’s revenue comes from the Authority or its affiliates.
Authority Board members involved in excessive child-care and furniture payments are no longer on the
Authority’s Board. However, while they served on the Authority’s Board, the conflict-of-interest
relationships resulted in Authority managers approving payments to: (1) provide more income to the
former resident Board member than authorized in the child-care contract and (2) relieve the former
Board Chairperson of a possible personal debt in connection with the nonprofit.
Auditee Comments The Authority officials did not agree that a conflict of interest
existed in the waste disposal purchase arrangement between the
Authority and its affiliate, the San Antonio Housing Assistance
Corporation. They said HUD had reviewed and approved the
arrangement. Also, they did not agree the waste disposal fees
were excessive. However, they agreed to reimburse HUD
programs for certain questioned costs.
They agreed that the Authority and the San Antonio Housing
Assistance Corporation have the same management. The same
management is responsible for setting the waste disposal fees
and paying them from federal funds. However, they said,
instead of a conflict of interest, the entities have a common
interest. The Authority formed the San Antonio Housing
Assistance Corporation to provide waste disposal services to
residents who live in housing owned or managed by the
Authority. They said HUD was aware of the arrangement.
They said they had provided HUD a feasibility analysis to
operate its own disposal service in 1981. HUD responded
saying HUD had no disagreement with the basic concept.
Authority officials said they did not violate applicable federal
procurement regulations because they used noncompetitive
negotiations in a situation when adequate competition was
impossible.
Page 13 00-FW-201-1004
Finding
They said the Authority did not pay excessive disposal fees as a
result of the noncompetitive negotiations. They said
the waste disposal fees charged by the San Antonio Housing
Assistance Corporation were less than fees that would be
charged if the services were provided by a commercial
company. They stated the scope of work provided by the
commercial companies under contract during the audit period
was less than the scope of services provided by the San
Antonio Housing Assistance Corporation. They criticized the
auditor for discussing the scope of services with those who
performed the services instead of only discussing the matter
with management. They also provided a price quoted by one
commercial company in July 2000 they believe shows the
savings from using the San Antonio Housing Assistance
Corporation instead of a commercial company. They
maintained that competition to provide the services was still
inadequate. The Authority says it requested price quotes from
six companies in July 2000 and only received a quote from one.
The Authority used the price quote to apply a deflation factor
and show the commercial prices would have been higher than
the fees of the San Antonio Housing Assistance Corporation
during our audit period.
At or subsequent to the exit conference, Authority officials
agreed to reimburse the HUD programs for costs of the
Housing Assistance Corporation’s disposal operations and the
incorrectly allocated debris crew costs discussed in the findings
as follows:
Salary and benefits of disposal crew member $ 18,682
Salary and benefits of debris crew at non-HUD 21,662
properties
Repair and fuel costs 2,953
Landfill fees 387,629
Warehouse utility costs 6,751
Warehouse rent 34,439
Lost interest 10,763
Total $482,879
At the exit conference, they agreed that the San Antonio
Housing Assistance Corporation had retained earnings, before
considering the above reimbursements to HUD programs, of
00-FW-201-1004 Page 14
Finding
over $1,000,000 that had accumulated from the fees since
entering into the arrangement in 1981.
Subsequent to the exit conference, Authority officials attempted
to support the amount of salary and benefits of the General
Maintenance Helper we questioned as unsupported. They
provided copies of the employee’s daily work schedule. They
believed they supported all but $6,107 and proposed to
reimburse HUD programs for this amount.
They provided several compound journal entries and a copy of
a San Antonio Housing Assistance Corporation bank account
showing a wire transfer from the account to show they had
repaid part of the costs to be reimbursed.
Authority officials agreed with the finding related to the conflicts
of interest resulting in the excessive payments for child care and
furniture. They blamed the problems on the former
President/CEO or former chairperson. They stated current
management took immediate action when they found out about
the problems. In the child care matter, they said they obtained
a legal opinion from the State Attorney General and terminated
the contract in January 1998. They said they are currently
working through their attorney to recover the excessive child
care payments and have already reimbursed HUD programs for
the excessive furniture costs.
Our evaluation of the Authority’s comments did not change our
OIG Evaluation of position. The Authority’s purchase of waste disposal services
Comments for federal programs from its affiliated entity involves a conflict
of interest because the Authority’s management has conflicting
responsibilities for operating both. On one hand the Authority is
responsible for ensuring costs are necessary and reasonable for
the efficient operation of the federal programs as required by
federal cost principles. On the other hand, Authority
management also sets the service fees charged by the Housing
Assistance Corporation to the programs. As evidenced by the
finding, the fees charged to the federal programs exceeded
costs and market prices.
Page 15 00-FW-201-1004
Finding
HUD did not approve the Authority to charge disposal fees
established above its costs. The feasibility study the Authority
says it provided HUD in 1981 indicates the Authority was
considering operating its own waste disposal service. The study
shows costs such as labor, vehicle maintenance, container
maintenance, insurance, etc., and shows estimated savings
based on estimated costs. There is no indication the Authority
or the Housing Assistance Corporation would charge fees that
would permit an accumulation of significant profits or retained
earnings.
Regarding the scope of work, as stated in the finding, there was
no formal written contract with the San Antonio Housing
Assistance Corporation to show the scope of services it
provided. However, we obtained the San Antonio Housing
Assistance Corporation’s service schedules and interviewed the
people performing the service to determine the scope of
services provided. We then compared the scope of services to
that provided by commercial contractors under contract during
the audit period. We believe our method of determining and
comparing the actual scopes of services was effective. The
commercial companies provided more service under contract
than the Housing Assistance Corporation.
We do not agree with the Authority’s conclusion that
competition to provide waste disposal service is inadequate.
Also, we do not agree with the Authority’s method of
attempting to show the cost savings of using San Antonio
Housing Assistance disposal service over that of a commercial
company. Although the Authority may have solicited price
quotes in July 2000 from six companies and only obtained a
quote from one company, we believe it was obvious the
Authority did not intend to award a contract. The Authority did
not publicly solicit bids. Therefore, we believe it is
understandable why other disposal companies limited their
responses. The scope of services proposed by the company
that provided the price quote was not comparable to the
services provided during our review period. The quote
included providing debris pick-up services not provided by the
Housing Assistance Corporation or commercial companies
under contract during our review period. The Authority used its
own debris crew for picking up debris and paid the crew with
federal program funds. Our comparison of actual contract
00-FW-201-1004 Page 16
Finding
prices in effect during our audit period provides a much better
cost comparison than the price quote provided by the Authority
in response to our finding. Our comparison shows the fees
charged by the Housing Assistance Corporation, in a
noncompetitive situation, were in excess of market prices.
The Authority appeared responsive to our recommendation to
reimburse HUD programs. They agreed to make
reimbursement for Salaries and benefits of the Disposal Crew
member and the Debris Crew working at non-HUD Properties,
for fuel and repair costs, and for landfill fees. However, our
review of employee work schedules provided to support the
salaries and benefits of the general maintenance helper did not
convince us that we should lessen the amount of costs
questioned for this employee. The employee’s work schedules
were not specific as to whether the employee was working on
the disposal crew or the debris pick-up crew. Also, the work
schedules provided did not account for the entire time period
questioned. Therefore, we are still questioning $54,717 as
unsupported costs charged to the Low Rent Program.
We did a cursory examination of the compound journal entries
and the copy of a San Antonio Housing Assistance
Corporation bank account they provided to show they had
repaid part of the costs to be reimbursed. However, from the
information provided, we could not readily determine whether
the HUD programs received the reimbursement.
The Authority calculated the amounts it should reimburse HUD
programs for warehouse utility costs, warehouse rent, and lost
interest. We did not review these calculations but believe it
appropriate to recommend HUD to review them to determine
whether the amounts are acceptable.
The Authority appeared responsive to our recommendations
related to the conflicts of interest involved in the excessive
payments for child care and the furniture purchase. Based on
documentation provided, we agree the former CEO and former
Board members may have had more knowledge of the
transactions when they occurred than the current management.
Therefore, we have made minor changes to our draft finding for
additional clarification. However, the Authority did not provide
Page 17 00-FW-201-1004
Finding
us evidence to show actual reimbursements to HUD programs.
Therefore, HUD needs to ensure appropriate reimbursement.
We recommend HUD require the Authority to:
Recommendations
1A. Implement control procedures to ensure the costs of
affiliate-related activities are not charged to HUD
programs and to avoid procurement transactions that may
involve favoritism or a conflict of interest without
appropriate waivers from HUD.
1B. Follow its own procurement policy in compliance with
HUD regulations and require the affiliate to compete for
all future disposal service work while ensuring that all
competitors compete for the same and comparable scope
of work.
1C. If the affiliate can provide comparable disposal services
for fees competitive with commercial rates, obtain a
written, conflict-of-interest waiver from HUD before
continuing payments to the affiliate for disposal services.
1D. Repay HUD properties from non-federal funds for: (1)
excessive disposal service fees of about $336,865;
(2) salaries and benefits expenses of a disposal service
employee totaling $18,682; (3) salaries and benefits
expenses for debris crew employees working at non-
HUD properties totaling $21,662; (4) repair and fuel
costs for debris crew work performed at non-HUD
properties totaling $2,953; and (5) landfill fees
estimated to be about $387,629, or determine and
repay actual landfill fees allocated to HUD properties
related to the affiliate’s disposal service operation.
1E. Determine and repay HUD Low Rent accounts any
excessive disposal service and landfill fees related to the
affiliate’s disposal service operation charged to the Low
Rent Program since June 30, 1999.
1F. Either satisfactorily demonstrate and support the
reasonableness of $54,717 charged to HUD program
00-FW-201-1004 Page 18
Finding
accounts for the costs of the general maintenance helper’s
salary and benefits or repay Low Rent accounts from
non-federal funds.
1G. Determine and repay Low Rent accounts from non-
federal funds the affiliate’s share of utility costs at the
Brazos and Tampico warehouses.
1H. Determine and repay Low Rent accounts from non-
federal funds a reasonable rental rate for the Tampico
warehouse space utilized by the affiliate for its disposal
service activities since January 1998.
1I. Determine and repay Low Rent accounts from non-
federal funds a reasonable amount for lost interest
revenue on the purchase price ($10,760) of the 1-ton
container-lift truck for the 14-year period ending March
20, 2000.
1J. Repay $31,352 in excessive child-care contract fees to
Springview Apartments ( a HUD property) using non-
federal funds.
1K. Repay to HUD programs from non-federal funds
$11,549 in excessive costs related to the furniture
purchase.
1L. We also recommend HUD consider taking administrative
sanctions against those officers and Commissioners of the
Authority involved in decisions where conflicts of interest
existed.
Page 19 00-FW-201-1004
Finding
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00-FW-201-1004 Page 20
Management Controls
In planning and performing our audit, we obtained an understanding of management controls
relevant to the audit objectives. Management is responsible for establishing effective
management controls, and in the broadest sense, these include a plan of organization,
methods, and procedures to ensure management goals are met. Management controls include
the process for planning, organizing, directing, and controlling program operations. They
include the systems for measuring, reporting, and monitoring program performance.
Significant Controls We determined the following control categories were relevant
to our audit objectives:
Procurement & Purchasing
Costs allocation & eligibility
We assessed these relevant control categories to the extent they
impacted our audit objectives.
A significant weakness exists if management controls do not
Significant Weaknesses give reasonable assurance that resource use is consistent with
laws, regulations, and policies; that resources are safeguarded
against waste, loss, and misuse; and that reliable data are
obtained, maintained, and fairly disclosed in reports. Based our
review, we believe the following items are significant
weaknesses:
Authority managers did not follow established procurement
policy and purchasing procedures (finding).
Managers charged ineligible and unsupported costs to HUD
programs (finding).
Page 21 00-FW-201-1004
Management Controls
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00-FW-201-1004 Page 22
Follow Up on Prior Audits
An Office of Inspector General audit report (No. 99-FW-201-1003, dated January 29, 1999) on the
Authority’s HOPE VI grants included one finding with recommendations relevant to our audit
objectives. Finding 1 of the report concluded the Authority did not comply with federal procurement
regulations and operated without a comprehensive procurement policy and recommended the Authority:
(1) develop a comprehensive procurement policy and contract administration system and
(2) take steps to ensure: full and open competition; documentation supports procurement
transactions; and purchases are only for eligible expenditures.
Authority managers partially addressed these recommendations by developing a procurement policy and
purchasing procedures. However, as discussed more fully in the findings, Authority managers did not
follow the procurement policy or purchasing procedures causing HUD programs to pay ineligible costs.
Page 23 00-FW-201-1004
Follow Up on Prior Audits
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Appendix A
Schedule of Questioned Costs
Type of Questioned Costs
Issue Ineligible 1/ Unsupported 2/
1D. (1) Excessive Disposal Fees $336,865
Salaries and Benefits
(2) disposal crew 18,682
(3) debris crew 21,662
(4) Repairs & fuel for the
debris crew 2,953
(5) Landfill Fees 387,629
1F. Maintenance Helper’s $54,717
salaries and benefits
1J. Child-care contract, 31,352
excessive fees
1K. Furniture purchase 11,549
Totals $810,692 $54,717
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.
2
Unsupported costs are costs questioned by the auditor because the eligibility cannot be determin ed at the time of
audit. The costs are not supported by adequate documentation or there is a need for a legal or administrative
determination on the eligibility of the costs. Unsupported costs require a future decision by HUD program
officials. This decision, in addition to obtaining supporting documentation, might involve a legal interpretation or
clarification of Departmental policies and procedures .
Page 25 00-FW-201-1004
Appendix A
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Appendix B
Auditee Comments
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix C
Distribution
Secretary's Representative, 6AS
Comptroller, 6AF
Director, Accounting, 6AAF
Director, Office of Public Housing, 6JPH (4)
Saul N. Ramirez, Jr., Deputy Secretary, SD (Room 10100)
Kevin Simpson, Deputy General Counsel, CB (Room 10214)
Jon Cowan, Chief of Staff, S (Room 10000)
B. J. Thornberry, Special Asst. to the Deputy Secretary for Project Management, SD (Rm 10100)
Joseph Smith, Acting Assistant Secretary for Administration, A (Room 10110)
Hal C. DeCell III, A/S for Congressional and Intergovernmental Relations, J (Room 10120)
Ginny Terzano, Sr. Advisor to the Secretary, Office of Public Affairs, S (Room 10132)
Roger Chiang, Director of Scheduling and Advance, AL (Room 10158)
Howard Glaser, Counselor to the Secretary, S (Room 10218)
Rhoda Glickman, Deputy Chief of Staff, S (Room 10226)
Todd Howe, Deputy Chief of Staff for Operations, S (Room 10226)
Jacquie Lawing, Deputy Chief of Staff for Programs & Policy, S (Room 10226)
Patricia Enright, Deputy A/S for Public Affairs, W (Room 10222)
Joseph Hacala, Special Asst for Inter-Faith Community Outreach, S (Room 10222)
Marcella Belt, Executive Officer for Admin Operations and Management, S (Room 10220)
Karen Hinton, Sr. Advisor to the Secretary for Pine Ridge Project (Room 10216)
Gail W. Laster, General Counsel, C (Room 10214)
Armando Falcon, Office of Federal Housing Enterprise Oversight (Room 9100)
William Apgar, Assistant Secretary for Housing/FHA, H (Room 9100)
Susan Wachter, Office of Policy Development and Research (Room 8100)
Cardell Cooper, Assistant Secretary for CPD, D (Room 7100)
George S. Anderson, Office of Ginnie Mae, T (Room 6100)
Eva Plaza, Assistant Secretary for FHEO, E (Room 5100)
V. Stephen Carberry, Chief Procurement Officer, N (Room 5184)
Harold Lucas, Assistant Secretary for Public & Indian Housing, P (Room 4100)
Gloria R. Parker, Chief Information Officer, Q (Room 8206, L’Enfant Plaza)
Frank L. Davis, Director, Office of Dept Operations and Coordination, I (Room 2124)
Office of the Chief Financial Officer, F (Room 2202)
Edward Kraus, Director, Enforcement Center, V, 200 Portals Bldg., Wash. D.C. 20024
Donald J. LaVoy, Acting Director, REAC, X, 800 Portals Bldg., Wash. D.C. 20024
Ira Peppercorn, Director, Office of MF Asst Restructuring, Y, 4000 Portals Bldg., D.C. 20024
Mary Madden, Assistant Deputy Secretary for Field Policy & Mgmt, SDF (Room 7108) (2)
Deputy Chief Financial Officer for Operations, FF (Room 2202)
David Gibbons, Director, Office of Budget, FO (Room 3270)
FTW ALO, 6AF (2)
Public Housing ALO, PF (Room 8202) (2)
Dept. ALO, FM (Room 2206) (2)
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Appendix C
DISTRIBUTION (Cont’d)
Acquisitions Librarian, Library, AS (Room 8141)
Director, Hsg. & Comm. Devel. Issues, US GAO, 441 G St. NW, Room 2474
Washington, DC 20548 Attn: Judy England-Joseph
Henry A. Waxman, Ranking Member, Committee on Govt Reform,
House of Rep., Washington, D.C. 20515
The Honorable Fred Thompson, Chairman, Committee on Govt Affairs,
U.S. Senate, Washington, D.C. 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Govt Affairs,
U.S. Senate, Washington, D.C. 20510
Cindy Fogleman, Subcomm. on Gen. Oversight & Invest., Room 212,
O'Neill House Ofc. Bldg., Washington, D.C. 20515
The Honorable Dan Burton, Chairman, Committee on Govt Reform,
House of Representatives, Washington, D.C. 20515
Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug Policy & Human
Resources, B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515
Steve Redburn, Chief, Housing Branch, Office of Management and Budget
725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503
Inspector General, G
San Antonio Housing Authority
SAHA Board Chairperson
Mayor, City of San Antonio
State Auditor of Texas
00-FW-201-1004 Page 48
Procurement Activities, Housing Authority of the City of San Antonio, San Antonio, Texas
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-08-09.
Below is a raw (and likely hideous) rendition of the original report. (PDF)