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. Table of Contents Exit Management Memorandum (This Page Left Blank Intentionally) 2001-AT-1004 Page ii Table of Contents Exit 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. Page iii 2001-AT-1004 Table of Contents Exit Exit 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, 2001-AT-1004 Page iv Table of Contents Exit Exit 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. Page v 2001-AT-1004 Table of Contents Exit Exit Executive Summary (This Page Left Blank Intentionally) 2001-AT-1004 Page vi Table of Contents Exit Exit Table of Contents 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 Page vii 2001-AT-1004 Table of Contents Exit Exit Table of Contents 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 2001-AT-1004 Page viii Table of Contents Exit Exit 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. Page 1 2001-AT-1004 Table of Contents Exit Exit 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 2001-AT-1004 Page 2 Table of Contents Exit Exit 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. Page 3 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 4 Table of Contents Exit Exit 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. Page 5 2001-AT-1004 Table of Contents Exit Exit Introduction 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. 2001-AT-1004 Page 6 Table of Contents Exit Exit 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. Page 7 2001-AT-1004 Table of Contents Exit Exit 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 2001-AT-1004 Page 8 Table of Contents Exit Exit 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: Page 9 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 10 Table of Contents Exit Exit 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. Page 11 2001-AT-1004 Table of Contents Exit Exit 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 2001-AT-1004 Page 12 Table of Contents Exit Exit 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 Page 13 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 14 Table of Contents Exit Exit 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 Page 15 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 16 Table of Contents Exit Exit 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. Page 17 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 18 Table of Contents Exit Exit 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. Page 19 2001-AT-1004 Table of Contents Exit Exit 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). 2001-AT-1004 Page 20 Table of Contents Exit Exit 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. Page 21 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 22 Table of Contents Exit Exit 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.” Page 23 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 24 Table of Contents Exit Exit 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. Page 25 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 26 Table of Contents Exit Exit 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: Page 27 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 28 Table of Contents Exit Exit 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.” Page 29 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 30 Table of Contents Exit Exit 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 Page 31 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 32 Table of Contents Exit Exit 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. Page 33 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 34 Table of Contents Exit Exit 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 Page 35 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 36 Table of Contents Exit Exit 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 Page 37 2001-AT-1004 Table of Contents Exit Exit 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). 2001-AT-1004 Page 38 Table of Contents Exit Exit 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. Page 39 2001-AT-1004 Table of Contents Exit Exit Finding 5 (This Page Left Blank Intentionally) 2001-AT-1004 Page 40 Table of Contents Exit Exit 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. Page 41 2001-AT-1004 Table of Contents Exit Exit Management Controls (This Page Left Blank Intentionally) 2001-AT-1004 Page 42 Table of Contents Exit Exit 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. Page 43 2001-AT-1004 Table of Contents Exit Exit Follow-Up On Prior Audits (This Page Left Blank Intentionally) 2001-AT-1004 Page 44 Table of Contents Exit Exit 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. Page 45 2001-AT-1004 Table of Contents Exit Exit Schedule Of Ineligible and Unsupported Costs and Cost Efficiencies (This Page Left Blank Intentionally) 2001-AT-1004 Page 46 Table of Contents Exit Exit 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 Page 47 2001-AT-1004 Table of Contents Exit Exit Summary of HOPE VI Disbursement Deficiencies (Finding 1) (This Page Left Blank Intentionally) 2001-AT-1004 Page 48 Table of Contents Exit Exit 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 Page 49 2001-AT-1004 Table of Contents Exit Exit Summary of Procurement Deficiencies (Finding 2) (This Page Left Blank Intentionally) 2001-AT-1004 Page 50 Table of Contents Exit Exit 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. Page 51 2001-AT-1004 Table of Contents Exit Exit 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. 2001-AT-1004 Page 52 Table of Contents Exit Exit 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. Page 53 2001-AT-1004 Table of Contents Exit Exit 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 2001-AT-1004 Page 54 Table of Contents Exit Exit 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 Page 55 2001-AT-1004 Table of Contents Exit Exit 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 2001-AT-1004 Page 56 Table of Contents Exit Exit Appendix F Auditee Comments Page 57 2001-AT-1004 Table of Contents Exit Exit Auditee Comments 2001-AT-1004 Page 58 Table of Contents Exit Exit Auditee Comments Page 59 2001-AT-1004 Table of Contents Exit Exit Auditee Comments 2001-AT-1004 Page 60 Table of Contents Exit Exit Auditee Comments Page 61 2001-AT-1004 Table of Contents Exit Exit Auditee Comments 2001-AT-1004 Page 62 Table of Contents Exit Exit Appendix G HUD Comments Page 63 2001-AT-1004 Table of Contents Exit Exit HUD Comments 2001-AT-1004 Page 64 Table of Contents Exit Exit HUD Comments Page 65 2001-AT-1004 Table of Contents Exit Exit HUD Comments (This Page Left Blank Intentionally) 2001-AT-1004 Page 66 Table of Contents Exit Exit 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) Page 67 2001-AT-1004 Table of Contents Exit Exit 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 2001-AT-1004 Page 68 Table of Contents Exit Exit
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)