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 THIS PAGE LEFT BLANK 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-201-1004 Page 24 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 THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-201-1004 Page 26 Appendix B Auditee Comments Page 27 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 28 Appendix B Page 29 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 30 Appendix B Page 31 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 32 Appendix B Page 33 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 34 Appendix B Page 35 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 36 Appendix B Page 37 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 38 Appendix B Page 39 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 40 Appendix B Page 41 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 42 Appendix B Page 43 00-FW-201-1004 Appendix B 00-FW-201-1004 Page 44 Appendix B Page 45 00-FW-201-1004 Appendix B THIS PAGE LEFT BLANK INTENTIONALLY 00-FW-201-1004 Page 46 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) Page 47 00-FW-201-1004 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)