Issue Date
March 30, 2001
Audit Case Number
2001-AT-1004
TO: Gloria Cousar, Acting General Deputy Assistant Secretary, Office of
Public and Indian Housing, P
FROM: Nancy H. Cooper
District Inspector General for Audit-Southeast/Caribbean, 4AGA
SUBJECT: Puerto Rico Public Housing Administration
HOPE VI Program, Comprehensive Grant Program, and Economic Development
and Supportive Services Program
San Juan, Puerto Rico
This report presents the results of our efforts to audit the Puerto Rico Public Housing
Administration’s (PHA) Housing Opportunities for People Everywhere (HOPE) VI Program.
The HOPE VI Program was directed toward revitalization of an area known as the New San Juan
Gateway. We also reviewed the PHA’s Comprehensive Grant Program (CGP) and the Economic
Development and Supportive Services Program (EDSS) as they related to the revitalization
initiative. We conducted the review in response to Department of Housing and Urban
Development (HUD) officials’ concerns about the PHA’s financial management of the HOPE VI
grants.
Within 60 days, please give us a status report for each recommendation in the report on: (1) the
corrective action taken, (2) the proposed corrective action and a planned implementation date, or
(3) why action is not considered necessary. Also, please furnish us copies of any correspondence
or directives issued as a result of the audit.
Should you or your staff have any questions, please contact me or Sonya D. Lucas, Assistant
District Inspector General for Audit, at (404) 331-3369. We are providing a copy of this report
to the Puerto Rico Department of Housing and the PHA.
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Executive Summary
We attempted to audit the HOPE VI Program of the Puerto Rico Public Housing Administration
to revitalize the New San Juan Gateway. We reviewed the HOPE VI Implementation and
Planning grants, and related funding from the Comprehensive Grant Program and the Economic
Development and Supportive Services Program. We conducted the audit work in response to
HUD officials’ concerns about the PHA’s financial management of the HOPE VI Program.
In general, our audit objective was to determine whether the PHA properly administered HOPE
VI, CGP, and EDSS funds assigned to the Gateway initiative. Our audit disclosed a total
breakdown of the PHA’s administration of the New San Juan Gateway Project. The PHA lacked
effective management and accounting controls over its Federal funds and did not effectively
monitor the activities of its project manager, Carrero and Associates. Due to the unreliability of
the amounts reported in the grant program accounts, we were unable to determine total program
expenditures. The HOPE VI grants and related funds were essentially unauditable. However, at
the request of HUD, we attempted to determine the application of funds and compliance with
program regulations. We identified $5.4 million of ineligible expenditures, $10.5 million of
unsupported costs, and $3.8 million in cost efficiencies (see Appendix A).
Our audit disclosed:
• The PHA failed to provide full and open competition when it awarded a sole source contract
to the project manager of the Gateway project and did not perform a price or cost analysis
when procuring the services. In addition, the PHA made payments in excess of the contract
limits and did not maintain proper disbursement control. We also determined that the PHA
acquired property on which to develop replacement housing that was still sitting vacant after
5 years. The former PHA management was inept and appeared to make no attempt to
monitor the activities of its project manager. As a result, HUD has no assurance that services
were acquired at the most beneficial terms and that the funds were used in an economical,
efficient, and effective manner. Of the $28.3 million disbursed as of August 2000, we have
questioned a total of $12.1 million spent from these two grants.
• Carrero and Associates did not comply with Federal or the PHA’s procurement requirements.
It did not: (1) follow established procedures, (2) use the proper procurement methods, (3)
maintain procurement files, and (4) perform price or cost analyses. The project manager
obtained goods and services without full and open competition, charged unrelated and
unnecessary costs to the HOPE VI project. We identified ineligible costs of $736,031 and
unsupported costs totaling $196,206 (see Appendix C). This occurred because the PHA
failed to monitor the activities of its project manager as required. As a result, HUD has no
assurance that goods and services were obtained at the most advantageous terms.
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Executive Summary
• Carrero and Associates did not follow proper procurement procedures in contracting with its
subcontractor, Freeman and Associates. Instead, Carrero selected the firm as a sole source
without justifying the lack of competition or the validity of the cost. Further, the PHA did
not review invoices submitted by Carrero for the services provided by Freeman. Had it done
so, the PHA would have found unnecessary, unrelated, and unsupported charges. The PHA
was negligent in its oversight of Carrero. We identified $10,508 of ineligible costs and
$923,542 as unsupported.
• The PHA failed to properly administer payments of CGP funds. It approved $3.8 million as
project management fees without proper solicitation of the vendor and without cost analysis
and justification. In addition, the PHA did not maintain adequate documentation to support
the disbursements to Carrero and Associates, paid excessive charges, and failed to obtain
proper approval prior to disbursement. These actions occurred because PHA’s management
disregarded Federal procurement requirements and did not establish adequate internal
controls over payments. In the absence of proper support, the PHA is liable for $3.8 million
($1.7 million paid as of May 1999) for improper project management fees and $326,260 for
other unsupported costs.
• The PHA had no system of internal control. It had an inadequate accounting system,
inadequate disbursement control and recordkeeping, and commingled cash from the various
grants. It failed to meet matching state requirements, and used Federal funds to overcome a
shortfall in state funds. The PHA executed no inventory control over purchases of goods and
services for the HOPE VI Program and failed to monitor its project manager. This situation
existed, in our opinion, because the PHA’s management was unprepared or incapable of
administering the program and disregarded program requirements. Consequently, the HOPE
VI grants were unauditable, millions in costs are questionable or unsupported, and HUD has
no basis for assurance of economy or efficiency of this project.
We recommend that you declare the PHA in default of its grant agreements for the HOPE VI
Program and take the necessary steps to oversee completion of the Gateway initiative as planned.
We also recommend that you take administrative action against former PHA officials who
disregarded program requirements and failed to take corrective action on known deficiencies.
We have questioned over $19.8 million in costs which the PHA must repay from non-Federal
sources or justify. Finally, we recommend that you work closely with the newly appointed PHA
administration to rebuild its management and internal controls systems.
We provided copies of the draft report to the PHA and HUD on February 2, 2001. We discussed
the report with the officials at the exit conference on February 8, 2001. The PHA provided
written comments on March 12, 2001. Top officials in both the Puerto Rico Department of
Housing and the PHA have been replaced. The new administration is working to implement
programmatic reform and to create internal controls to safeguard the integrity of its programs.
The PHA response is limited by the fact that the new administration has had, as we did,
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Executive Summary
significant difficulty in locating many of the documents pertaining to the HOPE VI Program.
The PHA is committed to continue to work to resolve this problem. The letter responds to the
recommendations and sets forth the action being taken by the new administration to correct the
deficiencies found at the PHA. The PHA’s comments are summarized in the findings and
included in their entirety as Appendix F.
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Management Memorandum i
Executive Summary iii
Introduction 1
Findings
1 The PHA Failed to Properly Administer its HOPE VI
Implementation and Planning Grants 7
2 The Project Manager Disregarded Program Requirements 19
3 The PHA Paid Ineligible and Unsupported Costs for
Professional Services of a Subcontractor 25
4 The PHA Made Improper Payments from the CGP Grant 31
5 The PHA Failed to Maintain an Adequate Financial
Management System 35
Management Controls 41
Follow-Up On Prior Audits 43
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Appendices
A Schedule of Ineligible and Unsupported Costs and Cost Efficiencies 45
B Summary of HOPE VI Disbursement Deficiencies (Finding 1) 47
C Summary of Procurement Deficiencies (Finding 2) 49
D Summary of Public Relations Charges (Finding 2) 51
E Summary of CGP Disbursement Deficiencies (Finding 4) 55
F Auditee Comments 57
G HUD Comments 63
H Distribution 67
Abbreviations:
CFR Code of Federal Regulations
CGP Comprehensive Grant Program
EDSS Economic Development and Supportive Services
FY Fiscal Year
HOPE Housing Opportunities for People Everywhere
HUD Department of Housing and Urban Development
PHA Puerto Rico Public Housing Administration
OIG Office of Inspector General
OMB Office of Management and Budget
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Introduction
Public housing and urban renewal programs first started in Puerto Rico in 1938. By 1957 the
Puerto Rico Urban Renewal and Housing Corporation, the PHA’s predecessor, was created by
Commonwealth Law No. 88 for the purpose of reorganizing those programs. In 1972, the
government of Puerto Rico established the Department of Housing (Law 97 of June 10, 1972).
Under this law, the Puerto Rico Urban Renewal and Housing Corporation was attached to the
Department of Housing, and the powers and faculties of the Board of Directors were transferred
to the Secretary of Housing.
The PHA was created in 1989 and placed under the direction of the Puerto Rico Department of
Housing for the purpose of creating an efficient and flexible administration of public housing
(Law 66 dated August 17, 1989). In 1991, the Puerto Rican Government dissolved the Puerto
Rico Urban Renewal and Housing Corporation and transferred the powers and faculties of its
Public Housing Program to the Puerto Rico Public Housing Administration. The PHA
Administrator is appointed by the Puerto Rico Secretary of Housing. The PHA is the second
largest public housing agency in the nation. As of July 1, 2000, it had 328 housing projects with
56,393 units scattered throughout Puerto Rico.
The PHA has a long history of management problems. In 1981, HUD designated its predecessor
agency as “financially troubled.” In 1985, the agency was determined by HUD to be
“operationally troubled” because of serious financial, administrative, and project maintenance
deficiencies. These deficiencies were not corrected. As a result, in 1991, HUD imposed severe
sanctions on the agency by freezing about $308 million of unobligated funds. In 1992, the
Governor of Puerto Rico transferred the PHA’s modernization and development programs to the
Puerto Rico Public Building Authority to act as an agent for the PHA. Also, all project
management functions were contracted to private management agents. PHA staff was
dramatically reduced from over 4,500 to under 100 employees. Its role was reduced to an “asset
manager” responsible for accounting for and reporting on the use of Federal funds and
overseeing management agent activities.
HUD rated the PHA as troubled until December 1996. However, in November 1997 HUD
determined that only the PHA’s modernization program remained troubled. In the latest fiscal
year (FY) 1999 review, HUD cited the PHA’s continuing financial management problems and
need for corrective actions, but designated only the modernization program as troubled.
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Introduction
The FY 1997 and 1998 Single Audit reports contained findings similar to findings in this report.
They cited the PHA for: (1) not properly monitoring the activities of its project manager, (2) not
properly safeguarding and organizing accounting records, (3) processing adjusting journal entries
without supporting documentation, (4) commingling program funds, (5) not keeping supporting
documents for disbursements, and (6) making disbursements without approval by the authorized
official. The FY 1998 report disclosed that although the PHA is working towards correcting
prior year findings, the total amount of unresolved questioned costs from FY 1992 to FY 1998 in
Single Audit reports alone totaled $18.7 million.
Previous OIG audits have disclosed continued serious
Previous OIG reviews weaknesses in the PHA’s ability to manage its procurement
and related financial management systems. Our most
recent report, No. 00-AT-201-1003 dated March 6, 2000,
identified $21.8 million of ineligible costs and $4.1 million
in cost efficiencies. We recommended declaring the PHA
in substantial default and placing the PHA on a
reimbursement basis for funding.
HUD established the HOPE VI Program for the purpose of
HHOPE VI Program revitalizing severely distressed or obsolete public housing
developments. Permitted activities include major
reconstruction, rehabilitation and other physical
improvements, replacement housing, management
improvements, planning and technical assistance,
community service programs and supportive services, and
the planning for any such activities.
The PHA was selected to participate in the HOPE VI
Implementation Program on November 19, 1993, under the
FY 1994 Appropriation and awarded $50 million. In May
1995, HUD awarded the PHA a $400,000 HOPE VI
Planning grant to plan the strategy for selected public
housing projects. In addition, $33.4 million in CGP funds
and $1 million of EDSS funds were assigned. All funds
were to be directed at the revitalization of the New San
Juan Gateway.
In April 1995, the PHA contracted with Carrero and
Associates, Inc. d/b/a PROGRESSA to administer and
implement its HOPE VI Program. Through subsequent
contract amendments, Carrero and Associates was
authorized to administer the supplemental funds assigned to
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Introduction
the initiative. The responsibilities were to procure
suppliers, bill the PHA for completed work, and pay the
suppliers. The activities of the revitalization of Gateway
included:
• Rehabilitation of 360 units at Manuel A. Perez,
• Demolition of 40 units at Manuel A. Perez,
• Demolition of high-rise buildings at Crisantemos I
and II,
• Construction of 80 units (40 elderly) of
replacement housing at Crisantemos I,
• Construction of 40 units of replacement housing at
Manual A. Perez,
• Acquisition of Berwind property for construction of
959 units of replacement housing.
The HOPE VI Planning and Implementation grants and the
Economic Development and Supportive Services grant are
governed by their respective grant agreements. Title 24,
Code of Federal Regulations (CFR), part 968 governs the
CGP. Title 24 CFR 85 governs the procurement activities
and associated management controls. Also, all grantees and
subgrantees must comply with the cost principles contained
in the Office of Management and Budget (OMB) Circular
A-87.
The Gateway project expenditures totaled about $38.4
Program million. At August 15, 2000, HUD’s Letter of Credit
disbursements Controls System showed that the PHA had disbursed $28.6
million of HOPE VI and EDSS Program funds. The CGP
funds disbursed for the Gateway project could not be
determined from the system. Based on the PHA records, as
of January 13, 2000, the amount of CGP funds disbursed
was $9.8 million. The following table summarizes the
grants and disbursed amounts.
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Introduction
Budgeted Disbursed
Grant (million) (million)
HOPE VI - Implementation $50.0 $27.91
HOPE VI - Planning .4 .41
CGP 33.4 9.82
EDSS 1.0 .31
Totals $84.8 $38.4
1
As of August 15, 2000.
2
As of January 13, 2000. The PHA’s accounting system did not segregate
expenditures by project. The information was obtained from the most
recent data available from the PHA records.
The majority of the disbursements made by the PHA were
to Carrero and Associates, who in turn made disbursements
to various vendors.
HUD Headquarters officials informed us that the Gateway
project was behind schedule. There was an agreement
pending for the PHA to turn the project over to HUD for
completion. It appeared HUD planned to hire someone to
manage the remaining phases of the project. We did not
evaluate the progress of the project. Our focus was on the
concern that the PHA did not have accurate records
detailing the costs. That concern was valid, and we found it
necessary to compile data in order to perform our audit.
Our objectives were to determine whether the PHA: (1)
Audit objectives, properly administered its HOPE VI, CGP, and EDSS funds
scope, and assigned to the Gateway project, (2) properly monitored its
methodology project manager, Carrero and Associates, and (3) complied
with applicable rules and regulations of the programs. We
also assessed whether the PHA and Carrero and Associates:
(1) followed procurement policies and procedures that
complied with HUD requirements, (2) adequately
determined the need for goods and services, and (3) had
adequate controls to ensure receipt of goods and services
and to preclude duplicate payments.
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Introduction
To accomplish our objectives, we:
• reviewed applicable laws, regulations, and other
program related requirements,
• evaluated HUD internal correspondence, monitoring
reports and Independent Public Accountant audit
reports,
• interviewed responsible HUD, PHA, and project
management officials and contractors,
• made site visits to dwelling units and a community
center and verified the delivery of various goods,
• examined procurement and disbursement records and
contract files, and
• assessed related management controls.
We judgmentally selected 34 disbursements made by the
PHA from April 1995 through January 2000 totaling $12.2
million. In general, we examined: (1) HOPE VI
Implementation grant and CGP disbursements over
$300,000 and other judgmentally selected disbursements,
(2) HOPE VI Planning grant disbursements over $25,000,
and (3) EDSS disbursements exceeding $5,000. The
disbursements examined were as follows:
Disbursements
Grant Examined Amount
HOPE VI-Implementation 12 $7,560,200
CGP 8 4,329,863
HOPE VI-Planning 7 223,292
EDSS 7 93,006
Total 34 $12,206,361
In addition, we judgmentally selected and reviewed the
procurement and related support for $1.9 million in charges
made by the project manager.
Our review was conducted at the PHA and project manager,
Carrero and Associates’ offices in San Juan, Puerto Rico.
The audit primarily covered the period of April 1995
through December 1999. We extended the audit coverage
as appropriate. We conducted our audit in accordance with
generally accepted government auditing standards.
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During the period covered by our audit, Miguel Rodriguez
and John Blakeman served as PHA Administrators and
Carlos Vivoni, Ana Carmen Alemany, and Carlos Gonzales
served as Secretaries of the Puerto Rico Department of
Housing. As a result of the November 2000 election, a new
administration has taken over. The PHA administration in
office as of date on this report was not responsible for
creating the conditions cited in the findings of this report.
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Finding 1
The PHA Failed to Properly Administer its
HOPE VI Implementation and Planning Grants
The PHA failed to provide full and open competition when it awarded a sole source contract to
the project manager of the Gateway project and did not perform a price or cost analysis when
procuring the services. In addition, the PHA made payments in excess of the contract limits and
did not maintain proper disbursement control. We also determined that the PHA acquired
property on which to develop replacement housing that was still sitting vacant after 5 years. The
former PHA management was inept and appeared to make no attempt to monitor the activities of
its project manager. As a result, HUD has no assurance that services were acquired at the most
beneficial terms and that the funds were used in an economical, efficient, and effective manner.
Of the $28.3 million disbursed as of August 2000, we have questioned a total of $12.1 million
spent from these two grants.
The November 1994 Implementation Grant Agreement
Criteria requires the Authority to comply with procurement
guidelines contained in 24 CFR 85.36. Section (c) (1)
requires all procurement transactions to be conducted in a
manner providing full and open competition. Section (f)
(1) requires the grantees and subgrantees to perform a cost
or price analysis in connection with every procurement
action. Section (b) (9) requires the grantees to maintain
sufficient records to detail the significant history of each
procurement. Section (d) (4) (i) states that procurement by
noncompetitive proposals may be used only when award of
a contract is infeasible under small purchases procedures,
sealed bids or competitive proposals, and one of the
following circumstances applies: (a) the item is available
only from a single source, (b) the public exigency or
emergency for the requirement will not permit a delay
resulting from competitive solicitation, (c) the awarding
agency authorizes noncompetitive proposals, and (d) after
solicitation of a number of sources, competition is
determined inadequate.
Article XIII of the Grant Agreement states that the PHA
must keep records in accordance with 24 CFR 85.20 that
facilitate an effective audit to determine compliance with
program requirements, and which fully disclose the amount
and disposition of funds received under the HOPE VI grant,
including sufficient records that document the
reasonableness and necessity of each expenditure.
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Finding 1
On September 18, 1995, the PHA and HUD entered into a
HOPE VI Planning Grant Agreement. Article IV.5 of the
Grant Agreement provides that the grantee will not
commingle HOPE VI grant funds with funds from any
other sources. Article IV.8 states the grantee will comply
with, and be subject to, the requirements, policies, and
standards set forth in 24 CFR 85. Article VIII.1(a) requires
that the grant funds are to be used in accordance with the
budget that was attached to the Grant Agreement.
On April 1, 1995, the PHA awarded Carrero and Associates
Improper procurement (as a sole source) a 3-month contract, renewable up to a
process maximum of 2 years to administer a 1994 $50 million
HOPE VI Implementation grant. The fees for the services
were not to exceed $2.88 million for the 2-year period. On
January 19, 1996, 10 months later, the PHA amended its
contract with Carrero and Associates. It extended the
contract through June 30, 2000, and increased the
maximum compensation to $7.2 million. The contract
amendment also authorized supplemental funding for the
Gateway project as follows:
Program Amount
CGP $30,897,876
Section 8 Rental Certificates 2,286,600
Section 8 Rental Vouchers 1,230,244
EDSS 1,000,000
1995 HOPE VI Planning Grant 400,000
Total $35,814,720
The procurement process was seriously flawed. In a letter
dated November 4, 1994, Carrero and Associates informed
the former PHA Administrator of its intent to submit a
competitive proposal for project manager in response to a
request for proposal planned for issuance by the PHA. On
November 28, 1994, before the request for proposal was
issued, the former PHA Administrator requested HUD’s
approval of a sole source contract with Carrero and
Associates, as project manager, in an effort to expedite the
implementation of the HOPE VI grant. He said the
selection was based on the firm’s knowledge and
experience in new developments and modernization of
public housing. The PHA also told HUD that no other
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Finding 1
firms in Puerto Rico could perform the work. HUD
approved the request on March 9, 1995, on the condition
that the PHA perform a cost analysis and ensure that the
final cost was competitive and justifiable.
Although the PHA claimed that Carrero and Associates was
the only knowledgeable and experienced firm, it did not
provide any support or document its efforts to contact other
sources. The cost proposal submitted by Carrero and
Associates dated February 25, 1995, stated that it would
contract with five external consultants, as part of its team,
specializing in the areas of construction management,
economic development, relocation, community services,
and communications. The fact that external consultants
were needed indicated that Carrero and Associates did not
have the capacity or experience to perform the work and
that it was not the only source available to conduct the
work as claimed by the PHA.
The PHA officials stated that they did not have any
procurement files related to the procurement of Carrero and
Associates as project manager. The PHA did not provide
evidence that a cost analysis was performed or that the $7.2
million in fees to be charged by Carrero and Associates was
competitive and justifiable. This was contrary to
requirements of 24 CFR 85.36 and HUD’s instructions.
The PHA did not establish adequate internal controls to
Payments in excess of monitor and track payments to Carrero and Associates to
contract limits assure they were in accordance with the terms of the
contract. PHA officials acknowledged the lack of controls
and informed us that the only way to know the amount of
fees paid would be to examine all the disbursements made,
separating the fees from other costs. Therefore, we
compiled the invoices and estimated that Carrero and
Associates billed the PHA at least $11.4 million in
management fees between April 1995 and March 2000 as
follow:
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Finding 1
Project Management (1) $9,812,710
Administrative Fees (2) 160,584
Contract Management Fees (3) 663,640
Reimbursements (4) 50,272
Reference Materials (5) 9,965
Consultants (6) 792,401
Total $11,489,572
Notes:
(1) Staff Salaries of Carrero and Associates
(2) Administrative fee charged on utilities, stipends paid to volunteers,
supplies, equipment, etc.
(3) 15 percent fee charged on work billed by consultants
(4) Items such as airfare, apartment rent, relocation costs, etc. of Carrero
and Associates
(5) Copies, maps, etc.
(6) Consulting services contracted by Carrero and Associates included in
the cost proposal
As of March 2000, the PHA had disbursed $11.2 million to
Carrero and Associates, leaving an unpaid balance of
$240,033. This was $4 million over the contract limit of
$7.2 million. We estimated the PHA reached the full
contract amount as early as November 1997. The excess
charges to the HOPE VI Program occurred because the
PHA was negligent in monitoring the payments to its
project manager.
Although the PHA was informed in May 1999 by one of its
consultants of the excess payments, it took no action until
March 2000 when it contracted with a public accounting
firm to reconstruct payments to Carrero and Associates.
The report, issued on June 27, 2000, concluded that Carrero
did not maintain a complete general ledger that adequately
identified the source and application of the funds. Also, the
accountant could not trace deposits and expenses to the
general ledger. The report did not state the amount billed
by Carrero. The report stated that payments totaling
$289,806 made by the PHA to Carrero could not be traced
to Carrero’s books.
We consider the $4,049,539 over the contract limit to be
ineligible.
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Finding 1
We analyzed 11 disbursements by the PHA from the HOPE
Inadequate VI Implementation grant for goods and services. Ten
disbursement controls disbursements were to Carrero and Associates, who in turn
–Implementation grant made disbursements to various vendors. In addition, we
reviewed Carrero’s invoices from April 1995 to November
1997. The PHA’s controls were not effective because it:
(1) paid invoices that were not properly supported, (2) paid
excessive administrative and contract management fees, (3)
paid for costs not incurred, (4) paid unreasonable expenses,
and (5) allocated costs to incorrect accounts.
• Invoices Not Properly Supported Disbursements
made by the PHA were not properly supported. Seven
disbursements consisting of 16 invoices did not contain
sufficient support to document the reasonableness and
necessity of the charges. For example, Carrero and
Associates submitted an invoice that consisted of
adjustments to prior 1996 and 1997 invoices. The
adjustment resulted in an additional charge of $84,583.
The documents submitted by Carrero and Associates
did not provide detail to support how the adjusted
amounts were determined. The documentation only
contained information about the previous bill’s old
amount and what the correct amount should have been.
In another example, the PHA paid invoice no. 1C-1058
which included a change order that resulted in a net
increase of $5,450; however, there was no
documentation explaining the nature of the change.
Consequently, $248,841 is unsupported (See Appendix
B, footnote 2).
• Excess Administrative and Contract Management
Fees Carrero and Associates charged the PHA
$521,561 for administrative and contract management
fees between April 1995 and November 19971 as
follows:
1
Period in which the contract limit of $7.2 million was reached.
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Finding 1
Contract
Administrative Management Total
Apr-Dec 1995 - $107,681 $107,681
Jan-Dec 1996 $25,560 247,471 273,031
Jan-Nov 1997 34,554 106,295 140,849
Total $60,114 $461,447 $521,561
Administrative fees were charged for stipends, utilities,
supplies, and furniture purchased for the project by
Carrero and Associates. Management fees were
charged for work performed and billed by consultants.
The fees ranged from 10 to 15 percent. For example,
Carrero and Associates submitted an invoice for
October 16 - 31, 1996, which included $11,174 for
contract management fees, and a 10 percent
administrative fee of $1,536 added as a percentage of:
(a) salaries and stipends paid to volunteer program staff,
(b) office and maintenance supplies, (c) utilities, (d)
rent, etc.
We found that various consultants were billing an
administrative fee for work that they subcontracted.
Carrero and Associates billed the PHA for those
consulting services plus its own 15 percent fee. For
example, in October 1995, COMMUNICAD, Inc.
submitted invoice number 1034 for $4,629 related to a
Washington, DC trip. The invoice included a charge of
$621 for dinner arranged by a subcontractor, MAPA
Communications, Inc. MAPA added a 15 percent
“agency fee” of $93 to the invoice. COMMUNICAD
billed Carrero and Associates for the $714 dinner costs
charged by MAPA plus its administrative fee of $126
(18 percent). In November 1995, Carrero and
Associates billed the PHA $840 charged by
COMMUNICAD, plus $126 (15 percent) for its
contract management fees. In total, an additional $345
(56 percent) in fees was charged to the HOPE VI
Program for a $621 dinner.
In another example, COMMUNICAD submitted
invoice number 1080 for $45,419 related to the
implosion of Crisantemos I. The invoice included a
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Finding 1
charge of $4,500 for helicopter services.
COMMUNICAD billed Carrero and Associates the
$4,500 plus an administrative fee of $1,000 (22
percent). In August 1996, Carrero billed the PHA
$5,500 charged by COMMUNICAD, plus $825 (15
percent) for contract management fees. Accordingly, an
additional $1,825 (41 percent) in fees was charged to
the HOPE VI Program for helicopter services that
should have cost $4,500.
These transactions are considered a “cost plus a
percentage of cost” and are prohibited by 24 CFR
85.36. As a result of the excessive fees charged, the
PHA paid Carrero and Associates ineligible fees of
$521,561.
• Costs Not Incurred Our test of the payroll records
disclosed that Carrero and Associates charged the PHA
in excess of the actual amount it incurred for payroll.
For example, time and attendance records reflected that
some employees worked overtime during the pay period
of June 16 - 30, 1997. Carrero and Associates billed the
PHA for all the hours included on the employees’
timesheets including the overtime. However, payroll
records reflected that these employees were not paid
overtime. Accordingly, the PHA paid $5,650 that its
project manager never incurred as follows:
Hours
Billed
Total Hours in Excess
Hourly Hours Paid Per of Actual Estimated
Position Rate Billed Payroll Payment Overcharge
Dir. Operational $77.91 110.50 86.67 23.83 $1,857
Field Off. Assist. Admin. 25.96 105.50 86.67 18.83 489
Senior Planner 57.69 103.50 86.67 16.83 971
Dir. Planning 72.12 100.00 86.67 13.33 961
Human Resources 43.29 90.50 86.67 3.83 166
Accountant 34.62 88.50 86.67 1.83 63
Training Specialist 40.41 97.50 86.67 10.83 438
Community Coordinator 25.96 95.00 86.67 8.33 216
Community Organizer 17.31 88.00 86.67 1.33 23
F/O Administrator 36.35 99.50 86.67 12.83 466
Total 978.50 866.70 111.80 $5,650.00
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Finding 1
• Unreasonable Expenses Although Carrero and
Associates was established in Puerto Rico, the PHA
paid invoices for airfare, apartment lease
($1,600/month), automobile rental ($750/month), meals
and incidentals ($750/month), and relocation expenses.
Between April 1995 and November 1995, the PHA paid
the following:
Description Amount
Airfare $17,059
Apartment Lease 12,800
Automobile Rental 6,000
Meals and Incidentals 6,000
Relocation Expenses 8,413
Total $50,272
Disbursements made by the PHA did not contain
documentation that the expenditures were necessary and
reasonable for the project. Without such evidence, the
$50,272 was unsupported.
• Costs Allocated to Incorrect Accounts We identified
$383,769 in charges that were allocated to incorrect
accounts or where the cost allocation was not
supported. For example, expenditures related to the
rehabilitation of a temporary facility were charged to
management improvements (account 1408). The
correct account was non-dwelling structures (account
1470). In addition, administration (account 1410) was
improperly charged with legal and public relations costs
incurred by Carrero and Associates. The costs to be
charged to the administration account were those
incurred by PHA staff, not its contractors.
HUD cited similar deficiencies on April 20, 2000, and
disallowed over $1 million in similar costs improperly
charged to the administration account. Improper
allocation of costs resulted in inaccurate project
financial information.
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Finding 1
On May 1997, the PHA acquired property on which to
PHA acquired a parcel develop replacement housing with $3.2 million of HOPE
of land which was not VI funds. The property was originally acquired in 1967
used with Commonwealth funds by the predecessor housing
authority, the Puerto Rico Urban Renewal and Housing
Corporation. The current PHA purchased the property from
the trustee (a Commonwealth entity) in charge of
liquidating the assets of the Puerto Rico Urban Renewal
and Housing Corporation. Although the acquisition was
made in 1997, development had not taken place at the site.
We examined 7 transactions totaling $223,292. Neither the
Inadequate PHA nor the project manager maintained accurate and
disbursement controls current accounting records as required in 24 CFR 85.20.
– Planning grant The review disclosed that the PHA: (1) disbursed funds
with inadequate supporting documents, (2) made adjusting
journal entries without adequate support, and (3)
commingled its HOPE VI Planning and Implementation
grant funds.
• Missing or Inadequate Support The PHA did not
provide disbursement vouchers and supporting
documents for 2 of the 7 disbursements (check numbers
182 and 39771) totaling $82,988. The supporting
documentation for check numbers 17 and 31 totaling
$28,363 and $25,246 respectively, was not sufficient to
determine the eligibility of the charges. The supporting
documentation for check number 378 for $25,445 and
check number 380 for $28,801 included charges for
personnel not approved in the HUD budget.
• Unsupported Journal Entry On February 28, 1998,
the PHA prepared a three-page journal entry
reclassifying $75,984 in costs between the HOPE VI
Planning and Implementation grants. The PHA
financial consultant said the Planning grant
expenditures were improperly charged to the
Implementation grant, and vice versa. In the journal
entry, there was an adjustment transferring $14,499 in
costs to the Implementation grant. The entry was
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Finding 1
to reclassify costs to agree with the HOPE VI Planning
grant budget approved by HUD. The three-page journal
entry was not properly documented and did not clearly
show that the reclassification of expenditures between
the two grants was correct. The final entry appeared to
be an arbitrary charge to the Implementation grant
simply to correct the budget overrun in the Planning
grant.
The Planning Grant expired on May 8, 1998. The closeout
Grant closeout audit procedures for the HOPE VI Program require an audit of
not conducted expended grant funds in accordance with OMB Circular A-
133. HUD reviews the audit report to determine whether
expenditures are allowable, activities were completed in
accordance with the grant agreement, and all Federal
requirements were satisfied. The PHA did not provide
evidence that this audit was conducted as instructed in
HUD’s May 11, 1998, letter. As a result, the PHA cannot
assure that funds expended under its Planning grant were
in accordance with program requirements. Consequently,
the $400,000 in Planning grant was unsupported.
* * * * *
It is clear from the PHA’s records that it failed to properly
administer the HOPE VI grants. Its procurement of the
project manager was improper, it failed to oversee that
project manager, and it failed ensure propriety of
expenditures. Consequently $4.5 million is ineligible, $7.3
million is unsupported, and $240,033 will be ineligible if
paid. These deficiencies are material and constitute a
default of Article XVIII of the Grant Agreement.
Auditee Comments “. . . without the records and files of the [PHA] and its
consultant, there is no means by which this Adminstration
can justify or explain the questioned disbursements.
However, the [PHA] is in the process of reorganizing the
[PHA] in order to create the internal controls and
management needed to prevent this type of situation from
occurring in the future.
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Finding 1
“. . . [PHA] will not be managing its programs by
contractors, as had been the practice under the previous
administration. Instead, the [PHA] is creating program
offices, procurement offices, and financial offices to
manage and run its programs with permanent career staff.
This will allow the [PHA] to develop expertise and
institutional knowledge which will facilitate the [PHA] in
the administration of its programs, including the HOPE VI
grant for New San Juan Gateway.
“[The PHA] believes that the 1994 HOPE VI grant
agreement should not be declared in default. The [PHA]
will have in place by August 31, 2001 the necessary staff to
properly implement and manage the HOPE VI grant.
“The [PHA] is preparing a [request for proposal] to retain a
certified public accounting firm to provide this
information.”
(The draft report’s Finding No. 5 was merged with Finding
No. 1.)
The new administration at the PHA is in the process of
OIG Evaluation of implementing steps to correct the deficiencies. We will
Auditee Comments provide the PHA the opportunity to review the relevant
documents in our possession to assist in responding to the
recommendations.
Recommendations We recommend that you:
1A. Declare the PHA in default of its 1994 HOPE VI
Implementation Grant Agreement and take
necessary steps to oversee completion of the
Gateway initiative.
1B. Require approval from HUD’s Office of General
Counsel for all future sole source contracts by this
PHA.
1C. Determine, by comparison to similar modernization
or development projects, the reasonableness of
project management fees of $7.2 million.
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Finding 1
1D. Require the PHA to reimburse HUD $4,049,539 of
Implementation grant costs from non-Federal
sources for the ineligible payments over the contract
limit.
1E. Require the PHA to reimburse HUD $521,561 of
Implementation grant costs from non-Federal
sources for the ineligible fees (this amount is
included in the project management fees of
$7,200,000).
1F. Require the PHA to reimburse HUD $5,650 of
Implementation grant costs from non-Federal
sources for costs not incurred by Carrero (this
amount is included in the project management fees
of $7,200,000).
1G. Request justification for the $248,841 of
unsupported Implementation grant costs or recover
from non-Federal funds.
1H. Determine the proper disposition of remaining
obligated invoice amounts of $240,033 for
ineligible project management fees.
1I. Require the PHA to formally develop plans for use
of the acquired parcel of land (Berwind) or sell the
property and return funds to HUD.
1J. Request justification for the $400,000 of
unsupported Planning grant costs or recover from
non-Federal funds.
1K. Require the PHA to obtain a closeout audit of
HOPE VI Planning grant to assess the eligibility of
the Planning grant costs.
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Finding 2
The Project Manager Disregarded Program
Requirements
Carrero and Associates did not comply with Federal or the PHA’s procurement requirements. It
did not: (1) follow established procedures, (2) use the proper procurement methods, (3) maintain
procurement files, and (4) perform price or cost analyses. The project manager obtained goods
and services without full and open competition and charged unrelated and unnecessary costs to
the HOPE VI project. We identified ineligible costs of $736,031 and unsupported costs totaling
$196,206 (see Appendix C). This occurred because the PHA failed to monitor the activities of
its project manager as required. As a result, HUD has no assurance that goods and services were
obtained at the most advantageous terms.
The November 1994 Grant Agreement requires the
Criteria Authority to comply with procurement guidelines contained
in 24 CFR 85. Part 85.36 (c) (1) requires all procurement
transactions to be conducted in a manner providing full and
open competition. Section (f) (1) requires the grantees and
subgrantees to perform a cost or price analysis in
connection with every procurement action. Section (b) (9)
requires the grantees to maintain sufficient records to detail
the significant history of each procurement. Section (d) (4)
(i) states that procurement by noncompetitive proposals
may be used only when award of a contract is infeasible
under small purchases procedures, sealed bids or
competitive proposals, and one of the following
circumstances applies: (a) the item is available only from a
single source, (b) the public exigency or emergency for the
requirement will not permit a delay resulting from
competitive solicitation, (c) the awarding agency authorizes
noncompetitive proposals, and (d) after solicitation of a
number of sources, competition is determined inadequate.
The Grant Agreement, Article XIII, also states that the PHA
must keep records in accordance with 24 CFR 85.20 that
facilitate an effective audit to determine compliance with
program requirements, and which fully disclose the amount
and disposition of funds received under the HOPE VI grant
and the reasonableness and necessity of each expenditure.
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Finding 2
Paragraph 3 of the contract between Carrero and Associates
and the PHA states that the contractor will comply with all
Federal and state laws, regulations, and ordinances
applicable to the terms of the contract.
Procurement Public Relations Services Carrero and Associates charged
deficiencies the PHA $720,744 for public relations services, associated
with its April 1995 contract. The scope of the contract
work consisted of consulting in the areas of “public affairs,
community and media relations, and private and public
sector information materials.” The scope also included
“assistance in the economic development procurement.”
The services were procured from COMMUNICAD, Inc. as
a sole source vendor, yet there was not a procurement file
to support the noncompetitive procurement or the cost.
Accordingly, Federal and PHA procurement requirements
were not followed. As evidenced by the invoices, the work
was not necessary for the administration of the HOPE VI
project. The activities were targeted to promote the
government and for entertainment purposes, rather than
providing a direct service to the targeted community.
Attachment B of OMB Circular A-87 does not allow the
costs of entertainment. It also provides the following as
unallowable advertising and public relations costs,
• Costs of displays, demonstrations, and exhibits,
• Costs of meeting rooms,
• Salaries and wages of employees engaged in setting up
and displaying exhibits, making demonstrations, and
providing briefings,
• Costs of promotional items and memorabilia, including
models, gifts, and souvenirs, and
• Costs of advertising and public relations designed to
promote the governmental unit.
Furthermore, the Housing Department already had a
communications office that could have performed these
tasks. The charges of $720,744 were ineligible (see
Appendix D).
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Finding 2
Our review disclosed the following examples:
• Unnecessary and/or Unsupported Charges We
examined COMMUNICAD invoices and the majority
were not supported. Some included charges that were
not necessary or reasonable for the administration of the
program, such as breakfasts for congressional staff
($1,019), flower arrangement for a HUD official ($73),
dinner for Commonwealth officials ($840), press
conference luncheon ($1,770), 4,082 T-shirts/polo
shirts, key chains, pins, and caps ($35,166), framed
posters for the governor and other officials ($1,662),
photography and video services ($19,857), recognition
plaque ($202), helicopter services ($27,412), large TV
screens ($3,059), catering services ($45,252),
tents/stages ($12,679), stationery and business cards
($1,330), breakfast meetings with PHA officials
($1,430), coordination for League of United Latin
American Citizens convention ($1,406), Request For
Quotations for a state project (Villa Panamericana)
($30,275), and meeting at a restaurant ($1,206).
• Charges Over Contract Limit The February 1995
contract between Carrero and Associates and
COMMUNICAD specified a monthly retainer of
$6,600. COMMUNICAD billed $22,998 in excess of
the contract amount, without any explanation or
support.
Invoice Invoice Fee Fee Per Excess
Number Date Charged Contract Amount
1032 10/06/1995 $13,075 $6,600 $6,475
1035 11/06/1995 13,680 6,600 7,080
1043 12/06/1995 11,643 6,600 5,043
1051 01/09/1996 11,000 6,600 4,400
Total $49,398 $26,400 $22,998
Carrero and Associates did not have controls to ensure
that all charges were in compliance with the contract
prior to submitting the invoices to the PHA.
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Finding 2
Passenger Van The project manager bought a 15-
passenger van to be used by the volunteer program and
charged the PHA $31,222. The van was registered to
Carrero and Associcates who has since filed Chapter 11
bankruptcy.
The PHA regulations require that a procurement of $10,000
or more must be advertised and bid. Instead, the
acquisition was done through the solicitation of quotes. An
official of Carrero and Associates stated that there was an
urgency in acquiring the vehicle and a public bid would
take too long. The project manager obtained three quotes,
but the lowest quote was not selected. According to the
officer of Carrero, the reason for not selecting the lowest
quote was that the vehicle would not be available from the
dealer for up to 6 months. However, the file did not
contain any support for the selection or that there was an
emergency for the purchase.
During the same month, the PHA issued a purchase order
for acquisition of a similar 15-passenger van for $22,822.
Had Carrero followed the PHA’s procurement policy, they
could have acquired the vehicle at a much lower price.
Accordingly, the excessive charges of $8,400 were
ineligible.
Computer Equipment Carrero and Associates acquired
$65,514 in computer equipment. Despite PHA regulations
that require a procurement of $10,000 to be advertised and
bid, Carerro obtained four quotes. The project manager
said they used the abbreviated process because there was an
urgency to open the small business and employment center
and a public bid would take too long. PHA provided no
evidence that the opening of the center constituted an
emergency. Costs of $65,514 were unsupported.
Legal Services Carrero and Associates charged $12,527
for legal services. The services appeared to relate to tenant
relocation and court action, but the relationship to the
HOPE VI project could not be identified. There was no
procurement file to document the necessity and
reasonableness of the services and therefore support the
costs.
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Finding 2
Photocopier Carrero and Associates charged the PHA
$8,205 for the acquisition of a photocopier. The equipment
was for the small business and employment center.
However, Carrero and Associates did not maintain a
procurement file showing the full procurement history and
that it was acquired at the most advantageous terms. We
determined that a cheaper machine could have been
purchased for $1,395 based on the Puerto Rico General
Services Administration list. Accordingly, the excess
charges of $6,810 were ineligible.
Office Rehabilitation Work Between December 1997 and
March 1998, Carrero and Associates charged the PHA
$118,165 for the rehabilitation of a rented facility used as
the temporary small business and employment center. The
rehabilitation completed on the rented property included
items such as air conditioners $21,775, installation of walls
$14,700, acoustic ceiling $10,620, 18 mahogany doors
$9,000, windows with mahogany frame $2,130; kitchen
furniture $1,500, and electrical locks $1,000.
In April 1996, Carrero and Associates entered into the lease
agreement contract for $1,000 per month. The
revitalization tasks of the Gateway project were scheduled
for completion by June 2000 when the center would move
to new facilities. The improvements made to the rented
facilities were equivalent to 9 years of lease charges. These
types of leasehold improvements were extravagant for a 4-
year lease and inappropriate for a Federal program.
Accordingly, the charges of $118,165 were unsupported.
Utility Bill Carrero and Associates charged the PHA for an
electric bill on a residential unit in the Municipality of
Guaynabo. The account was in the name of one of
Carrero’s employees. The $77 utility bill did not relate to
the HOPE VI project and was ineligible.
“Safeguards and internal controls will be implemented.
Auditee Comments The Office of Procurement will be fully staffed and the
Procurement Manual is being amended and will be
controlling for all future procurements.”
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Finding 2
The new administration at the PHA is in the process of
OIG Evaluation of implementing steps to correct the deficiencies.
Auditee Comments
Recommendations We recommend that you:
2A. Take administrative action against responsible PHA
management officials who failed to properly
monitor Carrero and Associates.
2B. Require the PHA to reimburse the ineligible costs of
$736,031 paid for excessive and unnecessary
expenditures.
2C. Request justification for the $196,206 of
unsupported grant costs or recover from non-
Federal funds.
2D. Require the PHA to file appropriate liens with the
bankruptcy court to protect its interests in assets
purchased with HUD funds.
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Finding 3
The PHA Paid Ineligible and Unsupported
Costs for Professional Services of a
Subcontractor
Carrero and Associates did not follow proper procurement procedures in contracting with its
subcontractor, Freeman and Associates. Instead, Carrero selected the firm as a sole source
without justifying the lack of competition or the validity of the cost. Further, the PHA did not
review invoices submitted by Carrero for the services provided by Freeman. Had it done so, the
PHA would have found unnecessary, unrelated, and unsupported charges. The PHA was
negligent in its oversight of Carrero. We identified $10,508 of ineligible costs and $923,542 as
unsupported.
Article XIII of the HOPE VI Grant Agreement, “Record
Criteria keeping/Access Requirements/Audits,” provides that the
grantee will keep records in accordance with 24 CFR 85.20
that facilitate an effective audit to determine compliance
with program requirements, and which fully disclose the
amount and disposition of funds received including
sufficient records that document the reasonableness and
necessity of each expenditure.
Title 24 CFR 85.36 (c) (1) requires all procurement
transactions be conducted in a manner providing full and
open competition; Section (f) (1) requires the grantees and
subgrantees to perform a cost or price analysis in
connection with every procurement action; Section (b) (9)
requires the grantees to maintain sufficient records to detail
the significant history of each procurement; and Section (d)
(4) (i) states that procurement by noncompetitive proposals
may be used only when award of a contract is infeasible
under small purchases procedures, seal bids or competitive
proposals and one of the following circumstances applies:
(a) the item is available only from a single source; (b) the
public exigency or emergency for the requirement will not
permit a delay resulting from competitive solicitation; (c)
the awarding agency authorizes noncompetitive proposals;
and (d) after solicitation of a number of sources,
competition is determined inadequate.
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Finding 3
Paragraph 3 of the April 1, 1995, contract between the PHA
and Carrero and Associates states that the contractor agrees
to comply with all the Federal and state laws, regulations,
and ordinances applicable to the terms of the contract.
Our review of Freeman’s contracts and invoices disclosed
improper contracting and questionable contract clauses.
Carrero and Associates contracted with Freeman and
Associates, a Minnesota based consulting firm, to provide
services related to the Gateway project. The services were
part of Carrero’s proposal to the PHA. The following
contracts were executed:
Contract Hourly Contract
Date Rate Amount
02/04/1995 $75 $ 21,655
08/28/1995 $75 127,995
06/26/1996 $80 250,000
06/06/1997 $80 4,400
06/27/1997 $85 200,000
07/01/1998 $95 200,000
07/01/1999 $100 130,000
Total $934,050
The February 4, 1995, contract was for relocation
consulting services. On August 28, 1995, Carrero and
Freeman signed an amendment that significantly expanded
the scope and value of the original contract. The
amendment included management improvement tasks in
addition to relocation services. The added tasks included
development of: (1) tenant selection and occupancy
policies, (2) a lease compliance handbook, (3) a
management agent operations handbook, and (4) analysis of
past subsidy calculations and a proposal to HUD for an
increase in the allowable expense level.
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Finding 3
From inception, Carrero contracted the services of Freeman
Improper procurement without following the procurement procedures prescribed in
process and 24 CFR 85.36 or the PHA’s procurement regulations.
questionable contract According to a Carrero official, Freeman was procured by a
non-competitive proposal. The procurement file did not
clauses
demonstrate that Freeman was the only source available,
the need for sole source procurement, or that the costs were
reasonable. All subsequent amendments and contracts were
made without competition or cost analysis.
Since the contract amendment of August 1995, the scope of
subsequent contracts did not change significantly, yet the
total contract amount increased by over $700,000. For
example, development of a management agent operations
handbook was in the August 1995 amendment and also in
the 1996, 1997, 1998, and 1999 contracts. Accordingly,
Freeman and Associates was given almost 5 years to
develop an operations handbook for management agents.
File documents indicated that all products relating to the
operations handbook, except an administration handbook,
were presented to the PHA on March 6, 1997. Why the
task was extended through the 1999 contract is unclear.
The 1995 amendment included three other management
improvement tasks that were unnecessarily extended
throughout the 5-year period of the contracts. A Carrero
official informed us that the tasks were completed as of
June 2000. This task to analyze past subsidy calculations
made for the PHA and develop a proposal to increase the
allowable expense level were not part of the HUD approved
revitalization plan. In fact, it was related to a lawsuit filed
against HUD and was clearly ineligible as a cost of a
Federal grant. We found one Freeman invoice from July
1995 for $2,700 for this work. We could not determine the
total amount Carrero charged in relation to the HUD
lawsuit because Freeman invoices were not adequately
supported.
We reviewed invoices totaling $632,457 for Freeman from
Review of invoices February 1995 to December 1996 and from July 1997 to
June 1999. From February 1996, the invoices did not
contain sufficient detail to assess the eligibility. Our
review disclosed the following:
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Finding 3
Unsupported Reimbursable Expenses The invoices
submitted by Freeman and Associates consisted of two
charges - labor and reimbursable expenses. The labor
charges included hours worked for the period times the
applicable hourly rate. The reimbursable expenses included
hotel, meals, airfare, and mileage, etc. Freeman billed
$181,601 of reimbursable expenses, although $158,472 of
the charges did not contain sufficient supporting
documentation to assess the eligibility. Freeman invoices
only documented the support for the reimbursable
expenditures for the period of April 1995 to January 1996.
The other expenditures were not supported.
Non-HOPE VI Charges Freeman charged unrelated costs
to the HOPE VI Program. They included $1,875 for work
at the Crisantemos II site (a CGP project), $75 for technical
assistance to Carrero staff, and $3,512 for assistance in
preparing an application for the 1997 HOPE VI funds. The
PHA could have prevented the charges by adequately
reviewing Carrero’s invoices before payment.
Unnecessary Lodging for the Minnesota Firm The June
1996 through July 1998 contracts between Freeman and
Carrero allowed reimbursement for the lease of an
apartment including utilities, cable TV, household items,
maintenance, dry cleaning, etc. The lodging expenses were
paid based on the apartment’s actual monthly rent,
regardless of whether the consultants were in Puerto Rico
or not. We identified $79,187 in lodging charges.
The HOPE VI project paid for personal items, such as a
hair dryer, groceries, coffee table, beach chairs and other
household items. Freeman was reimbursed with HOPE VI
funds for these goods although they did not benefit the
project in any way. During 1995 and 1996, Freeman was
reimbursed at least $2,010 for the purchase of such personal
goods. Freeman was also reimbursed for airport luggage
carts, tips paid, etc. We could not determine the amount for
subsequent years because the invoices were not adequately
supported.
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Finding 3
Billing Errors Carrero did not adequately review the
subcontractor’s invoices. We identified four instances
where billing errors occurred resulting in an overcharge of
$336 to the program.
Deficient Monthly Progress Reports Freeman submitted
monthly progress reports to Carrero and Associates. The
description of the tasks performed was insufficient to
evaluate the reasonableness of hours charged during the
period. The narrative within the reports was generic and
contained only general information on the tasks performed.
The reports did not contain hours charged per task or dates
when the tasks were accomplished. Also, the number of
days per month spent by Freeman in Puerto Rico was not
included. This made it impossible to assess the
reasonableness of fees and reimbursable expenses charged
by Freeman. Furthermore, not all monthly reports were
available for our review.
We question the charges from Freeman for its work on the
Gateway project totaling $10,508 as follows:
Nature of Ineligible Cost Amount
Preparation of 1997 HOPE VI application $ 3,512
Lawsuit against HUD 2,700
Work related to Crisantemos II project 1,875
Purchase of household goods 2,010
Billing errors 336
Technical assistance to Carrero staff 75
Total $10,508
However, based on the lack of support for work performed
under the contract and the failure to follow the procurement
policy, we consider the remaining contract costs of
$923,542 unsupported.
“[PHA] is unable to contest this dollar figure at this time
Auditee Comments due to lack of documentation. [The PHA] would appreciate
the opportunity to review any relevant documents in the
IG’s possession to assist . . . in responding to this
recommendation.”
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Finding 3
The OIG will provide the PHA the opportunity to review
OIG Evaluation of the relevant documents in our possession to assist in
Auditee Comments responding to the recommendations.
Recommendations We recommend that you:
3A. Require the PHA to reimburse $10,508 of ineligible
costs from non-Federal funds paid to the consultant
for unnecessary, unsupported, and unrelated
program expenses.
3B. Request justification for the remainder of the
contract costs of $923,542.
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Finding 4
The PHA Made Improper Payments from the
CGP Grant
The PHA failed to properly administer payments of CGP funds. It approved $3.8 million as
project management fees without proper solicitation of the vendor and without cost analysis and
justification. In addition, the PHA did not maintain adequate documentation to support the
disbursements to Carrero and Associates, paid excessive charges, and failed to obtain proper
approval prior to disbursement. These actions occurred because PHA’s management disregarded
Federal procurement requirements and did not establish adequate internal controls over
payments. In the absence of proper support, the PHA is liable for $3.8 million ($1.7 million paid
as of May 1999) for improper project management fees and $326,260 for other unsupported
costs.
Title 24 CFR 85.20 (2) and (6) require that grantees
Criteria maintain records to adequately identify expenditures and
maintain accounting records supported by source
documents. Section (3) requires grantees to maintain
effective control and accountability for all grant and
subgrant cash, real property, and other assets. Grantees and
subgrantees must adequately safeguard all such property
and assure that it is used solely for authorized purposes.
The PHA failed to comply with procurement requirements
Unsupported project by not providing full and open competition. In June 1999,
manager fees the PHA amended its contract with Carrero and Associates
extending the contract until August 2002. HUD did not
approve the amendment. The amendment stated that $33.4
million in CGP funds was assigned to the Gateway project
and that Carrero and Associates was approved fees of $3.8
million in CGP funds to administer the funds. The
management fees were 12 percent of the CGP funds. The
amendment also reflected that as of May 31, 1999, Carrero
and Associates had billed the PHA $1,787,443 in CGP fees.
Although the PHA Administrator and other officials were
involved in the development of the fourth contract
amendment, no one could provide information to support
the amounts or the procurement process followed. The
PHA did not provide any information showing how the
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Finding 4
contracted fee was determined or the reasonableness of the
charges. Therefore, the reported CGP expenditures of $1.7
million are considered unsupported. Also the PHA may
incur $2.1 million in additional unsupported costs if
corrective actions are not taken.
We reviewed CGP disbursements made by the PHA from
Payment deficiencies April 1995 to January 2000. The disbursements were to
and other unsupported Carrero and Associates for payment of management fees
costs and goods and services on behalf of the PHA to carry out
the Gateway project. We selected 8 disbursements totaling
$4.3 million, representing 44 percent of the total amount
disbursed of $9.8 million. The 8 disbursements paid 54
invoices submitted by Carrero. We identified payment
deficiencies in each disbursement, which included 42 of the
invoices (see Appendix E). The deficiencies included the
following:
No. of
Deficiency Invoices
Improper cost allocation 3
Invoices not properly approved as required 16
Expenses not properly supported 28
Excessive/Questionable charges 13
False statements/irregularities 1
In addition to the unsupported project management fees, we
identified $326,260 of other unsupported costs. The
following examples illustrate some of the project
deficiencies:
Invoice No. IC-1443 The invoice pertained to architectural
services provided from September 1 to October 31, 1998,
by Arquitectos Diaz. The services were provided in
association with Domenech, Hicks and Krockmalnic
Architects, a Boston based firm, for the revitalization of the
Manuel A. Pérez project. Arquitectos Diaz charged $7,473
for “Consruction Doc. Phase II” but did not include any
supporting documentation. Other unsupported
reimbursable expenses included reproduction and delivery
charges of $69.
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Finding 4
Invoices Nos. IC-1157 and 1160 The Carrero and
Associates invoices included program and construction
management services provided by Robert S. Prann. The
services included work related to the Villa Panamericana
and Las Orquideas public housing projects for March and
April 1998. The invoices totaled $31,348 and $35,792
respectively. However, the amount related to the housing
projects could not be determined. In January 1998, HUD’s
Headquarters Office of Public Housing notified the PHA
that no public housing funds could be used for the
disposition and redevelopment or the administration of
these two projects. Because adequate documentation was
not maintained to segregate the costs, we question the total
invoice amounts.
Invoice No. 1605 Carrero and Associates claimed its
$56,400 project management fees for August 1999 for the
management of the Gateway Project. Although the fees
claimed agreed with the contract payment schedule, a
required monthly report showing the progress of the project
and other documents indicating the services rendered were
not included in the PHA’s disbursement documentation.
In addition, Carrero and Associates claimed $1,696 as other
relocation costs. Of the costs, $850 was for lodging and
training for two of Carrero’s employees in Philadelphia and
Puerto Rico. An invoice for the hotel lodging totaling $762
was included. The other $88 was for a Basic Access
Program training course attended by another employee.
There was no support to show that these expenses related to
the Gateway Project.
Carrero included a $325 charge from Lanier Puerto Rico,
Inc., with no explanation for the charge.
Invoice No. IC-1431 The invoice noted that a $575 CGP
charge was for relocation coordination services provided by
Freeman and Associates at the Gateway Project in February
1999. However, the PHA’s disbursement voucher did not
contain documentation to support the charges of $285
($95/hr. x 3 hrs.) and $290 for food, lodging, and
transportation by Freeman.
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Finding 4
* * * * * *
As a result of the deficiencies, HUD has no assurance that
CGP funds paid for the Gateway project were used by the
PHA in an effective, efficient and economical manner to
benefit low income persons.
The CGP program “. . . will have appropriate [PHA] staff
Auditee Comments to manage and oversee the program. The Executive Aide
for Management of Capital Improvement will administer
the capital improvement program, including the budget
needs and compliance with program requirements.”
The new administration at the PHA is in the process of
OIG Evaluation of correcting the deficiencies. The OIG will provide the PHA
Auditee Comments the opportunity to review the relevant documents in our
possession to assist in responding to the recommendation.
Recommendations We recommend that you:
4A. Determine, by comparison to similar modernization
or development projects, the reasonableness of the
$1,787,443 paid as of May 1998 for project
management fees.
4B. Determine the proper disposition of remaining
obligated contract amount of $2,105,817 for project
management fees.
4C. Request justification for the $326,260 of
unsupported costs. Recover any unsupported costs
from non-Federal funds.
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Finding 5
The PHA Failed to Maintain an Adequate
Financial Management System
The PHA had no system of internal control. It had an inadequate accounting system, inadequate
disbursement control and recordkeeping, and commingled cash from the various grants. It failed
to meet matching state requirements, and used Federal funds to overcome a shortfall in state
funds. The PHA executed no inventory control over purchases of goods and services for the
HOPE VI Program and failed to monitor its project manager. This situation existed, in our
opinion, because of the PHA’s management was unprepared or incapable of administering the
program and disregarded program requirements. Consequently, the HOPE VI grants were
unauditable, millions in costs are questionable or unsupported, and HUD has no basis for
assurance of economy or efficiency of this project.
The Grant Agreement, Article XIII provides that the PHA
Criteria must keep records in accordance with 24 CFR 85.20 that
facilitate an effective audit to determine compliance with
program requirements, and which fully disclose the amount
and disposition of funds received under the HOPE VI grant,
including sufficient records that document the
reasonableness and necessity of each expenditure.
Title 24 CFR 85.20 provides that accurate, current, and
complete disclosures of the financial results of assisted
activities must be in accordance with financial reporting
requirements of the program. In addition, it requires
accounting records that adequately identify the source and
application of funds provided for financially assisted
activities.
• Inadequate Accounting Records The project
manager, Carrero and Associates, used an accounting
system that did not segregate costs among the three
Federal grant programs. The PHA’s accounting system
was also inadequate. It could not provide a cost ledger
for the HOPE VI funds documenting the line item
numbers according to the HUD approved budget. In
addition, the PHA and its project manager commingled
the HOPE VI funds. In January 1999, Carrero opened
one checking account for all federal funds. The PHA’s
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Finding 5
check register for the HOPE VI Program also showed
that HOPE VI Planning and Implementation grant funds
were commingled and did not identify the grant to
which expenditures related. This was contrary to its
grant agreement.
The PHA made journal entries on its books without any
support. For example, on April 15, 1998, the PHA
made an adjusting journal entry reclassifying $3.9
million of HOPE VI Program costs to various accounts.
The employee who made the adjustment stated that
there were no supporting documents to show which
transactions were affected or how the amounts were
determined.
• Inadequate Disbursement Control and
Recordkeeping Upon requesting HOPE VI records,
we were led to the storage area pictured below. It was
in total disarray, and the PHA did not have any
organization or index of the files maintained there. The
inadequacy of the records storage was also raised in the
1997 Single Audit Report issued in February 1999. The
PHA responded to that audit that a contract was
awarded to organize the documents on the sixth floor
and transfer them to an off-site warehouse. However,
as shown in the photograph taken in July 2000, the
storage area remained in total disarray.
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Finding 5
We noted numerous payment control weaknesses. We
reviewed 54 invoices for the CGP Program for the period of
June 1998 through December 1999 and identified 16
instances in which the responsible PHA official did not
properly approve the invoices. Nine HOPE VI invoices
were not stamped “paid” to avoid resubmission and
duplicate payment.
Findings 1-4 describe numerous examples of improper
disbursement control, lack of adequate documentation, and
payment of ineligible costs. Neither the PHA nor its highly
compensated project manager, Carrero and Associates,
maintained financial systems capable of administering such
large Federal grants. In total, these four findings include
$5.3 million in ineligible costs, $10.5 million in
unsupported costs and $2.3 million in costs to be
reprogrammed (cost efficiency).
• Matching Requirements Not Documented The PHA
could not show that it complied with the matching
requirements contained in the HOPE VI Grant
Agreement. Article VIII of the agreement requires the
PHA to provide contributions for supportive services in
an amount equal to 15 percent of the HOPE VI grant
funds awarded for supportive services under the
Revitalization Plan. The latest HOPE VI budget
approved by HUD reflected $10 million budgeted for
supportive services. Accordingly the matching
contribution should be $1.5 million. Article XVIII
provides that failure to obtain a matching contribution
constitutes a default by the PHA. The $1.5 million
remains owed.
• HOPE VI Program Funds Used to Overcome
Shortfall in State Funds The PHA issued a resolution
on May 12, 1995, authorizing the disbursement of
$149,547 from the HOPE VI Program to pay for
services rendered by Carrero and Associates. The
resolution recognized, retroactively, debts and
expenditures before the HOPE VI contract was
executed. In this case, Carrero submitted the PHA an
invoice for work performed under a Commonwealth
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Finding 5
funded contract executed on December 16, 1994, that
exceeded the Commonwealth’s obligated contract limit.
Through the resolution, the PHA Administrator
authorized HOPE VI funds to pay the shortfall.
Accordingly, the $149,547 charged to the HOPE VI
grant was ineligible.
• Inventory Controls Did Not Exist The PHA
authorized its project manager to make certain
acquisitions related to the administration of the
Gateway project. However, it did not properly record
the goods acquired by Carrero and Associates. The
project manager charged the PHA for the acquisition of
office furniture and equipment, computers, copiers,
motor vehicle, etc. However, PHA officials stated that
the equipment was not included in the PHA’s inventory.
Accordingly, there were no controls to safeguard assets
acquired with Federal funds or to track the final
disposition.
The PHA’s financial system for HOPE VI was in complete
shambles. Cleaning up the accounts and establishing a
system of internal control will necessarily become a priority
of the incoming administration.
“. . . [The PHA] will no longer rely on private contractors to
Auditee Comments manage its programs. The reorganization will create two
new offices - Internal Auditor and Procurement, and
Strategic Planning and Special Projects. The hiring of
Phase I managers is anticipated to be completed by March
31, 2001. The Phase II hiring of support staff is anticipated
to be completed by August 31, 2001. Acceptable
managerial and internal controls will be put in place.
“ . . The Office of Financial Administration will establish
appropriate procedures and internal controls to track grant
expenditures for open grants.”
(See auditee’s response to the draft report Finding No. 6).
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Finding 5
The new administration at the PHA is in the process of
OIG Evaluation of implementing steps toward correcting the deficiencies. The
Auditee Comments OIG will provide the PHA the opportunity to review the
relevant documents in our possession to assist in
responding to the recommendations.
We recommend that you:
Recommendations
5A. Assist the new PHA administration in establishing
acceptable managerial and internal controls to
assure that grants expenditures are documented,
reasonable, and in accordance with grant and
program requirements.
5B. Require the PHA to construct audit trails for all
undocumented Federal grants expenditures, and
review those costs to assure they are eligible and
reasonable.
5C. Require the PHA to provide evidence of compliance
with the HOPE VI matching requirement of $1.5
million.
5D. Require the PHA to reimburse ineligible costs of
$149,547 which it paid to cover the
Commonwealth’s shortfall.
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Management Controls
In planning and performing our audit, we considered the PHA’s management controls to determine
our audit procedures and not to provide assurance on those controls. Management is responsible
for establishing effective management controls to ensure that its goals are met.
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 include the systems
for measuring, reporting, and monitoring program performance.
We determined that the controls most relevant to our objectives pertained to the following:
1. Procedures and practices used to accumulate and charge costs to the programs.
2. Procedures used to comply with Federal and PHA’s procurement requirements.
3. Procedures used to monitor activities of the project manager.
4. Selection and award of contracts.
5. Eligibility of grant activities.
6. Procedures to ensure that personal property is properly accounted for and to maintain
inventory control.
We assessed controls in place. We obtained an understanding of the PHA’s procedures and
HUD’s requirements, assessed control risk, and performed various substantive tests of the
controls.
A significant weakness exists if management controls do not give reasonable assurance that
resource use is consistent with laws, regulations, and policies; that resources are safeguarded
against waste, loss, and misuse; and that reliable data are obtained, maintained, and fairly
disclosed in reports.
Based on our review, we believe that significant weaknesses existed in all of the management
control areas mentioned above. The specific weaknesses are discussed in the findings.
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Follow-Up On Prior Audits
Prior audits have resulted in findings similar to ones in this report, which impacted the objectives
of this audit.
• An OIG audit report (No. 00-AT-201-1003 dated March 6, 2000) on the PHA
procurement administration concluded that the PHA: (1) did not comply with Federal
and agency procurement requirements and did not maintain control over the central office
procurement activities, (2) paid about $4.9 million more than necessary for professional
services provided by two contractors that were contracted without competition and
without performing price and/or cost analysis, (3) did not maintain effective management
controls to deter waste, abuse, and fraud, (it paid invoices without proper authorization or
signed agreements, invoices that were not originals, invoices without proof of delivery,
invoices that exceeded contract limits, unallowable advanced payments, and invoices
without support), and (4) did not maintain adequate inventory. The report contained 4
findings with 19 recommendations. At the time of this review, those findings were
unresolved.
• Single audits of the Department of Housing including the PHA’s FY 1997 (issued August
17, 1998) and 1998 (issued April 30, 1999) financial statements, management controls,
and compliance performed by Price Waterhouse Cooper, LLP found numerous significant
deficiencies. Based on those deficiencies, the firm disclaimed an opinion on the
Department of Housing’s statements. However, in both Single Audit reports, the firm
issued an adverse opinion on compliance. Among the deficiencies reported were that the
PHA: (1) did not properly monitor its Program Manager administering its HOPE VI
Program, (2) could not provide all requested disbursement vouchers and their supporting
documents, (3) processed disbursements without approval of the authorized official, (4)
commingled HOPE VI funds with other funds, (5) had inadequate accounting and
reporting controls to enhance the preparation of timely and reliable statements and federal
financial reports, (6) recorded adjustments in its books, without supporting
documentation, and (7) did not properly safeguard important information and files. The
prior year audits reported similar deficiencies. At September 22, 2000, all the findings
remained open. HUD Caribbean Office staff was in the process of evaluating the
corrective action plan included in the reports.
As discussed in the Findings and Recommendations section of this report, the above conditions
continued to exist. This report stresses the importance of developing and implementing
management controls to ensure that the conditions do not continue.
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Appendix A
Schedule Of Ineligible and Unsupported Costs
and Cost Efficiencies
Cost
Recommendation Ineligible Unsupported Efficiencies
1C $7,200,000
1D 4,049,539
1E 521,561 (521,561)
1F 5,650 (5,650)
1G 248,841
1H $240,033
1J 400,000
2B 736,031
2C 196,206
3A 10,508
3B 923,542
4A 1,787,443
4B 2,105,817
4C 326,260
5C 1,500,000
5D 149,547
Total $5,472,836 $10,555,081 $3,845,850
Ineligible - Costs not allowable by law, regulation, contract, or HUD or local agency policy.
Unsupported - Costs contested because they lack adequate documentation to support eligibility.
Cost Efficiency - An action to prevent an ineligible obligation or expenditure or to increase revenue.
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Appendix B
Summary of HOPE VI Disbursement
Deficiencies (Finding 1)
Check Check Invoice Number Total Invoice Improper Cost Plus a Not Not Stamped
No. Date Amount Account Percentage Properly Paid
Allocation Rate Supported
27 03/06/96 Feb-96 $ 301,965 X X X
2
212 12/31/96 I 96 URD I 06 4,926 X X
2
96 URD-08 13,281 X X
96 URD-1-11 13,612 X X
96 URD-1-10 9,934 X X
URD-1-10.2 128,109 X X X X
URD 1-11.1 77,665 X X X
URD-II-10.2 6,030 X X X
URD-II-11.1 3,418 X X X
405 12/12/97 IC-1060 84,583 X X
2
IC-1057 46,849 X
2
IC-1058 17,510 X X
2
IC-1053 960
IC-1054 173,205 X X X
449 01/07/99 IC-1324 134,868 X X X
IC-1336 192,715 X X X
IC-1341 83,368 X X X
469 05/11/99 IC-1466 158,770 X X X
491 10/05/99 IC-1576 5,262 X
2
505 01/12/00 IC-1662 165,315 X
IC-1645 162,766 X X X
Total $1,785,111 11 13 16 9
2
Included in Finding 1: other vendors $248,841
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Appendix C
Summary of Procurement Deficiencies
(Finding 2)
Costs Not
Improper No Related
Vendor Procurement No Price/ to
Name Amount Description of Process Procurement Cost Excessive HOPE VI
Charged Ineligible Unsupported Goods/Services Used File Analyses Charges Project
COMMUNICAD $ 720,744 $ 720,744 Public relations and X X X X X
coordination efforts,
souvenirs and flower
arrangements,
dinners and
breakfast for public
officials, etc.
Alberic Colon 31,222 8,400 15 Passenger Van for X X
Auto Sales volunteer program.
Title of vehicle
registered to Carrero
and Associates.
Hi-Tech 65,514 $65,514 Computer X
Electronics Equipment for Small
Business Center.
Pietrantoni 12,527 12,527 General Legal X X X X X
Mendez & Services related to
Alavarez relocation of tenants.
Xerox Corporation 8,205 6,810 Coin operated copier X X X X
for Small Business
and Employment
Center.
ROALCA 118,165 118,165 Rehab to temporary X
Construction facilities for Small
Business Center.
(Improvements made
to private property.)
Included installation
of 18 mahogany
doors ($500 each),
air conditioning unit
($21,775), acoustic
ceiling ($10,620),
installation of
wooden walls
($14,700), etc.
AEE 77 77 Electricity Bill- X
Residential Unit of
an Employee of
Carrero and
Associates
Total $956,454 $736,031 $196,206 5 3 3 5 3
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Appendix D
Summary of Public Relations Charges
(Finding 2)
Included Souvenirs,
Charges Stationery,
Not Related T-shirts,
Charges to and Other
Invoice Not Excessive HOPE VI Unnecessary
No. Amount Invoice General Description Supported Charges Project Items
1013 $ 8,842 Monthly retainers for coordination efforts, maps, framing X X
Poster for Governor, photography services, aerial
photographs, etc.
1014 5,463 Press kit, Maps, Poster Artwork, Progressa's Stationery, X X X
Photographs for former Housing Dept. Secretary (Vivoni),
Video Services, Subscription to the Harry Turner PR Report
1015 341 Design Workshop, map copies X
1016 332 Framing 12 Posters X X
1020 8,651 Monthly retainers for coordination with DOH/AVP/HUD, X X X
artwork, reproduction of material, press kits, stationery &
business cards-Progressa, etc.
1021 5,752 Printing Progressa's Stationery, Printing 500 NSJG Posters, X X X
Reproduction of Maps, Photographic and Video coverage
on Governor’s announcement on NSJG, Meeting with John
Soto (PRFFA) and Kevin Marchman (HUD), Meeting at
Los Chavales Restaurant Vivoni-Rodriguez-Progressa's
Team
1022 3,322 Coordination of meeting with public housing resident, X X X
Frame four posters for VIPs, Coordination of Governor's
announcement of NSJG project including pre-event
meeting, etc.
1023 792 Press kit for NSJG press release and audio/video cassettes, X
general information kits, etc.
1025 9,250 Monthly retainers for coordination with DOH/AVP/HUD, X X X
Press Interviews Coordination, Banners Design and Final
Art, Press Release On $400K Planning Grant Award, Press
Package Presentation for Governor's Infrastructure Council,
Coordination of DOH/AVP Booth at LULAC Convention.
1025 3,308 Coordination of activities with HUD representative during X X X
1995 LULAC Convention, Assist in private tour of NSJG
for Vivoni/Cisneros, attendance of corporate event with Leo
Padilla, Ford Motor Co., Choco Mesa, Mary Cisneros,
NSJG stickers, Press Brief Material, Aerial Photographs,
etc.
1025 666 NSJG mission material requested by DOH/AVP for X X X
distribution at LULAC convention, Copy maps, etc.
1026 23,310 Monthly retainers for coordination with DOH/AVP/HUD, X
Fee for coordinating Fraternization Activity, Cash Advance
($10,000) for activity expense (see invoice #1030 for related
expenses), Expense related to NSJG public relation
program, etc.
1027 1,398 Salaries paid to volunteers during Fraternization Activity
1028 11,172 Monthly retainers for coordination with DOH/AVP/HUD, X X X
logo sheets, stationery, posters, labels, expenses incurred
during meeting with DOH Communications Dir.,
Coordination of breakfast for Congressional Staff visiting
the island (see invoice 1031 for additional charges).
1030 1,505 Fraternization Day Event-logos for T-shirts, 1,284 T-shirts, X X
15 walkie-talkies, flyers, baseballs, whistles, 15 water
coolers, lunches, name tags, supplies to decorate stage, etc.
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Summary of Public Relations Charges (Finding 2)
Included Souvenirs,
Charges Stationery,
Not Related T-shirts,
Charges to and Other
Invoice Not Excessive HOPE VI Unnecessary
No. Amount Invoice General Description Supported Charges Project Items
1031 269 Breakfast for 15 Congressional Staff members and PR X X
Federal Affairs Administration at Ambassador Hotel (see
invoice #1028 for related charges).
1032 27,034 Monthly retainers for coordination with DOH/AVP/HUD, X X X
Fee for Coordinating Fraternization Activity (see invoice
1026 for additional fee charged) Artwork-banners & flyers,
medals, Maps, Photographic Services, General Copies, etc.
1032 975 NSJG stationery, Flyers, etc. X X
1034 4,629 Expenses regarding Washington DC trip for meetings with X X
HUD officials and Congressional Hispanic Caucus, and
Coordination of meeting and attendance of events in
representation of NSJG (included floral arrangement to
Kevin Marchman, $840 dinner at Taberna del Alabardero
Rest. with Carlos Vivoni, Miguel Rodriguez, and Police
Superintendent Pedro Toledo)
1035 14,591 Monthly retainers for coordination with DOH/AVP/HUD, X X X X
Shipping charges-caps, Trophies, Maps, NSJG Stationery,
Meeting with Ana Maria Montalvo, sound system,
refreshments, posters, stateside newspaper
1036 5,086 NSJG T-shirts (360) and NSJG Polos (144) X X
1037 4,434 Deposit on water bottles, Breakfast with Jaime Fonalledas, X X X
Meeting US Developer/Wilma Inc., Event Meeting of
Fraternization Day Event-decorations, Housing Week
Event-decorations (banners, pencils, flowers, photographic
services, key chain, stickers, etc.)
1039 594 Event Expenses-balloons, meals, ice, parking key chains, X X
NSJG Stationery, Maps, NSJG pin sample
1043 13,653 Monthly retainers for coordination with DOH/AVP/HUD, X X X
Metro data copies of NSJG Maps, photography services
during events, Artwork flyers, NSJG Stationary and Logo
1044 7,855 Event-HIV, Artwork-AE Design Service & Support X X X
Services/Training Coordinator ad, Shipping Charges-NSJG
caps, NSJG sticker, RFP Publication, Publication of Supt.
Services/Training Coordinators Ad
1045 867 Videos and Flyers X X
1047 1,852 Video services for Villa Panamericana, 250 caps, X X X
shipping/duty charges on caps, artwork for pins
1051 13,259 Monthly retainers for coordination with DOH/AVP/HUD, X X X X
video services for HIV and No More Violence Day,
Photography Services, Coordination meeting Vivoni-
Rodriguez, Flyers, NSJG logo, Maps, Aerial photos
1054 704 Metro Data-maps "Economic Development", Training X
Session at Ramos Antonini-Catering Services 12/12,12/13
1057 20,638 Coordination Fees for communication efforts for X X
Crisantemos I & II, Villa Panamericana and Las Orquideas,
RFQ Brochure, Audiovisuals -10 copies of Channel 6 NSJG
news feature and demolition tape, Expenses for NSJG
Meetings, etc.
1059 46,301 Coordination Fees for communication efforts for X
Crisantemos I & II, RFQ Villa Panamericana, Demolition
bid advertisement, NSJG Employment advertisement, Press
Briefing, etc.
1060 6,067 Exhibit at State Capitol Building, Architects Luncheon, X X X
Photographic services, Breakfast Meetings with DOH/AVP
, etc.
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Summary of Public Relations Charges (Finding 2)
Included Souvenirs,
Charges Stationery,
Not Related T-shirts,
Charges to and Other
Invoice Not Excessive HOPE VI Unnecessary
No. Amount Invoice General Description Supported Charges Project Items
1062 29,352 RFQ For Villa Panamericana, Printing, Ads, Aerial Photos, X X
Press Conference
1064 27,123 Coordination fee for communication efforts, Photographer, X X X
NSJG Administrative meetings, NSJG Banner and Podium
Banner, Press Kit.
1065 517 HUD photocopies of photographs requested by Planning X X
Department, Deposit on NSJG Field Office Signs,
Subscription Renewal
1066 923 RFQ design and artwork for Villa Panamericana project (state X X
funded activity)
1068 649 NSJG Administrative Meeting, Pencils, NSJG Newsletter- X X
Sacred Heart Reporters
1070 21,250 Coordination fee for communication efforts, NSJG News X X X
letter, Crisantemos II Demolition, Pin artwork, Newsletter
print
1073 33,254 Coordination Fees for communication efforts, photographic X X
services Vivoni's Recognition Plaque, pins, NSJG meetings,
Press Clippings, Stationery, etc.
1075 75,507 Coordination of internal/external communication efforts X X X
related to NSJG, Crisantemos I & II implosion event, 1,200
T-shirts & Polos, caps, 204 hard hats, pencils, catering
services, press kits, stages & tents, banners, sound system,
breakfast, etc.
1078 4,589 Pens, Erasers, NSJG Gen. Inf. Kit, NSJG Pin artwork, X X
Expenses for NSJG work team meetings, flyers, NSJG
Newsletter
1079 76,730 Crisantemos II Implosion Event- sound system, artwork, X X X
stages, tents, T-shirts, press conference, catering services,
banners
1080 39,804 Crisantemos I Implosion- Catering services for meetings, X X
stages, tents, T-shirts, breakfast, chairs, tables, sound system,
dust masks
1081 49,161 Coordination of internal/external communications efforts X X
related to NSJG, coordination and execution of Crisantemos
II implosion
1082 15,653 Crisantemos I meeting at DOH & police, notepads, aerial X X
video, breakfast, Large TV Screens, 1,600 caps, 1,094 T-
shirts, photographer, audiovisual, and event
staff/coordinators/supervisors
1085 21,816 Coordination of internal/external communication services X X X
related to NSJG initiative, coordination and execution of
Crisantemos I & II implosion, labels, sound system,
implosion as-work, work team and staff meetings,
photographic services
1087 10,032 Coordination of internal/external communications efforts X X
related to NSJG, photo services, press conference meeting at
Caribe Hilton $1,770. Work performed by third parties had
15-18% mark-up.
1088 17,644 Coordination of internal/external communications efforts X X X
related to NSJG, photo & video services, printing services,
catering services, etc.
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Summary of Public Relations Charges (Finding 2)
Included Souvenirs,
Charges Stationery,
Not Related T-shirts,
Charges to and Other
Invoice Not Excessive HOPE VI Unnecessary
No. Amount Invoice General Description Supported Charges Project Items
1091 14,711 Coordination of internal/external communications efforts X X X
related to NSJG, press release Crisantemos II clean up, photo
services, task force meeting, refreshments, name tags,
reproduction services, etc.
1093 11,820 Coordination of internal/external communications efforts X X
related to NSJG, photo & video services, task force meeting
coordination, reproduction services, etc.
1098 9,575 Coordination of internal/external communications efforts X X
related to NSJG, coordination of community fair,
coordination of radio program, orientation to PHA
communication dir., photo services, reproduction services,
etc.
1099 7,722 Coordination of internal/external communication efforts, X X X
copies for survey, videos, diskette with Secretary Alemany
Changes, Design/Art for flyers and T-shirts
Total $720,744 50 4 28 41
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Appendix E
Summary of CGP Disbursement Deficiencies
(Finding 4)
Improper Invoice Not Expense Not Excessive/ False
Check Check Invoice Invoice Cost Properly Properly Questionable Statement/ Amount
No. Date Number Amount Allocation Approved Supported Charges Irregularities Unsupported
2560 06/27/98 IC-1155 $6,934
IC-1157 31,348 X X $31,348(b)
IC-1160 35,792 X X 35,792(b)
IC-1164 58,834 X X 48,630(b)
IC-1170 60,337 0
IC-1180 43,257 X 43,257(b)
IC-1192 105,816 X X 105,816
2816 10/06/98 IC-1260 57,680 X X 40,859
IC-1261 26,904 X 0
IC-1266 21,108 X 21,108
IC-1270 22,216 X X 22,216
IC-1271 291,594 X X X 291,594
3244 05/12/99 IC-1413 95 X X 95(b)
IC-1418 31,603 X X 31,603
IC-1431 575 X X (a)
IC-1433 28,101 0
IC-1435 30,411 X 30,411
IC-1442 17,433 X 17,433(b)
IC-1443 9,094 X X 7,542(b)
IC-1451 20,261 X 20,261(b)
IC-1452 20,261 X 20,261(b)
IC-1453 20,261 X 20,261(b)
IC-1454 20,261 X 20,261(b)
IC-1455 20,261 X 20,261
IC-1465 46,618 X X 45,802
IC-1471 149,374 0
IC-1439 550 0
IC-1414 1,520 0
IC-1449 638,479 0
3551 09/28/99 IC-1559 57,388 X X 56,400
IC-1592 1,335 0
IC-1596 280,302 0
IC-1584 58,680 X X X 57,099
3612 10/20/99 IC-1598 303,713 X 0
IC-1599 76,209 X 0
IC-1601 3,425 0
IC-1605 58,097 X X X 57,575
IC-1607 8,717 X 0
IC-1608 68,487 X 0
IC-1613 281,169 X 0
3615 10/26/99 IC-1611 365,040 X 0
IC-1617 675 X 0
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Summary of CGP Disbursement Deficiencies (Finding 4)
Improper Invoice Not Expense Not Excessive/ False
Check Check Invoice Invoice Cost Properly Properly Questionable Statement/ Amount
No. Date Number Amount Allocation Approved Supported Charges Irregularities Unsupported
3735 12/22/99 IC-1614 8,717 X 0
IC-1641 8,717 X 0
IC-1664 106,953 X 0
IC-1668 8,717 X 0
IC-1670 228,720 X 0
IC-1671 238,224 X 0
2634 07/31/98 IC-1168 122,972 X X 122,972
IC-1172 103,228 X 103,228
IC-1176 1,400 0
IC-1184 750 0
IC-1204 96,595 X 96,595
IC-1205 24,658 X 24,658
Total 54 4,329,866 3 16 28 13 1 1,393,338
Note: (a) $575 was disallowed in Finding 3.
(b) $326,260 – other unsupported costs
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Appendix F
Auditee Comments
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Auditee Comments
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Auditee Comments
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Auditee Comments
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Auditee Comments
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Auditee Comments
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Appendix G
HUD Comments
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HUD Comments
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HUD Comments
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HUD Comments
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Appendix H
Distribution
Acting General Deputy Assistant Secretary for Public and Indian Housing, P (Room 4100)
Director, Puerto Rico Public Housing Administration
Secretary, S
Deputy Secretary, SD (Room 10100)
Chief of Staff, S (Room 10000)
Assistant Secretary for Administration, S (Room 10110)
Acting Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Deputy Assistant Secretary, Office of Public Affairs, S, (Room 10132)
Deputy Assistant Secretary for Administrative Services, Office of the Executive Secretariat, AX
(Room 10139)
Deputy Assistant Secretary for Intergovernmental Relations,
Acting Deputy Chief of Staff, S (Room 10226)
Deputy Chief of Staff for Policy, S (Room 10226)
Deputy Chief of Staff for Programs, S (Room 10226)
Special Counsel to the Secretary, S (Room 10234)
Senior Advisor to the Secretary, S
Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
Executive Officer for Administrative Operations and Management, S (Room 10220)
General Counsel, C (Room 10214)
Assistant Secretary for Housing/Federal Housing Commissioner, H (Room 9100)
Assistant Secretary for Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, D (Room 7100)
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Office of Government National Mortgage Association, T (Room 6100)
Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Director, Office of Departmental Equal Employment Opportunity, U
Chief Procurement Officer, N (Room 5184)
Director, Office of Departmental Operations and Coordination, I (Room 2124)
Office of the Chief Financial Officer, F (Room 2202)
Chief Information Officer, Q (Room 3152)
Acting Director, HUD Enforcement Center, V, 1250 Maryland Avenue, SW, Suite 200
Acting 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
Inspector General, G (Room 8256)
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Distribution
Secretary's Representative, 4AS
State Coordinator, Puerto Rico Area Office, 4NS
Director, Office of Public Housing, 4NPH
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)
Stanley Czerwinski, Associate Director, Resources, Community, and Economic Development
Division, U.S. GAO, 441 G Street N.W., Room 2T23, Washington DC 20548
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
Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, O, 1700 G Street, NW,
Room 4011, Washington, DC 20552
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Palm Beach County Division of Human Services Supportive Housing Grant, West Palm Beach, Florida
Published by the Department of Housing and Urban Development, Office of Inspector General on 2000-12-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)