oversight

Housing Authority of the City of Miami Beach, Miami Beach, Florida

Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-10-20.

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

                    HOUSING AUTHORITY OF THE
                      CITY OF MIAMI BEACH
                      MIAMI BEACH, FLORIDA


                          01-AT-202-1001
                         OCTOBER 20, 2000


                           OFFICE OF AUDIT
                     SOUTHEAST/CARIBBEAN DISTRICT




Table of Contents                                   Exit
                                                            Issue Date
                                                                    October 20, 2000
                                                            Audit Case Number
                                                                    01-AT-202-1001




TO:            Karen Cato-Turner, Director, Office of Public Housing,
                 Florida State Office, 4DPH




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

SUBJECT:       Housing Authority of the City of Miami Beach
               Miami Beach, Florida


We completed an audit of the Housing Authority of the City of Miami Beach, Florida (HACMB).
We conducted the audit pursuant to a request by your office dated July 9, 1999. This report
contains four findings that require follow-up action by your office to ensure HACMB
implements appropriate corrective action.

Within 60 days please give us a status report, for each recommendation in this 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.

Should you or your staff have questions, please contact James D. McKay, Assistant District
Inspector General for Audit, or Senior Auditor Narcell Stamps at (404) 331-3369.




Table of Contents                                                                        Exit
Management Memorandum




                        (This Page Left Blank Intentionally)




01-AT-202-1001                      Page ii




Table of Contents                                              Exit
Executive Summary
We conducted the audit in response to a request by the Department of Housing and Urban
Development (HUD), Office of Public Housing. We reviewed selected aspects of the HACMB’s
Section 8 and public housing operations. Our primary objectives were to determine if the
HACMB complied with HUD and/or State of Florida requirements for: (1) Section 8
expenditures for inter-local projects with the City of Miami Beach (City); (2) Section 8
expenditures for construction of a single parent family housing and resource center; (3) Section 8
rent reasonableness and rent increases; and (4) procurement and general disbursements of public
housing funds.

The audit disclosed violations of HUD requirements with regard to each audit objective and over
$1 million in questioned costs and $9,267 ineligible costs. These conditions resulted from the
HACMB’s mismanagement of its Section 8 and public housing programs and its financial affairs.
Specifically, the HACMB:

    •   Spent $795,178 of its Section 8 reserves for questionable activities provided through
        contracts with the City. The HACMB paid the City for police protection, recreation, and
        code enforcement. We questioned the reasonableness and necessity of the $795,178 paid
        for police protection, code enforcement and recreation. The costs were for public
        services the City should have provided from its local tax revenues.

    •   Spent over $2 million in a failed effort to provide housing and social services. In 1995
        HUD waived regulations to allow HACMB to refund bonds to refinance Rebecca
        Towers North on the condition that HACMB use a portion of the bond proceeds to
        construct a women and children housing and resource center. The HACMB spent over
        $2 million for site acquisition, site improvements, architect fees, City fees and various
        preliminary costs for the planned project. However, the project had been delayed for
        over 5 years and the HACMB had lost or was at risk of losing almost all of the $5.8
        million originally committed to fund the project. Also, HACMB’s failure to complete
        the project deprived the City’s low-income community of the needed housing and social
        services. We questioned $209,570 paid to the City for fees and permits because the fees
        were excessive considering the joint venture project was not constructed.

    •   Did not adhere to HUD requirements designed to assure the reasonableness of Section 8
        rents. The HACMB also did not timely execute new leases for tenants who moved from
        one assisted unit to another, and did not pay tenants the amounts by which their utility
        allowances exceeded the family’s contribution for rent. As a result, there was
        inadequate assurance that HUD subsidized reasonable Section 8 rents and that tenants
        received the full benefit of their utility allowances. We noted some cases where the
        HACMB and owners provided false representations concerning rent reasonableness.
        These conditions caused HUD to pay $9,267 in excessive subsidy.




                                           Page iii                             01-AT-202-1001



Table of Contents                                                                        Exit
Executive Summary

    •   Had not implemented corrective actions recommended by past reviewers of its
        operations to comply with procurement requirements. For instance, subsequent to being
        put on notice concerning violations of procurement requirements, the HACMB acquired
        legal services and small purchases without adequate assurance that they obtained the
        most advantageous cost from the most qualified sources.

We recommend that you require HACMB to: (1) obtain additional supporting documentation or
recover the $1,004,748 paid to the City, (2) reimburse HUD $9,267 for excessive housing
assistance payments (HAP) to owners, (3) submit evidence that it has the financial capability and
commitment to complete construction of the center within a reasonable time, and (4) establish
the necessary controls to improve its operations. Although various reviews have identified
noncompliance and systemic problems, the HACMB has shown a disregard for HUD
requirements and associated management controls. If improvements are not made within a
reasonable period of time, we recommend you consider declaring HACMB in substantial default,
and identify other entities that can effectively carry out the programs. We also recommend that
you restrict the use of all Section 8 administrative fee reserves until you determine and provide
written notice to the HACMB that it has substantially resolved the systemic problems in its
Section 8 Program, and the issues identified in the findings.

We provided copies of the draft report to the HACMB and HUD’s Florida State Office. We also
discussed the draft report with HACMB officials at an exit conference on August 5, 2000, and
with HUD officials on August 6, 2000. The HACMB provided its written response to the draft
report on September 27, 2000. The HACMB disagreed with findings 1 and 2 but they basically
agreed with findings 3 and 4. We considered HACMB and HUD responses in finalizing the
report. The HACMB’s comments are summarized within each finding and included in their
entirety in Appendix B.




01-AT-202-1001                                Page iv



Table of Contents                                                                       Exit
Table of Contents

Management Memorandum                                              i


Executive Summary                                                 iii


Introduction                                                       1


Findings

  1 Section 8 Reserve Funds Used to Pay for Questionable
    Activities                                                     5


  2 Housing and Social Services Not Provided                          13


  3 Mismanagement of Section 8 Program                                21


  4 Need to Improve Procurement Administration                        27



Management Controls                                              33


Follow-Up On Prior Audits                                         35

Appendices
      A Schedule of Ineligible and Unsupported Costs               37

      B HACMB Comments                                            39

      C Distribution                                              43




                               Page v                  01-AT-202-1001

                                                               Exit
Table of Contents

Abbreviations

CFR              Code of Federal Regulations
ED               Executive Director
HA               Housing Authority
HACMB            Housing Authority of the City of Miami Beach
HAP              Housing Assistance Payments
HQS              Housing Quality Standards
HUD              U.S. Department of Housing and Urban Development
IPA              Independent Public Accountant
RFP              Request for Proposal




01-AT-202-1001                               Page vi

Table of Contents                                                   Exit
Introduction
Background

The Housing Authority of the City of Miami Beach (HACMB) is a public body organized under
Section 421 of the Florida State Statutes. As of July 2000, the HACMB administered 2,943
housing units for low to moderate-income families. The HACMB owned and operated a 200-
unit conventional public housing project for the elderly, a 200 unit Section 8 new construction
project, and a 16 unit affordable housing project. The HACMB also administered 1,856 Section
8 vouchers, 346 Section 8 certificates, and 131 Section 8 moderate rehabilitation units. In
addition, the HACMB was the contract administrator for 3 Section 8 substantial rehabilitation
projects that consisted of approximately 194 units.

A five-member Board of Commissioners, who were appointed and served pursuant to Florida
State Law, governed the HACMB. The Board of Commissioners was primarily responsible for
ensuring the integrity of the HACMB’s programs and operations, fiscal management, and hiring
the Executive Director (ED). The ED was responsible for the day-to-day management of the
HACMB, implementation of Board policies and procedures, and overseeing HACMB staff that
consisted of approximately 44 employees.


                                    Prior to and during our fieldwork, several independent
 History                            entities reviewed the HACMB operations and detected
                                    serious problems related to its administration of programs
                                    and its financial affairs. The different reviewers reported
                                    similar deficiencies in the HACMB’s operations.
                                    Specifically:

                                        •    In 1999, the HACMB hired a consultant to conduct
                                             a review of its financial operations, accounting
                                             department, and Section 8 department.         The
                                             consultant reported several financial management
                                             deficiencies and gross inadequacies in determining
                                             rent reasonableness and lack of procedures in its
                                             Section 8 department.

                                        •    In February 2000, HACMB’s independent public
                                             accountant (IPA) issued a report on the results of an
                                             audit of the HACMB’s operations for the fiscal year
                                             ended June 30, 1999. The report contained 37
                                             findings that included issues concerning Section 8
                                             and financial management. HACMB’s IPA audit
                                             for the fiscal year ended June 30, 1998, contained a
                                             finding on procurement issues.


                                            Page 1                              01-AT-202-1001



Table of Contents                                                                        Exit
Introduction

                                  •    In February 2000, HUD’s Office of Public Housing
                                       conducted an In-depth Consolidated Management
                                       Review of HACMB’s operations (report issued June
                                       22, 2000). The report contained 30 findings,
                                       including several related to Section 8 issues. Due to
                                       the seriousness of the Section 8 issues, HUD placed
                                       the HACMB’s Section 8 Program on a 1 year
                                       probation.

                              The following table shows the similarity of findings cited
                              by the various reports:

                                                                                       HUD’s
                                                            Consultant’s   1998 and    June
                                                            August 1999    1999 IPA    2000
                    Findings / Concerns                     Report         Audits      Report
                    Section 8
                    Rent Reasonableness / Rent Increase        ü              ü              ü
                    Utility Allowance / Reimbursement                         ü              ü
                    HQS / Abatement of HAP                                    ü              ü
                    Incomplete files / Waiting List                           ü              ü

                    Financial Management
                    Cash Controls / Lack of Safeguards         ü              ü
                    Cost Allocation / Budgeting /              ü              ü              ü
                    Monitoring
                    Accounting and Recording of Expenses,      ü              ü              ü
                    Assets, and Individual Funds
                    Segregation of Duties                      ü              ü
                    Procurement                                               ü              ü
                    Lack of Policies and Procedures            ü              ü

                              HACMB recently developed an action plan to address
                              findings and concerns cited in the HUD report. However, it
                              had not prepared a written plan with target dates to address
                              the IPA findings. Following these reviews, the HACMB
                              initiated some organizational and operational changes in an
                              effort to improve performance. During our audit, the
                              HACMB hired a new ED (who reported on July 17, 2000)
                              and Finance Director, and initiated measures to address
                              problems within its Section 8 department. For instance, the
                              HACMB assigned its Executive Secretary to oversee both
                              the Section 8 leasing and inspection departments. The
                              HACMB also retained the services of a consultant to help
                              the new Section 8 manager address the issues raised by
                              HUD. However, as cited in our findings, we observed a
                              need for continued improvement.


01-AT-202-1001                          Page 2



Table of Contents                                                                     Exit
                                                                    Introduction


                    We conducted the review based on an audit request from
Audit objectives,   HUD concerning the reasonableness of Section 8 contract
scope, and          rents. In planning the audit, we considered the findings and
methodology         concerns cited in past reviews of HACMB’s operations by
                    HUD, independent auditors, and consultants.              We
                    developed our audit objectives to further examine certain
                    issues, in addition to rent reasonableness, that were subject
                    to waste and abuse and to determine if such conditions had
                    occurred.

                    Our primary objectives were to determine if the HACMB
                    complied with HUD and/or State of Florida requirements
                    for: (1) Section 8 expenditures for inter-local projects with
                    the City of Miami Beach; (2) Section 8 expenditures for
                    construction of a single parent and family housing resource
                    center; (3) Section 8 rent reasonableness and rent increases;
                    and (4) procurement and general disbursements of public
                    housing funds.

                    To accomplish the audit objectives, we examined records
                    maintained by the HACMB, City of Miami Beach,
                    landlords, HUD, and HACMB’s independent auditor. We
                    also interviewed HACMB (past and present), City, and
                    HUD officials as well as landlords, tenants, and
                    consultants. We visited housing units to determine their
                    condition but we did not conduct a detailed review for
                    housing quality standards (HQS) because the conditions we
                    observed were similar to those included in recent reports by
                    HUD and a consultant.           Those reports contained
                    appropriate recommendations for corrective action. While
                    conducting the review, we used judgmental sampling
                    methods. Specifically, we:

                       •   Examined 20 tenant files for rent comparability
                           and/or rent increases.




                           Page 3                              01-AT-202-1001



Table of Contents                                                      Exit
Introduction


                       •   Visited the offices of five landlords and reviewed
                           records related to assisted and unassisted rents
                           charged at 11 projects that consisted of 163 units.

                       •   Interviewed 27 tenants. We asked questions to
                           determine the propriety of the tenant selection for
                           Section 8 assistance, amount of subsidized rent,
                           tenant’s rent payments to landlords, and payments
                           to landlords for extra services (e.g., furniture or
                           other fees). Regarding fees for extra services, we
                           also asked the tenants to confirm whether or not
                           they received anything of value in return for the
                           fees.

                       •   Walked through 40 units to determine their general
                           condition and/or to determine if the unit bedroom
                           size agreed with what the files showed.

                       •   Examined 78 percent of the $938,872 paid to the
                           City for activities funded through inter-local
                           agreements and assessed the progress of HACMB’s
                           efforts to construct the single parent family housing
                           and resource center.

                       •   Tested disbursements from the low-income housing
                           program that equaled or exceeded $1,000 for the
                           period December 1999 through May 2000.

                    We performed the on-site review in September 1999 and
                    January through July 2000. The audit generally covered the
                    period July 1, 1997, through December 31, 1999.
                    However, we extended coverage to other periods when
                    needed to ensure full development of the issues cited in the
                    findings. We conducted the audit in accordance with
                    generally accepted government auditing standards




01-AT-202-1001              Page 4



Table of Contents                                                      Exit
                                                                                     Finding 1


       Section 8 Reserve Funds Used to Pay for
               Questionable Activities
The HACMB spent $795,178 in Section 8 reserve funds for questionable projects implemented
by the City of Miami Beach. HACMB’s records indicated that the City might have pressured it
to execute contracts for the projects. However, the HACMB was responsible for ensuring proper
use of the Section 8 funds. Specifically, the HACMB funded the projects without adequate
consideration of an opinion from its attorney that some of the projects did not represent an
allowed use of funds and that other projects required attention to certain details during
implementation to ensure their eligibility. As a result, the HACMB paid the City $795,178 for
three projects which were for activities the City should have provided and paid from local tax
revenues. The expenditures occurred because the HACMB’s Board of Commissioners and
Executive Director mismanaged Section 8 resources.

Housing authorities may use administrative fee reserves for other housing purposes permitted by
state and local law (24 Code of Federal Regulations (CFR), 982.155 (b)(1)). Florida’s Housing
Statute states that no housing authority shall construct or operate any housing project as a source
of revenue to the City (Section 421.09).


                                      On June 11, 1992, HACMB and City officials met and
   Origin of funding                  agreed to a mission statement designed to utilize portions of
   arrangement                        the HACMB’s large Section 8 reserves for community
                                      development activities. The mission statement provided
                                      that the projects must meet HUD’s criteria and receive
                                      annual HUD approval. On June 24, 1992, the HACMB’s
                                      Board adopted a resolution that approved the mission
                                      statement.      The HACMB’s attorney prepared a
                                      memorandum, dated October 13, 1992, which indicated
                                      that the City used some pressure to persuade the HACMB
                                      to enter into contracts for project services.            The
                                      memorandum, addressed to the Executive Director and the
                                      HACMB’s Board, commented that:

                                          ” …A perceived threat that the City administration
                                          will ‘take over’ the Housing Authority if it does not
                                          acquiesce is not sufficient consideration for the
                                          Authority to contractually obligate itself to
                                          relinquish control over a substantial portion of its
                                          cash reserves.”




                                            Page 5                               01-AT-202-1001



Table of Contents                                                                        Exit
Finding 1

                         During the October 13, 1992, HACMB Board meeting a
                         City official stated that the City never threatened to take
                         over the housing authority.

 Funded activities       On November 10, 1992, HACMB’s Board of
                         Commissioners voted to fund projects for police,
                         recreation, childcare, and code enforcement to be
                         implemented by the City. HACMB’s attorney attended the
                         Board meeting and voiced his objections and reservations
                         to the proposed projects in an oral presentation before the
                         Board and in a memorandum, also dated November 10,
                         addressed to the HACMB Board Chairman, Executive
                         Director, and Board. The memorandum provided a legal
                         opinion which opposed funding for the police and code
                         enforcement projects and provided conditional approval of
                         the recreation and childcare projects. However, the Board
                         approved the police and code enforcement projects despite
                         the valid concerns raised by the attorney. Also, the
                         HACMB did not heed the attorney’s advice to ensure that
                         the recreation program was implemented to benefit the
                         targeted group of residents. The HACMB heeded the
                         attorney’s advice in the way it implemented the childcare
                         project. The contracts between the HACMB and City
                         contained provisions that required the City to reimburse the
                         HACMB should HUD take exception to contract costs.

                         From inception through February 2000, the HACMB
Project implementation   expended $938,619 of its Section 8 administrative fee
                         reserves to fund projects with the City through inter-local
                         agreements. We used judgmental tests during our review of
                         HACMB and City cost records and performance measures
                         associated with the projects. The costs incurred for the
                         childcare program were supported and reasonable.
                         However, we identified questions concerning the police,
                         recreation, and code enforcement activities that paralleled
                         the concerns expressed by HACMB’s attorney prior to the
                         projects’ initial approval for funding:

                            Activity                Total Costs   Allowed    Questioned
                            Police Protection         $425,842                 $425,842
                            Recreation                 335,736                  335,736
                            Childcare                  143,441    $143,441
                            Code Enforcement             33,600                  33,600
                            Total                     $938,619    $143,441     $795,178




01-AT-202-1001                   Page 6



Table of Contents                                                             Exit
                                                                  Finding 1
                    The HACMB inappropriately paid the City $795,178 for
                    projects that the City should have funded with local tax
                    revenues. We identified the following issues that caused us
                    to question the amounts the HACMB paid to the City for
                    police protection, recreation, and code enforcement
                    projects:

                       Police protection - The HACMB funded the project
                       over the objections of its attorney who advised the
                       HACMB that the activity did not represent an allowed
                       use of funds. The attorney’s November 10, 1992,
                       memorandum stated:

                              “This proposal, for the HACMB to fund two
                              new CMB [City of Miami Beach] police
                              officers, in my opinion, does not set forth a
                              permitted or lawful use of housing assistance
                              funds. If we had massive, self-contained
                              housing projects in Miami Beach, requiring
                              special police services on a regular basis, the
                              Housing Authority might be permitted to
                              purchase police services from the City. It
                              should be noted that the Miami Beach
                              Housing Authority already employs private
                              security guards for the protection of its
                              public housing tenants.”

                       The Board minutes showed that HACMB
                       commissioners voted to approve the project despite the
                       attorney’s objections. The HACMB continued to fund
                       the project from November 1992 through the period
                       covered by our audit at a cost of $425,842.

                       We examined 100 percent of the costs. The agreements
                       called for police to patrol areas at and in the vicinity of
                       where Section 8 tenants lived and to provide other
                       services related to investigations and community
                       relations. The services were of the type normally
                       expected from a police force as routine services paid
                       from local tax revenues. The HACMB owned only two
                       large projects (200 units each) joined by a common




                           Page 7                               01-AT-202-1001



Table of Contents                                                       Exit
Finding 1

                    walkway for which it employed a firm to provide
                    security. The other 2,600 privately owned Section 8
                    units were not in concentrated areas, but were scattered
                    throughout the Miami Beach area.

                    On September 9, 1992, the Assistant City Manager
                    informed the HACMB’s Board that the police
                    department had divided the City into 26 sectors. He
                    stated that an officer is responsible for patrolling each
                    sector and identifying areas within the sector they are
                    going to pay more attention to. This comment further
                    indicated that the City’s normal police patrol covered or
                    should have covered the areas and vicinity where
                    Section 8 tenants lived in privately owned housing.

                    We agree with the attorney’s determination that the
                    activity did not represent an allowable use of funds.

                    Recreation - The inter-local agreements stipulated or
                    implied that the recreation program would provide top
                    priority to tenants of Section 8 units and other
                    subsidized housing. The agreements did not limit the
                    level of assistance the program may provide to
                    individuals who were not in the target group. The later
                    agreements stated that the City would continue to
                    provide all transportation and related services for
                    participants.

                    The HACMB paid the City $335,736 for this activity
                    which we considered questionable. We examined costs
                    totaling $254,542 (76 percent) and determined that the
                    payments amounted to an operating subsidy for City
                    parks. To illustrate, the City claimed reimbursement for
                    general park operating expenditures such as salaries,
                    bus services, instructor fees, trophies, baseball
                    supplies/uniforms, picnic supplies, recreational
                    supplies, etc. The costs appeared to represent general
                    local government parks and recreation costs. Vendor
                    invoices did not support some of the payments. We
                    also noted that the City requested and received
                    reimbursement for $12,439 incurred for bus services.
                    The inter-local agreement stipulated that the City would
                    provide all transportation and related services for
                    participants in the program.


01-AT-202-1001           Page 8



Table of Contents                                                   Exit
                                                               Finding 1

                    Furthermore, the HACMB and City did not maintain
                    records to demonstrate whether any of the $335,736
                    benefited the target group. The HACMB did not heed
                    the advice of its legal counsel during its implementation
                    of the recreation activity to employ strict controls to
                    ensure that the program served those for whom it was
                    intended. The attorney stressed that the HACMB funds
                    must be utilized for the benefit of qualified housing
                    assistance recipients. We questioned the full $335,736
                    paid for this project because HACMB lacked any
                    documentation that the activity provided any
                    measurable benefit.

                    Code enforcement - The costs paid for this activity
                    appeared to be a supplement to the City’s code
                    enforcement division and it was not a reasonable and
                    necessary HACMB expense. We examined 100 percent
                    of the $33,600 the HACMB paid the City for the code
                    enforcement project. The agreement provided that the
                    activity was for one City code enforcement officer to
                    annually inspect 1,000 Section 8 units or units that
                    affect those living in subsidized housing.       The
                    documentation provided to support the payments did
                    not show how many units the City inspected.

                    On November 10, 1992, the day the Board voted to
                    approve the project, HACMB’s attorney advised the
                    Board of Commissioners and Executive Director that
                    the code enforcement project did not meet the legal
                    requirements for funding because the HACMB
                    employed its own inspectors. The Board did not heed
                    the attorney’s advice and approved funding for the
                    project. We agreed with the attorney’s rationale and
                    assessment that the project did not meet the
                    requirements for HACMB funding.             The activity
                    appeared to be a supplement to the City’s inspection
                    division for work that it was required to do anyway.

                    For instance, during the November 10 Board meeting,
                    the Assistant City Manager stated that the City was
                    behind on conducting preventive inspections and that
                    the HACMB funding would close the gap. HACMB’s
                    inspections supervisor stated he did not see a benefit to




                       Page 9                              01-AT-202-1001



Table of Contents                                                   Exit
Finding 1

                            paying the City for code enforcement. The HACMB
                            funded the project for only 1 year (1992/93) at a cost of
                            $33,600.

                         The HACMB basically paid what the City billed for inter-
 Inadequate monitoring   local activities without adequately monitoring project costs
                         and services. For instance:

                            •   Services were not provided at contract levels.
                                The HACMB did not establish adequate general
                                ledger expense accounts to track costs paid under
                                the inter-local agreements. Until November 1999,
                                the HACMB charged contract disbursements
                                directly to the 2826 reserve account. The only
                                payment charged to an expense account was check
                                number 25303, dated November 15, 1999, for
                                $163,330.15. The payment was charged to one
                                account; however, the check included $90,106 for
                                recreation, $63,754 for police protection, and
                                $9,470 for childcare. The HACMB had not
                                established accounts to track costs for each separate
                                activity. Separate accounts were needed to assure
                                that the City provided services at the contracted
                                level and price.

                                To illustrate, from inception of the inter-local
                                agreements through February 2000, the HACMB
                                paid the City $58,585 in excess of the contract
                                amount for police services (costs questioned above)
                                and $129,559 less than the contract amount for
                                childcare services. HACMB and City officials were
                                not aware of these conditions until we brought them
                                to their attention. The HACMB should have been
                                aware of contract payment trends and it should have
                                initiated timely actions to prevent the overpayment
                                and to assure that the City provided the contracted
                                level of childcare services.

                            •   The HACMB disbursed funds in advance of its
                                need to pay for contract activities. In March
                                1993, the HACMB advanced $245,667 to the joint
                                benefit fund used to pay the City for inter-local
                                project activities. HACMB and City officials had




01-AT-202-1001                   Page 10



Table of Contents                                                           Exit
                                                                   Finding 1

                           to sign checks issued from the benefit account.
                           Large portions of the $245,667 remained in the
                           account for over a year without being utilized. For
                           instance, following the payment, the account
                           balance remained at over $200,000 for seven
                           months and over $100,000 for an additional four
                           months. We noted other similar periods of delayed
                           spending. As of February 29, 2000, the account had
                           a balance of $46,562. Interest earned on the funds
                           was charged back to the benefit account.

                    The above issues resulted from mismanagement of
                    financial affairs by the HACMB’s Board of Commissioners
                    and Executive Directors. The former HACMB attorney put
                    the Board on notice prior to their approval of the projects
                    that the police and code enforcement activities were not
                    allowable and that the recreation activity required special
                    considerations to ensure its eligibility. The Board virtually
                    ignored the attorney’s advice and approved the projects.
                    Furthermore, the Board did not obtain HUD approval for
                    use of the funds. The HACMB’s September 9, 1992, Board
                    minutes showed that HUD had reminded the HACMB of its
                    responsibility to ensure that each activity conform to the
                    statutes, regulations, and the obligations of the housing
                    commission.

                    On June 22, 2000, HUD issued a report stemming from its
HUD’s concerns      February review of HACMB’s operations, which contained
                    an observation concerning the inter-local agreement. HUD
                    questioned the reasonableness of the cost and directed the
                    HACMB to cancel the contracts with the City and not to
                    award future contracts of this type to the City.



 HACMB comments     HACMB officials did not concur with our opinion that the
                    Authority and City did not realize services in excess of
                    baseline services for police, recreation, and code
                    enforcement services. HACMB officials believed the City
                    had provided services for police, code enforcement, and
                    recreation in excess of City baseline services to the benefit
                    of the population to and around the agency’s service area.




                          Page 11                              01-AT-202-1001



Table of Contents                                                      Exit
Finding 1

                     HACMB officials stated they currently did not have an
                     inter-local agreement with the City for services. In the
                     event the Authority contemplated revisiting such
                     relationships with the City again in the future, the
                     Authority would 1) obtain proper authorization for the use
                     of funds from HUD, and 2) provide a clear audit trail of
                     proper acceptable documentation to support the exchange
                     of services for compensation.


                     The Authority provided no support to justify its claims that
 OIG evaluation of   the police, code enforcement, and recreation activities
 HACMB comments      provided benefit in excess of City baseline services to
                     individuals the inter-local agreements were designed to
                     serve. As mentioned in the finding, the Authority ignored
                     the advice of its attorney by funding the police and code
                     enforcement projects and in the way it implemented the
                     recreation activity. The Authority’s assertion that the
                     activities provided benefit in excess of City baseline
                     services was not supported during the audit or by the
                     Authority’s written response to this finding.




 Recommendations     We recommend you require the HACMB to:

                     1A.    Obtain additional supporting documentation or
                            recover from the City the $795,178 paid for police
                            protection, recreation and code enforcement
                            activities.

                     1B.    Establish proper general ledger accounts for inter-
                            local projects and properly monitor expenditures for
                            future activities funded with Section 8 reserves.




01-AT-202-1001               Page 12



Table of Contents                                                       Exit
                                                                                   Finding 2


     Housing And Social Services Not Provided
The HACMB spent over $2 million in a failed effort to provide housing and social services due
to inadequate planning and management of human and financial resources. The HACMB had not
broken ground or developed final plans to fund, construct, and operate the project. The project
had been delayed for over 5 years and the HACMB had lost or was at risk of losing almost all of
the $5.8 million originally committed to fund the project. Furthermore, the City was considering
a road construction project that may prevent the HACMB from constructing the center on the
planned site or recovering its full investment in the site. HACMB’s failure to complete the
project deprived the City’s low-income community of the needed housing and social services.
We questioned $209,570 paid to the City for fees and permits because the fees were excessive
considering the joint venture project was not constructed.



                                    In November 1994, HACMB requested HUD’s approval to
 HUD’s waiver to                    refund the bonds originally issued in 1978 to finance
 allow for the project              Rebecca Towers North, a 200 unit Section 8 new
                                    construction project. The 1978 bonds were issued pursuant
                                    to 24 CFR 811 which prohibited the issuance of obligations
                                    to refund the bonds. However, the HACMB’s request for
                                    waiver stated that they wanted to refund the bonds to
                                    generate over $2 million to finance the construction of a
                                    single parent family housing and resource center. The
                                    project would provide shelter for battered women and
                                    children. On April 17, 1995, HUD approved the waiver
                                    request on condition that the funds be expended to provide
                                    housing for the purposes described.

                                    On April 26, 1995, the HACMB refunded the bonds, which
 Project funding and                provided $2.3 million to fund the center. At the time of our
 delays                             review, 5 years had passed since the bond refund. The
                                    HACMB still had not constructed the center nor had it
                                    developed final plans to construct and operate the center.

                                    In June 1999, the HACMB’s Board met to discuss the
                                    failed project. The Board minutes showed the project had
                                    not succeeded because of mismanagement. During the
                                    meeting various members of the Board and/or the
                                    Executive Director expressed concerns such as:

                                        •     The project did not succeed due to mismanagement.




                                            Page 13                            01-AT-202-1001



Table of Contents                                                                      Exit
Finding 2

                                 •   The HACMB returned $525,000 in state funding for
                                     the project.
                                 •   The project’s cost estimates were incomplete.
                                 •   HACMB does not have the money nor plans to
                                     construct the project.
                                 •   Despite controversy from the start, the Board always
                                     voted to move forward with the project.

                              We agree with the Board’s belated but accurate assessment
                              as to why the project was not completed. However, the
                              Board and HACMB had a responsibility to assure proper
                              management of staff and financial resources to complete
                              the project. The poor planning and management prevented
                              the HACMB from providing the needed housing and social
                              services to residents of the City’s low-income community.

                              For instance, the HACMB’s June 1994 application to the
                              state for $525,000 to assist with financing the project stated
                              that the target population was homeless women and
                              children, battered women and children who become
                              homeless when removed from abusive situations, and
                              families on HACMB’s waiting list. The application stated
                              that the HACMB identified the need for the housing and
                              social services through needs assessment performed by a
                              university.

                              HACMB’s mismanagement of staff and financial resources
                              associated with the project resulted in its:

                                 •   Loss or risk of losing almost all of the $5.8 million
                                     initially committed to the project.

                                 •   Expenditures of over $2 million for site acquisition;
                                     site improvements; and predevelopment costs that
                                     may not be recovered.

                                 •   Lack of a final project design and financial plan
                                     needed to complete and to operate the project.

 Funding lost or at risk of   The HACMB obtained the following funding commitments
 being lost                   for the project which it had lost or was at risk of losing:




01-AT-202-1001                         Page 14



Table of Contents                                                                 Exit
                                                                      Finding 2

                                                 Per 1994 State    Per 1995 HOME
                     Sources of Funds           Loan Application     Agreement
                     Private loan                   $2,039,000          $1,598,943
                     State loan                         500,000                  0
                     State grant                         25,000                  0
                     Federal Home loan                        0            500,000
                     HOME loan                          380,000            760,000
                     Bond proceeds                    2,287,313          2,300,000
                     Other - HACMB Equity               559,200          1,500,000

                     Total                          $5,790,513         $6,658,943

                    The HACMB lost or was at risk of losing all except the
                    HACMB equity portion of funding due to project delays
                    and redesign. For instance:

                       •      HACMB’s latest redesign of the project resulted in
                              a facility that cannot take on any of the private debt
                              anticipated by the above projections. In October
                              1996, HACMB reduced the number of proposed
                              housing units in the project from 52 to 40. The
                              HACMB stated that they made the revision due to
                              costs, community pressure, and special needs that
                              arose. HACMB’s estimated cash flows for the 40-
                              unit project, which excluded debt service, showed it
                              would operate at a negative cash flow. Thus, the
                              project could not take on any of the private debt
                              anticipated by the initial plans to construct 52
                              housing units.

                              In addition, HACMB’s board chairman and board
                              minutes from the June 1999 board meeting
                              indicated that prior cost estimates for the project
                              were flawed because they did not anticipate certain
                              construction (e.g., water and sewer) and operating
                              costs for the center.

                       •      The HACMB returned the $525,000 state funding
                              which it applied for and needed to assist with
                              construction of the project.




                             Page 15                               01-AT-202-1001



Table of Contents                                                          Exit
Finding 2

                       •    The HACMB did not meet the HOME agreement
                            requirement that the project be completed and ready
                            for occupancy by December 1997 or no longer than
                            60 days thereafter. On June 9, 2000, the City of
                            Miami Beach requested confirmation of HACMB’s
                            plans and time frame regarding whether it would
                            pursue the project or an alternative project. The
                            City made this request in response to HUD’s
                            identifying the project as “slow moving” and an
                            effort to expedite the expenditure of the HOME
                            funds. On August 8, 2000, the HACMB wrote the
                            City and informed them that they were committed to
                            constructing the project using the HOME funds.

                       •    The HACMB did not meet the 2 year deadline
                            required by bond certifications to complete the
                            project. This may result in the loss of the remaining
                            $2 million bond proceeds held by the trustee
                            (Section 3(d) of the Non-Arbitrage Certification).

                    The HACMB had spent over $2 million but still had not
 Expenditures       broken ground to construct the project. The expenditures
                    included the following amounts recorded in HACMB’s
                    general ledger, which we did not audit, and for bond issue
                    costs:

                                                                       Section 8
                    Description                Total        Bonds      Reserves
                    Bond issue costs          $203,175    $203,175
                    Land acquisition           980,000               $ 980,000
                    Architectural services     340,322     340,322
                    Seawall Construction       183,251     183,251
                    City fees and permits      209,570                  209,570
                    Other                      125,018                  125,018

                    Total                    $2,041,336   $726,748   $1,314,588

                    The $2,041,336 was a poor use of funds considering that
                    the HACMB never constructed the project. For instance,
                    the HACMB incurred $203,175 in bond issue cost
                    specifically for the purpose of obtaining funds to help




01-AT-202-1001               Page 16



Table of Contents                                                       Exit
                                                                        Finding 2

                        finance the project that after 5 years is still not underway.
                        The high architectural fees ($340,322) primarily resulted
                        from years of HACMB mismanagement and indecisiveness
                        concerning the project design and approach. We question
                        the fees paid to the City of Miami Beach ($209,570)
                        because they were excessive considering the project was
                        not constructed. The project was a joint venture between
                        the City and the HACMB pursuant to an affordable housing
                        joint venture agreement. The HACMB should seek relief
                        by recovery of fees paid to the City in anticipation of
                        construction that never occurred.

                        At the time of our review, the HACMB and its Board had
Incomplete plans to     not developed plans and financial arrangements needed to
construct and operate   construct and operate the project. The HACMB’s board
the project             had discussed the possibility of a revised project design and
                        use of an alternative site if they proceeded with the project.
                        The Board Chairman and others also expressed concern that
                        the existing site has an irregular shape for such a project
                        and was not safe for children because a canal borders one
                        side. These concerns should have been considered prior to
                        site acquisition.

                        In 1999, the HACMB obtained a consultant’s assessment of
                        the project’s status. The consultant reported an estimated
                        cost of $9,662,145 to construct the project. The consultant
                        also projected annual operating deficits of over $100,000.
                        The consultant further stated that HACMB’s prior cost
                        estimates for the project omitted certain capital costs valued
                        at approximately $1 million (e.g., water and sewer).

                        The HACMB paid $980,000 for the site. HACMB officials
                        stated that the property was appraised for $2.1 million.
                        However, the City recently informed the HACMB that it
                        was considering a road construction project that may
                        impact the site planned for the center. The City’s plans
                        may prevent the HACMB from constructing the project on
                        the planned site. Considering this development, the
                        HACMB may not be able to recover the $2 million it spent
                        on the project by selling the project.




                              Page 17                               01-AT-202-1001



Table of Contents                                                           Exit
Finding 2


                     HACMB officials did not believe that the Housing
 HACMB comments      Authority “wasted” over $2 million expended on the Single
                     Parent Family Resource Center. They contended the
                     Housing Authority owns the 17th Street site in fee simple
                     and the expenditures on the site have added marketable
                     value to the site. Based upon an appraisal of market value
                     as of April 15, 1999 of $2,100,000, they believed that the
                     authority would recoup its expenditures on the site whether
                     by sale to a private owner or through an eminent domain
                     process initiated by the City of Miami Beach.

                     At their September 26, 2000, regular meeting, the Authority
                     Board decided to:

                         a)     Declare the site neither financially feasible nor
                                appropriate for center development.

                         b)     Remain committed to the continuation of the
                                project.

                         c)     Agree to move the project to another location.

                     The Authority Board directed the Executive Director to
                     formally notify the City of this recent action and request the
                     HOME funds currently committed for the project remain
                     available to support an alternative site. The HACMB also
                     engaged the services of a consultant, with extensive
                     experience in these types of development projects, to assist
                     the agency in seeing the project is completed, within
                     budget, at another location.




                     We considered HACMB’s objection and eliminated the
 OIG evaluation of   reference that the funds had been wasted. However, the
 HACMB response      HACMB’s ability to sell the site at a price sufficient to
                     recover the costs paid for the failed project is not definite.




01-AT-202-1001                Page 18



Table of Contents                                                        Exit
                                                                 Finding 2



Recommendations     We recommend you require the HACMB to:

                    2A.    Submit evidence that it has the financial capability
                           and commitment to complete construction of the
                           center within a reasonable time, as determined by
                           your office.

                    2B.    Immediately complete its planned sale of the
                           existing site for its fair market value. The HACMB
                           should use the proceeds to reimburse Section 8 and
                           the bond construction funds in proportion to the
                           share of costs paid from each fund.

                    2C.    Obtain additional justification or recover from the
                           City the $209,570 paid for fees associated with the
                           failed joint venture project.

                    2D.    Submit a plan (for your approval) regarding the use
                           of the remaining bond funds obtained or
                           accumulated (e.g., interest earned) for construction
                           of the center.




                          Page 19                             01-AT-202-1001



Table of Contents                                                     Exit
Finding 2




                    (This Page Left Blank Intentionally)




01-AT-202-1001                     Page 20



Table of Contents                                          Exit
                                                                                 Finding 3



         Mismanagement of Section 8 Program
The HACMB did not adhere to HUD requirements designed to assure the reasonableness of
Section 8 rents. The HACMB also did not timely execute new leases for tenants who moved
from one assisted unit to another, and pay tenants for the amounts by which their utility
allowances exceeded the family’s contribution for rent. As a result, there was inadequate
assurance that HUD subsidized reasonable Section 8 rents and that tenants received the full
benefit of their utility allowances. We also noted some cases where the HACMB and owners
provided false representations concerning rent reasonableness. These conditions caused HUD to
pay $9,267 in excessive subsidy. The noncompliances occurred because HACMB employees
failed to carry out the duties they were employed and entrusted to perform.



 Findings     from    past         Reviews conducted by HUD and a consultant contracted by
                                   the HACMB disclosed serious problems with the
 reviews                           HACMB’s administration of its Section 8 Programs. For
                                   instance, HUD’s June 22, 2000, review reported violations
                                   of requirements for occupancy (including waiting lists),
                                   inspections, abatements, utility allowances, rent
                                   comparability, and the approval of rent increases. Due to
                                   the recent reviews, we primarily limited our examination to
                                   the determination of rent amounts and utility allowances.

 Additional problems               We observed problems similar to those noted in the HUD
                                   review for inadequate approval of rent increases. HUD’s
                                   review adequately addressed the problem and
                                   recommended appropriate corrective action. However, we
                                   observed the following additional matters:

                                       Excessive rents charged for assisted units
                                       Leases not timely executed when tenants changed units
                                       Excess utility allowance not paid to tenants

                                       Excessive Rents Charged for Assisted Units - The
                                       housing authority may not approve a lease and any rent
                                       increase until it determines that the rent to owner is
                                       reasonable in comparison to rent for other comparable
                                       unassisted units. By accepting each monthly housing
                                       assistance payment from the HA, the owner certifies




                                        Page 21                              01-AT-202-1001



Table of Contents                                                                    Exit
Finding 3

                    that the rent to owner is not more than rent charged by
                    the owner for comparable unassisted units in the
                    premises. The owner must give the HA information
                    requested on rents charged by the owner for other units
                    in the premises or elsewhere (24 CFR §982.503).

                    We examined HACMB and owner records for rents
                    charged at 11 projects. The projects contained 72
                    assisted and 91 unassisted units. The rents charged by
                    three owners for seven assisted units (10 percent)
                    exceeded the rents charged within the same projects for
                    comparable unassisted units. The HACMB did not
                    obtain and evaluate the rents owners charged for
                    unassisted units located at the same properties.

                    The Housing Assistance Coordinator stated that they
                    generally provided landlords whatever rents they
                    requested as long as the rents did not exceed the
                    published fair market rent for the unit size. The
                    coordinator further stated they justified the owners’ rent
                    by selecting as comparables other assisted units that
                    rented for the same amount requested by the owner.

                    The violations resulted in false representation by
                    HACMB officials and the affected owners concerning
                    the determination of rents for the seven units. The three
                    owners did not maintain all the leases and rent rolls we
                    needed to calculate the dollar impact of the violations
                    during the audit period. However, from the available
                    records, we calculated excessive subsidies of $6,667.
                    The matter is significant considering that the HACMB
                    administered over 2,700 Section 8 units in an
                    environment of disregard for HUD’s requirements for
                    determining rent reasonableness.

                    The owners provided various explanations to justify
                    why they charged more for assisted units than they did
                    for the unassisted units located in the same projects.
                    However, the HACMB did not determine what the
                    owners charged for unassisted units. Thus, they
                    conducted no follow-up concerning the differences.




01-AT-202-1001           Page 22



Table of Contents                                                   Exit
                                                                 Finding 3

                    In July 1999, the HACMB designated an employee to
                    conduct rent reasonableness determinations for all
                    initial leases. We noted improved performance for rent
                    reasonableness determinations for initial leases
                    following this action. However, the change only
                    affected initial leases and did not include rent
                    reasonableness determinations for lease renewals. The
                    HACMB continued to violate HUD’s requirements for
                    rent reasonableness determinations for lease renewals.

                    Leases Not Timely Executed when Tenants Changed
                    Units – The HAP Contract only applies to the family
                    and the contract unit. If the family moves out of the
                    unit, the HAP contract terminates automatically (Part B
                    of HAP Contract, Sections 4 and 6). Since both the
                    HAP contract and the lease are tied to the specific unit
                    address, a new contract and lease should be executed
                    when the tenant moves from the unit.

                    The HACMB did not require and execute new leases
                    for two tenants who moved from one assisted unit to
                    another (same owner) prior to the expiration of their
                    leases on the prior units. The HACMB allowed the
                    owners to continue charging rents stipulated in the old
                    leases at the new locations until the expiration dates for
                    the old leases. This was significant because the contract
                    rent for the old units exceeded the applicable fair
                    market rent at the time of the moves.

                    The HACMB’s failure to execute new leases and
                    appropriately establish initial gross rent (at or below fair
                    market rent) resulted in excessive subsidy payments of
                    $2,600. The Housing Assistance Coordinator said they
                    stopped this practice in mid 1999 based on clarification
                    from HUD.         We reviewed documentation that
                    supported HACMB’s corrective action.

                    Utility Payments Not Made to Tenants – Utility
                    reimbursement, the amount by which any utility
                    allowance exceeds the tenant’s portion of rent, shall be
                    paid to the family (24 CFR §5.615).




                      Page 23                                01-AT-202-1001



Table of Contents                                                     Exit
Finding 3

                       Prior to January 2000, the HACMB did not pay tenants
                       the amounts due when their utility allowances exceeded
                       their required contribution for rent. The HACMB
                       should have written checks to those tenants whose
                       utility allowance exceeded their portion of rent. We
                       could not determine the amount of utility
                       reimbursements due tenants because the HACMB did
                       not keep records needed to make that determination.
                       Utility reimbursements for January to June 2000
                       amounted to $3,565.

                    The above matters occurred due to mismanagement
                    associated with HACMB staff not performing the duties for
                    which they were employed and entrusted to perform. For
                    instance, the Housing Assistance Coordinator stated that no
                    one showed her and other staff what to do to meet HUD
                    requirements and that the HACMB administration did not
                    provide needed training. The HUD regulations and
                    handbooks are readily available to housing authorities from
                    HUD. At a minimum, the Housing Assistance Coordinator
                    was responsible for ensuring that she and her staff had and
                    were aware of the basic requirements associated with the
                    violations discussed in this finding.

                    By the time we completed our review, the HACMB had
                    initiated some changes designed to improve its
                    administration of Section 8 Programs. HUD placed the
                    HACMB’s Section 8 Program on probation for 1 year and
                    required the HACMB to contract out administration of the
                    Section 8 Program. We observed that the HACMB
                    assigned another employee to oversee the Section 8 leasing
                    and inspection departments and had hired a consultant to
                    assist with managing and training Section 8 staff. The new
                    Section 8 manager and consultant stated that their priority
                    would be to implement procedures to address HUD’s
                    findings and to bring the Section 8 department into
                    compliance with HUD regulations.


                    HACMB officials stated it had worked to improve its
 HACMB comments     management practices.      The agency acquired the
                    EmPHAsys software package, which has drastically
                    changed the manner the rents are calculated, leases are



01-AT-202-1001              Page 24



Table of Contents                                                     Exit
                                                                  Finding 3

                    tracked, and utility payments are paid. Emphasis is being
                    placed on training the staff to work in compliance with the
                    HUD regulations.

                    The new Executive Director will undertake and implement
                    sweeping changes. The rent reasonableness program was
                    implemented to eliminate errors in overpayments and a
                    database collection method is in place allowing tracking of
                    comparables for further assistance in rent reasonableness
                    determination. Written processes are in place outlining the
                    Rent       Reasonableness       determination       method.
                    Overpayments of rents will be repaid to HUD. Leases are
                    now executed in a timely manner. As of February 2000,
                    excess utility payments have been paid to the tenants;
                    further, an independent verification of utility amounts will
                    be concluded on September 21, 2000. Any changes will be
                    immediately implemented and adjustments will be made in
                    the form of reimbursement to the tenant where warranted
                    from January 2000 to current date.


                    The HACMB basically agreed with the finding and will
OIG response to     initiate corrective action.
HACMB comments



Recommendations     We recommend you require the HACMB to:

                    3A.    Reimburse HUD $9,267 for the excess HAP
                           payments disbursed to Section 8 owners and any
                           additional amounts identified during its rent
                           reasonableness reviews.

                    3B.    Procure the services of an independent contractor to
                           calculate the amount of utility reimbursements due
                           tenants for past periods and to make the required
                           payments due tenants. Your office should instruct
                           the HACMB as to the calculation period for
                           inclusion in the request for proposal used to procure
                           the contract.




                          Page 25                             01-AT-202-1001



Table of Contents                                                      Exit
Finding 3

                    3C.   Resolve its administrative deficiencies in the
                          Section 8 Program identified by this audit and other
                          reviews within 1 year of the issuance of this report
                          (including the Section 8 cost issues discussed in
                          findings 1 and 2).

                    3D.   Submit a written request for planned uses of Section
                          8 reserves and obtain your written approval before
                          obligating and spending any of its Section 8
                          reserves. Your office should review and approve
                          uses of all Section 8 administrative fee reserves
                          until you determine and provide written notice to
                          the HACMB that it has substantially resolved the
                          systemic problems in its Section 8 Program, and the
                          issues identified in findings 1 and 2.

                    We also recommend your office:

                    3E.   Assess within 1 year, the HACMB’s improvement
                          in administering its Section 8 Program. If the
                          HACMB fails to improve to acceptable limits, you
                          should consider declaring the authority in
                          substantial default and identify other entities that
                          can effectively administer the program. You should
                          also identify and refer the responsible officials to
                          HUD’s Enforcement Center for consideration of
                          administrative sanctions.




01-AT-202-1001             Page 26



Table of Contents                                                    Exit
                                                                                   Finding 4


 Need To Improve Procurement Administration
The HACMB had not implemented corrective actions recommended by past reviewers of its
operations to comply with procurement requirements. For instance, the HACMB subsequently
acquired legal services and small purchases without adequate assurance that they obtained the
most advantageous cost from the most qualified sources. These conditions occurred because the
HACMB and its Board mismanaged the administration of procurements.


                                   The HACMB had not implemented adequate steps to
 Inadequate attention to           correct weaknesses in its administration of procurements
 past procurement                  identified by its independent auditor and HUD:
 findings
                                       •     Independent Auditor’s Report - The independent
                                             auditor’s report for the fiscal year ended June 30,
                                             1998 (report dated January 26, 1999) stated that the
                                             HACMB did not properly advertise and seek
                                             competition for consulting services. The report
                                             stated that the HACMB split the work into two
                                             contracts to avoid having to advertise and seek
                                             competitive bids.

                                       •     HUD Monitoring Review - In February 2000, HUD
                                             reviewed the HACMB’s operations and determined
                                             that it had violated procurement requirements in its
                                             purchase of accounting and program software, audit
                                             services, consulting services, and air conditioners.
                                             At least one of these procurements occurred after
                                             the HACMB received its independent auditor’s
                                             report that notified it of the need to follow
                                             procurement requirements. For instance, HUD
                                             reviewed a request for proposal (RFP) dated March
                                             1999 to purchase accounting and computer
                                             software. HUD determined that the HACMB did
                                             not follow required procedures for competition.

                                   We performed additional tests to determine whether the
                                   HACMB initiated improvements in its procurement
                                   practices following the above reviews. We observed that
                                   on March 4, 1999, the Board approved HACMB’s revised




                                           Page 27                              01-AT-202-1001



Table of Contents                                                                       Exit
Finding 4

                        procurement policy. However, we determined that the
                        HACMB had not implemented effective measures to follow
                        the policy and HUD requirements for legal services and
                        small purchases.


 Procurement of legal   All procurement transactions will be conducted in a manner
 services               providing full and open competition (24 CFR 85.36(c)(1)).
                        The HACMB’s procurement policy required use of the
                        competitive proposal method of procurement to acquire
                        legal services (Section D).

                        We reviewed HACMB’s in-process procurement of legal
                        services initiated by a board resolution passed on March 14,
                        2000, and identified numerous problems with the
                        procurement:

                           •   The HACMB board authorized its general counsel
                               to handle the procurement versus the HACMB’s
                               administrative staff. The attorney prepared and
                               mailed the RFPs, advertised for bids, obtained and
                               evaluated bids, and recommended contractor
                               selection. The attorney had exclusive control over
                               the procurement process that should have been
                               handled by HACMB staff.

                           •   The attorney did not obtain proper competition to
                               allow award of the contracts. The attorney stated
                               that he received three bids, one for each of three
                               different types of legal services, and proposed to
                               award a contract to each firm. We discussed our
                               concerns with HACMB’s Board chairman and
                               acting Executive Director on April 27, 2000, and
                               with HUD on May 4, 2000. On May 8, 2000, HUD
                               instructed the HACMB not to execute either of the
                               contracts until HUD conducted a pre-award review
                               of the proposed procurements.

                           •   At the May 9, 2000, board meeting, the board voted
                               to award two of the three proposed legal service
                               contracts despite our concerns. We notified HUD
                               of this action and on May 24, 2000, HUD wrote
                               another letter to the HACMB that stated that if they



01-AT-202-1001                  Page 28



Table of Contents                                                          Exit
                                                                          Finding 4

                               awarded the contracts despite HUD’s expressed
                               concerns, then no federal funds may be used to pay for
                               the services. The HACMB decided to re-do the
                               procurement only after it received this notice from
                               HUD.

                               •    The HACMB halted the procurement and
                                    subsequent to our review prepared another RFP and
                                    re-advertised for the legal services. We did not
                                    review the subsequent procurement. However, our
                                    limited follow-up revealed that the HACMB
                                    received bids from eight firms in response to the
                                    RFP from which the Board voted to approve four
                                    legal service contracts.      No Authority staff,
                                    including the interim ED, reviewed the proposals.

                            We also observed several procurement concerns related to
                            the HACMB’s purchase of other legal services. For
                            example, the HACMB contracted with its current legal
                            counsel without following proper competitive procurement
                            procedures. The HACMB also made payments to two law
                            firms, which the HACMB hired based on the
                            recommendation of its legal counsel, without following
                            competitive requirements. Between July 1999 and May
                            2000, the HACMB paid the firms $44,690 that was charged
                            in part to public housing and in part to Section 8. One firm
                            was among the three mentioned above that the attorney
                            proposed awarding a recent contract for labor services
                            without proper competition.

Small purchase procedures   When small purchase procedures are used, an adequate
                            number of price or rate quotations shall be obtained from
not followed
                            an adequate number of qualified sources (24 CFR
                            85.36(d)(1)). The Authority’s procurement policy required
                            price quotes from no less than three offers for purchases
                            between $1,000 and $10,000. Purchases greater than
                            $10,000 required competitive procurement methods
                            (Section B).

                            We examined small purchases charged to the HACMB’s
                            low-income housing program (Rebecca Towers South) for
                            the period December 1999 through May 2000. Through
                            April 2000, we noted numerous payments for small




                                   Page 29                            01-AT-202-1001



Table of Contents                                                              Exit
Finding 4

                    purchases which the HACMB did not obtain or document
                    bids or price quotes. The costs included $22,012 for office
                    and communication supplies and services, ADP and
                    accounting services and equipment, insurance, landscaping,
                    repairs and maintenance, trash removal, consulting costs,
                    and cleaning and laundry. We noted sporadic instances
                    where the HACMB did obtain bids or price quotes, but for
                    the most part they did not.

                    Starting in May 2000, the HACMB demonstrated efforts to
                    correct its past inconsistent compliance with requirements
                    to obtain and to document bids or price quotes for small
                    purchases. We tested six small purchases during the
                    month. The HACMB properly obtained and documented
                    bids or price quotes for each purchase.

                    We attributed these conditions to the HACMB’s failure to
                    properly administer the procurement of goods and services
                    after it was alerted to the need for corrective actions. The
                    Board and the HACMB had a duty and responsibility to
                    assure compliance with procurement requirements,
                    especially considering past findings related to this issue.
                    The Board’s lack of consideration for requirements was
                    demonstrated by its direct involvement in the most recent
                    procurement of legal services and its reluctance to assure
                    compliance with competitive procurement procedures.


                    HACMB officials stated a new Executive Director would
 HACMB comments     undertake and implement sweeping changes to bring the
                    agency into regulatory compliance. The Authority Board,
                    in recognition of the need to document the basis for legal
                    service selection, re-advertised and selected the legal firms
                    based on qualifications and cost. The Board has scheduled
                    the process of documenting their selection basis for their
                    next Board meeting of October 4, 2000. A copy of the
                    results of that process will be forwarded to HUD for
                    authorization when completed. Authority Management is
                    also presently developing a written action plan with target
                    dates to address each finding identified in the 1999 IPA
                    Audit Report. The response will be forwarded to HUD not
                    later than October 6, 2000.




01-AT-202-1001              Page 30



Table of Contents                                                      Exit
                                                                  Finding 4

                    HACMB Management staff has been provided a copy of
                    the agency Procurement Policy. The Authority Board has
                    instructed HACMB Management to strictly adhere to the
                    procurement policy. A procurement committee has been
                    set up and in operation to ensure procurement processes
                    adhere to policy. The new Executive Director (Contracting
                    Officer) will be responsible for ensuring staff and agency
                    compliance.



  OIG response to   The HACMB basically agreed with the finding and will
                    initiate corrective action.
  HACMB comments



Recommendations     We recommend you:

                    4A.    Review and determine if the HACMB properly
                           procured its legal services. If the procurement was
                           not handled properly, you should prohibit the
                           HACMB from charging any of the costs to its
                           Public Housing Program.

                    4B.    Monitor the HACMB’s procurement actions to
                           ensure compliance with HUD procurement policies
                           and procedures. You should also identify and refer
                           the responsible officials to HUD’s Enforcement
                           Center for consideration of administrative sanctions.

                    4C.    Place the agency on a reimbursement basis for
                           funding, if the HACMB fails to improve to
                           acceptable levels.




                          Page 31                             01-AT-202-1001



Table of Contents                                                      Exit
Finding 4




                    (This Page Left Blank Intentionally)




01-AT-202-1001                     Page 32



Table of Contents                                          Exit
Management Controls
In planning and performing our audit, we considered the management controls of the Housing
Authority of the City of Miami Beach only to determine our auditing procedures and not to
provide assurance on these controls.

Management controls include the plan of organization, methods and procedures adopted by
management to ensure that its goals are met. Management controls include the processes for
planning, organizing, directing, and controlling program operations. They also include the
systems for measuring, reporting and monitoring program performance.

We determined that the controls most relevant to our audit objectives pertained to the following:

   •   Management philosophy and operating style;

   •   Procedures and practices for determining and assessing the reasonableness of Section 8
       rents and utility allowances; and

   •   Procedures and practices for procurement and general disbursements.

We assessed these controls by obtaining an understanding of the HACMB’s procedures and
HUD requirements. However, based on past review of HACMB’s operations by consultants,
IPAs, and HUD, the HACMB controls and procedures relevant to our audit objectives were not
reliable and we placed no reliance on the controls in designing our audit tests.

A significant weakness exists if controls do not give reasonable assurance that goals and
objectives are met; resource use is consistent with laws, regulations and policies; resources are
safeguarded against waste, loss, and misuse; and that reliable data are obtained, maintained, and
fairly disclosed in reports. Based on our review, significant weaknesses existed in each of the
management controls considered relevant to our audit objectives. The specific weaknesses are
discussed in the findings.




                                           Page 33                               01-AT-202-1001



Table of Contents                                                                        Exit
Management Controls




                      (This Page Left Blank Intentionally)




01-AT-202-1001                       Page 34



Table of Contents                                            Exit
Follow-Up on Prior Audits
The OIG issued an audit report on June 7, 1991, regarding the HACMB’s Section 8 Project-
Based Certificate Assistance Program. The audit contained three findings that have since been
resolved.

Independent Public Accountants (IPA’s) performed single audits of HACMB’s operations for the
fiscal years ended June 30, 1998, and 1999 that contained findings on issues that were relevant to
our audit objectives. The IPA report for the fiscal year ended June 30, 1998, contained a finding
on procurement that involved issues similar to those presented in finding 4 of this report. The
IPA report for the fiscal year ended June 30, 1999, contained findings related to purchasing and
utility allowances that involved the type of concerns presented in findings 3 and 4 of this report.

At the time of our on-site review, the HACMB had not developed a written action plan with
target dates to address all the problems identified by the IPA reports.




                                           Page 35                               01-AT-202-1001



Table of Contents                                                                        Exit
Follow-Up on Prior Audits




                            (This Page Left Blank Intentionally)




01-AT-202-1001                             Page 36



Table of Contents                                                  Exit
                                                                                   Appendix A


Schedule of Ineligible and Unsupported Costs

       Recommendation                            Type of Questioned Costs
          Number                       Ineligible1                Unsupported2

              1A                                                     $ 795,178
              2C                                                       209,570
              3A                         $ 9,267
             Total                       $ 9,267                     $1,004,748




 1
     Ineligible - Costs that are questioned because of an alleged violation of a provision of a law,
     regulation, contract, grant, cooperative agreement, or other document governing the
     expenditure.
 2
     Unsupported - Costs charged to a HUD-funded or insured program or activity whose
     eligibility cannot be determined at the time of the audit since costs were not supported by
     adequate documentation.




                                             Page 37                              01-AT-202-1001



Table of Contents                                                                         Exit
Schedule of Ineligible and Unsupported Costs




                             (This Page Left Blank Intentionally)




01-AT-202-1001                                 Page 38



Table of Contents                                                   Exit
                               Appendix B


HACMB Comments




                    Page 39   01-AT-202-1001



Table of Contents                     Exit
HACMB Comments




                 Letter – Ms. Nancy H. Cooper
                 September 27, 2000
                 Page 2

                 RESPONSE- MBHA Management does not concur with the IG opinion that the
                 Authority and City did not realize services in excess of baseline services for police,
                 recreation, and code enforcement services. The Authority is of the opinion that
                 City services rendered for police, code enforcement, and recreation were provided
                 in excess of City baseline services to the benefit of the population to and around
                 the agency’s service area.

                 Additional Comments- The Authority currently does not have in place an Interlocal
                 Agreement with the City for services. In the event the Authority contemplates
                  revisiting such relationship with the City again in the future, the Authority would 1).
                 Obtain proper authorization for the use or funds from HUD and 2). Provide a clear
                 audit trail of proper acceptable documentation to support the exchange of services
                 for compensation. The Authority values it’s positive and collaborative relationship
                 with the City and desires to maintain such relationship.

                 Proposed Resolution- The Authority proposes to follow the process described above
                 for any future Interlocal Agreements contemplated with the City.

                                           HUD PROPOSED FINDING #2
                                  HOUSING AND SOCIAL SERVICES NOT PROVIDED

                 RESPONSE- MBHA Management does not concur that the Housing Authority
                 “wasted” over $2 million expended on the Single Parent Family Resource Center.
                 The Housing Authority owns the 17th Street site in fee simple and the expenditures
                 on the site have added marketable value to the site.

                 Additional Comments- Based upon a appraisal of market value as of April 15, 1999
                 of $2,100,000, that the Housing Authority will, at the very least, reasonably
                 anticipates that it will recoup its expenditures on the site whether by sale to a
                 private owner or through an eminent domain process initiated by the City of Miami
                 Beach.

                 Proposed Resolution- The Authority Board has proceeded with recent timely
                 deliberation of the 17th Street site disposition, evidenced by specific action at their
                 September 26, 2000 Regular meeting;
                           a). Declare the site neither financially feasible nor appropriate for center
                           development.
                           b). Remain committed to the continuation of the project.




                                                                     2




01-AT-202-1001                                          Page 40



Table of Contents                                                                                           Exit
                                                                                         HACMB Comments




           Letter – Ms. Nancy H. Cooper
           September 27, 2000
           Page 3

               c). Agree to move the project to another location.

           The Authority Board has directed the Executive Director to formally notify the
           City of this recent action and request the HOME funds currently committed
           for the project remains available to support an alternative site. The HACMB has
           also engaged the services of a consultant, with extensive experience in these
           types of development projects, to assist the agency in seeing the project is
           completed, within budget, at another location.

                                    HUD PROPOSED FINDING # 3
                             MISMANAGEMENT OF SECTION 8 PROGRAM

           RESPONSE- HACOMB has worked to improve its management practices in light
           of HUD’s proposed findings that the Section 8 Program allowed excessive rents in
           the amount of $9,267.00, that leases were not timely executed during the move
            process, and that excess utility payments were not paid to tenants.

           Additional Comments- The agency acquired the EmPHAsys software package,
           which has drastically changed the manner the rents are calculated, leases are
           tracked, and utility payments are paid. Emphasis is being placed on training the
           staff to work in compliance with the HUD regulations.

           Resolutions- The Commission has hired a new Executive Director to undertake
           and implement sweeping changes which include, but are not limited to the
           following; 1). The Rent Reasonableness program was implemented to eliminate
           errors in overpayments; a database collection method is in place allowing
           tracking of comparables for further assistance in rent reasonableness
           determination. Written processes are in place outlining the Rent Reasonableness
           determination method. Overpayments of rents are being re-claimed to be re-
           paid to HUD. 2). Leases are now executed in a timely manner as verified in the
           IG draft page 18. 3). As of February 2000, excess Utility payments have been
           paid to the tenants; further an independent verification of utility amounts will be
           concluded on September 21, 2000. Any changes will be immediately
           implemented and adjustments will be made in the form of reimbursement to the
           tenant where warranted from January 2000 to current date.

                                    HUD PROPOSED FINDING # 4
                       NEED TO IMPROVE PROCUREMENT ADMINISTRATION


                                                           3




                                                 Page 41                                         01-AT-202-1001



Table of Contents                                                                                        Exit
HACMB Comments




01-AT-202-1001      Page 42



Table of Contents             Exit
                                                                                Appendix C


Distribution
Executive Director, Housing Authority of the City of Miami Beach
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Special Assistant to the Deputy Secretary for Project Management, SD (Room 10100)
Acting Assistant Secretary for Administration, S (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Senior Advisor to the Secretary, Office of Public Affairs, S, (Room 10132)
Deputy Assistant Secretary of Administrative Services/Director of Executive Secretariat, AX
    (Room 10139)
Director of Scheduling and Advance, AL (Room 10158)
Counselor to the Secretary, S (Room 10234)
Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Operations, S (Room 10226)
Deputy Chief of Staff for Programs and Policy, S (Room 10226)
Director, Office of Special Actions, AK (Room 10226)
Deputy Assistant Secretary for Public Affairs, W (Room 10222)
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
Senior Advisor to the Secretary for Pine Ridge Project, W, (Room 10216)
General Counsel, C (Room 10214)
Director, Office of Federal Housing Enterprise Oversight, O (9th Floor Mailroom)
Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100)
Office of Policy Development and Research, R (Room 8100)
Inspector General, G (Room 8256)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Chief Procurement Officer, N (Room 5184)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
Chief Information Officer, Q (Room 3152)
Director, Office of Departmental Equal Employment Opportunity, U (Room 5128)
Director, Office of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Director, HUD Enforcement Center, X, 1250 Maryland Avenue, SW, Suite 200
Director, Real Estate Assessment Center, X, 1280 Maryland Avenue, SW, Suite 800
Director, Office of Multifamily Assistance Restructuring, Y, 1280 Maryland Avenue, SW,
  Suite 4000
Deputy Chief Financial Officer for Finance, FF (Room 2202) (2)
Director, Office of Budget, FO (Room 3270)




                                           Page 43                             01-AT-202-1001

Table of Contents                                                                       Exit
Distribution


Secretary's Representative, 4AS
State Coordinator, Florida State Office, 4DS
Director, Office of Public Housing, 4DPH
Director, Office of Multifamily Housing, 4HHM
Audit Liaison Officer, 3AFI
Audit Liaison Officer, Office of Public and Indian Housing, PF (Room P8202)
Departmental Audit Liaison Officer, FM (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)
Counsel to the IG, GC (Room 8260)
HUD OIG Webmanager-Electronic Format Via Notes Mail (Cliff Jones@hud.gov)
Public Affairs Officer, G (Room 8256)
Director, Housing and Community Development Issue Area, U.S. GAO, 441 G Street N.W.,
  Room 2474, Washington DC 20548 ATTN: Judy England-Joseph
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs,
  United States Senate, Washington DC 20510-6250
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
  United States Senate, Washington DC 20510-6250
The Honorable Dan Burton, Chairman, Committee on Government Reform,
  United States House of Representatives, Washington DC 20515-6143
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
  United States House of Representatives, Washington, DC 20515-4305
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212,
  O'Neil House Office Building, Washington, DC 20515-6143
Steve Redburn, Chief, Housing Branch, Office of Management and Budget, 725 17th Street,
  NW, Room 9226, New Executive Office Bldg., Washington, DC 20503
Sharon Pinkerton, Deputy Staff Director, Counsel, Subcommittee on Criminal Justice, Drug
  Policy and Human Resources, B373 Rayburn House Office Bldg., Washington, DC 20515




01-AT-202-1001                             Page 44

Table of Contents                                                                  Exit