oversight

City of Meriden Housing Authority, Meriden, Connecticut

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-05-21.

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

      AUDIT REPORT




CITY OF MERIDEN HOUSING AUTHORITY

      MERIDEN, CONNECTICUT

            2001-BO-1005

            MAY 21, 2001


     OFFICE OF AUDIT, NEW ENGLAND
        BOSTON, MASSACHUSETTS
                                                                   Issue Date
                                                                           May 21, 2001

                                                                   Audit Case Number
                                                                           2001-BO-1005




TO: Donna J. Ayala, Director, Office of Public Housing, Massachusetts State Office, 1APH



FROM: William D. Hartnett, District Inspector General, Office of Audit, 1AGA


SUBJECT:       Housing Authority of the City of Meriden
               Meriden, Connecticut


We performed a review of the Low-Income Public Housing and Section 8 Programs of the Housing
Authority of the City of Meriden, Connecticut (PHA). The objective of our review was to determine if
the PHA’s management of its public housing and Section 8 activities is effective and provides decent,
safe and sanitary housing for its tenants.

The report contains two findings: 1) the PHA has not strictly followed procurement requirements and 2)
the PHA has not administered its Section 8 Certificate and Voucher programs in an effective and
efficient manner.

Within 60 days, please provide us a status report on: (1) the corrective action taken; (2) the proposed
corrective action and the date to be completed; or (3) why action is not considered necessary. Also,
please furnish us with copies of any correspondence or directives issued related to this audit.

If you have any questions, please contact our office at (617) 565-5259.
Management Memorandum




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2001-BO-1005              Page ii
Executive Summary
We performed an audit of the Low-Income Public Housing (LIPH) and Section 8 Programs of the
Housing Authority of the City of Meriden, Connecticut (PHA). The purpose of our review was to
determine if the PHA’s management of its public housing and Section 8 activities is effective and
provides decent, safe and sanitary housing for its tenants. Specifically, to determine whether the PHA
is:

   Ø Using its resources and managing its programs and operations efficiently, effectively, and
     economically; and

   Ø Complying with the terms and conditions of its Annual Contributions Contract (ACC),
     applicable laws, HUD regulations, and other applicable directives.




                                       Our review disclosed that the PHA has not strictly followed
 Audit Results                         procurement requirements. Furthermore, the PHA has not
                                       administered its Section 8 Existing Certificate and Voucher
                                       programs in an efficient and effective manner.

                                       The PHA has not maintained a procurement contract
                                       administration system that would readily identify their
                                       contracting activity, contract amounts, or outstanding obligations
                                       on unfinished contracts. Our review disclosed that the PHA
                                       often did not obtain the required verbal or written quotations,
                                       utilized multiple purchase orders instead of formally contracting,
                                       and did not always maintain sufficient records to detail the
                                       history of its procurements. As a result, the PHA cannot assure
                                       itself or HUD that it obtained the most advantageous prices in
                                       its procurement of goods and services.

                                       The PHA also needs to improve its administration of the
                                       Section 8 Programs. The PHA’s Section 8 Certificate and
                                       Voucher programs were under-utilized. The lease-up rates
                                       during fiscal years (FYs) 1998 through 2000 averaged 85
                                       percent, less than the 95 percent desired by HUD. In addition,
                                       the PHA received $23,242 in excess subsidy from HUD in the
                                       form of ongoing administrative fees for which the PHA was not
                                       entitled during FY 1999. The PHA improperly calculated
                                       earned ongoing administrative fees by including incoming
                                       portable units and units not supported by Housing Assistance
                                       Payment contracts.



                                           Page iii                                         2001-BO-1005
Executive Summary


                             We are recommending that your office require the PHA to
 Recommendations             establish adequate procurement management controls to
                             identify, track, and monitor contract awards and establish
                             service contracts for its reoccurring service needs through
                             formal solicitation. Furthermore, the PHA should be required
                             to establish controls over the calculation of ongoing
                             administrative fees and return any excess subsidy claimed.
                             Since the PHA indicated in its response to the draft audit report
                             that the lease utilization rate has increased, no recommendation
                             is required.

                             The findings were discussed with the PHA during the course of
 Findings and                the audit. On March 16, 2001, we provided the PHA a copy
 Recommendations Discussed   of the draft audit report for comment. An exit conference was
                             held at the PHA on April 17, 2001 at which time we received
                             the PHA’s response. The PHA generally agreed with the
                             contents of the report but noted improvements. Appropriate
                             revisions were made where deemed necessary. We have
                             included pertinent comments of the PHA’s response in the
                             Findings section of the report and Appendix B.




2001-BO-1005                     Page iv
Table of Contents
Management Memorandum                                           i



Executive Summary                                              iii



Introduction                                                   1



Findings

  1. PHA Did Not Follow Procurement Requirements           5


  2. PHA Needs To Improve Administration of Its
     Section 8 Programs                                   15



Management Controls                                  19



Appendices
  A Schedule of Ineligible Costs                        21


  B Auditee Comments                                      23

  C Distribution                                          27




                              Page v               2001-BO-1005
Table of Contents


Abbreviations

ACC             Annual Contributions Contract
CEO             Chief Executive Officer
CFP             Capital Fund Program
CFR             Code of Federal Regulations
CGP             Comprehensive Grant Program
FY              Fiscal Year
HAP             Housing Assistance Payments
HOPE            Housing Opportunities for People Everywhere
HUD             U.S. Department of Housing and Urban Development
IPA             Independent Public Accountant
LIPH            Low-Income Public Housing
PHA             Housing Authority of the City of Meriden
PHAS            Public Housing Assessment System
PIH             Public and Indian Housing
QHWRA           Quality Housing Work Responsibility Act
REAC            Real Estate Assessment Center
SEMAP           Section 8 Management Assessment Program




2001-BO-1005                             Page vi
Introduction
The Housing Authority of the City of Meriden, Connecticut (PHA) was created pursuant to Section 8-
40 of the Connecticut General Statutes. The PHA’s offices are located at 22 Church Street, Meriden,
Connecticut 06451. The PHA provides low rent housing for qualified individuals in accordance with
rules and regulations prescribed by the United States Department of Housing and Urban Development
(HUD) in accordance with the United States Housing Act of 1937, as amended. The PHA is governed
by a five-member Board of Commissioner (appointed by the Mayor of the City of Meriden) which is
chaired by Michael Quinn. The Chief Executive Officer, W. James Rice, is responsible for the
administration of PHA operations.

The PHA operates both federally and non-federally assisted housing programs through the same Board
of Commissioners and staff. As of September 30, 2000, the PHA was administering 1,096 Federal
units, 485 low-income public housing (LIPH) units and 611 Section 8 units. The PHA was also
administering 255 State units, 40 elderly units and 215 moderate rental units.

In November of 1998, the PHA suffered a computer system “crash”. Consequently, the PHA had to
convert to a new computer system. The PHA has experienced persistent problems with the start-up of
its new system and has not been able to produce the necessary reports that HUD requires. The PHA
continues to work with the software provider to improve the functionality of their computerized system
and plans to continue its efforts until such time as all problems are resolved.

Through ineffective management of the Comprehensive Grant Program (CGP), the PHA lost $689,769
in grant funds through recapture by HUD in fiscal year (FY) 2000. This occurred because the PHA did
not obligate CGP funds within the two-year timeframe permitted under HUD regulations. As a result,
the former Director of Modernization resigned on May 12, 2000 and the PHA contracted with a
consulting firm to administer its CGP. The PHA hired a new Director of Modernization during the
month of December 2000 and continues to work with the HUD Connecticut State Office, Office of
Public Housing, to avoid future recapture of CGP funds.

The PHA is considering pursuing demolition of its Mills Memorial Apartments development through a
grant under HUD’s Housing Opportunities for People Everywhere (HOPE) VI Program. The PHA
intended on submitting a HOPE VI grant application during the spring of 2000, but met heavy resistance
from its residents, as well as the Connecticut Civil Liberties Union. The PHA’s HOPE VI Consultant
recommended that the PHA delay the application submission for a year until the spring of 2001 due to
the resident opposition and the possible detrimental impact the recapturing of CGP funds by HUD might
have on the PHA’s chances of receiving a competitive HOPE VI grant. Currently, the PHA has put its
HOPE VI grant application submission plans on hold.




                                            Page 1                                        2001-BO-1005
Introduction




                    The overall audit objective was to determine if the PHA’s
 Audit Objectives   management of its public housing and Section 8 activities is
                    effective and provides decent, safe and sanitary housing for its
                    tenants. Specific audit objectives were to determine whether
                    the PHA is:

                    Ø Using its resources and managing its programs and
                      operations efficiently, effectively, and economically; and

                    Ø Complying with the terms and conditions of its Annual
                      Contributions Contract, applicable laws, HUD regulations,
                      and other applicable directives.

                    The audit was conducted between August 2000 and January
 Audit Scope and    2001, and covered the period October 1, 1997 through July
 Methodology        31, 2000. The audit period was extended, where necessary, to
                    meet our objectives.

                    To accomplish the audit objectives, we reviewed procedures
                    and tested compliance as follows:

                    Ø Reviewed Federal requirements including Code of Federal
                      Regulations, HUD Handbooks, Public and Indian Housing
                      Notices and Directives.

                    Ø Reviewed the PHA’s organizational and administrative
                      structure, administrative plans and personnel policies, the
                      recorded minutes of the Board of Commissioners meetings,
                      and procurement and maintenance policies.

                    Ø Reviewed Independent Public Accountant reports for FYs
                      1997, 1998 and 1999, and PHA financial books and
                      records for FYs 1998, 1999 and 2000.

                    Ø Reviewed HUD Public Housing Assessment System
                      reports for FYs 1999 and 2000 including inspection reports
                      prepared by HUD’s Real Estate Assessment Center
                      (REAC).

                    Ø Reviewed files maintained by the U.S. Department of
                      Housing and Urban Development relating to the PHA.

2001-BO-1005             Page 2
                                                 Introduction



Ø Selected and reviewed 24 of the PHA’s procurements (17
  under small purchase procedures (less than $20,000) and 7
  under sealed bid or competitive/noncompetitive proposal
  procedures (above $20,000)), as well as the procurement
  of 2 professional consultants, Secour Associates, LLC
  (CGP Consultant) and Cornerstone Housing, LLC (HOPE
  VI Consultant).

Ø Examined the PHA’s annual public housing unit inspection
  reports and REAC physical inspection reports, work
  orders, and other maintenance documentation.

Ø Calculated the PHA’s Section 8 program lease-up rates for
  FYs 1998, 1999 and 2000 in accordance with HUD
  regulations to determine if the PHA’s Section 8 programs
  met the 95 percent lease-up rate threshold.

Ø Examined the PHA’s computation and support for Section
  8 earned ongoing administrative fees for FYs 1998 and
  1999 to determine if fees claimed by the PHA were
  reasonable.

Ø Reviewed various CGP expenditure reports and
  Performance and Evaluation Reports to assess the PHA’s
  short/long range plans for its three Federal developments
  and selected 9 expenditures to ensure CGP eligibility.

Ø Reviewed documentation and correspondence regarding
  the PHA’s decision to seek demolition of its Mills Memorial
  Apartments development through the pursuit of a HOPE VI
  Grant to determine the reasonableness of the PHA’s
  decision.

Ø Interviewed the PHA’s Chief Executive Officer and
  applicable staff, and staff from the HUD, Connecticut State
  Office, Office of Public Housing as necessary.

Our audit was conducted in accordance with generally
accepted government auditing standards.




    Page 3                                       2001-BO-1005
Introduction




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2001-BO-1005     Page 4
                                                                                               Finding 1


                          PHA Did Not Follow
                        Procurement Requirements
Although the Housing Authority of the City of Meriden’s (PHA) procurement policy meets HUD
requirements, the PHA does not follow it. Specifically the PHA: cannot readily provide information
regarding whom it has contracted with, for how long or for how much, and whether those contracts are
expiring or have expired; did not obtain the necessary written/verbal quotations; and utilized multiple
purchase orders for the same service instead of formal contracting. Further, the PHA did not properly
identify or use evaluation factors with its competitive procurements or adequately document the
contracting process. Consequently, the PHA cannot assure HUD that it used full and open competition
to obtain the best available prices in its procurement of goods and services.




                                       HUD Regulations on Administrative Requirements for Grants
 HUD Procurement                       and Cooperative Agreements with State, Local and Federally
 Requirements                          Recognized Indian Tribal Governments contain Federal
                                       procurement standards (24 CFR 85.36). These regulations, in
                                       part, require the grantees:

                                       Ø Maintain a contract administration system, which ensures
                                         that contractors perform in accordance with the terms,
                                         conditions, and specifications of their contracts or purchase
                                         orders (24 CFR 85.36(b)(2));

                                       Ø Maintain sufficient records to detail the significant history of
                                         a procurement to show the rationale for the method of
                                         procurement, selection of contract type, contractor
                                         selection or rejection, and the basis for the contract price
                                         (24 CFR 85.36(b)(9));

                                       Ø Conduct all procurement in a manner to provide full and
                                         open competition (24 CFR 85.36 (c)(1));

                                       Ø Be placed on pre-award review when their system fails to
                                         comply with HUD’s required procurement standards (24
                                         CFR 85.36(g)(2)).

                                       As required by HUD Regulations, the PHA adopted its own
                                       Procurement Policy (Policy), which complies with HUD
                                       procurement regulations and HUD Handbook 7460.8 –

                                            Page 5                                          2001-BO-1005
Finding 1


                            Procurement Handbook for Public Housing Agencies. The
                            Policy provides that all procurement transactions be
                            administered by the Executive Director (currently the Chief
                            Executive Officer), or official designated by the Executive
                            Director. The Policy, however, has not been updated since its
                            creation on July 29, 1991.

                            The PHA did not maintain a contract administrative system that
 Contract Administrative    would readily identify contracting activity, contract amounts, or
 System Not Maintained      outstanding obligations on unfinished contracts. Prior to June
                            2000, the PHA’s former Director of Modernization did
                            maintain a hand-written purchase order ledger dating back to
                            mid 1999. However, the purchase order ledger did not always
                            indicate the goods or services provided, the amount paid or, the
                            date of the procurement.

                            Upon the former Director of Modernization’s resignation on
                            May 12, 2000, the PHA contracted with a Consultant to
                            administer the PHA’s Comprehensive Grant Program (CGP).
                            The CGP Consultant created an expenditure report in an effort
                            to identify all of the PHA’s CGP expenditures from program
                            inception (Fiscal Year 1993). From the expenditure report, we
                            identified a total of $1,035,991 expended during the audit
                            period of October 1, 1997 though July 31, 2000.

                            We selected seventeen procurements under small purchase
  Quotations Not Obtained   procedures between $25 and $20,000 (total obligation of
                            $36,413 per purchase orders/contracts). With the exception of
                            just two procurements, the PHA did not adhere to its own
                            Policy or HUD procurement regulations. The PHA did not
                            obtain the required verbal or written quotes for 12 of the
                            purchases and no documentation could be located for the other
                            3. Verbal and written quotations serve to ensure that there is
                            free and open competition and also to avoid the notion that
                            there may be selective favoritism. Without sufficient records to
                            detail the history of a procurement, including the necessary
                            verbal or written quotations, the PHA cannot assure itself or
                            HUD that goods and services were obtained at the most
                            advantageous prices.

                            Services aggregating greater than the PHA’s established
 Multiple Purchase Orders   threshold shall not be broken down into several purchases that
 Used for Same Service      are less than the limit merely to permit a contract under the small

2001-BO-1005                     Page 6
                                                        Finding 1


purchase procedures. If there is a recurring need for services
or supplies, that is estimated to go over the threshold applicable
to the PHA, sealed bidding or competitive proposal procedures
shall be used rather than small purchase procedures (HUD
Handbook 7460.8, REV-1, Section 4-3(A)).

The PHA’s Purchasing and Procurement Agent advised that
because procurement of small purchases had not been
adequately documented in the past, the PHA did not know
when formal contracting procedures were applicable. A system
is currently being developed which would allow the PHA to
determine when formal contracting procedures should be
utilized.

Our review disclosed two instances where formal contracting
procedures should have been used, where only the purchase
order procedure was used. The aggregate amount of payments
to each vendor were over $20,000, the established PHA dollar
threshold separating small purchases from sealed bid and
competitive proposal requirements:

-   The PHA expended $39,503 (representing seven
    disbursements between $425 and $22,065) during a
    fourteen-month period from August 1999 through
    September 2000 for tree services.

-   The PHA expended $24,225 (representing seven
    disbursements between $1,000 and $7,000) during the
    eleven-month period from December 1999 through
    October 2000 for painting services.

The PHAs Purchasing and Procurement Agent advised no
formal contracts were executed for these venders.

Typically, a PHA can get lower prices when a larger volume is
required or larger quantities are purchased. By procuring
reoccurring goods and services on an as-needed basis
throughout the year, the PHA has no assurance it is obtaining
the most advantageous prices available. Whenever possible,
the PHA should solicit competitive price or rate quotes from an
adequate number of qualified sources.



     Page 7                                          2001-BO-1005
Finding 1


                             When procuring Professional Services, PHAs must follow HUD
 Professional Services Not   regulations and use the competitive proposals method, in which
 Documented                  price is evaluated together with other criteria to choose the
                             proposal offering the best value to the PHA (HUD Handbook
                             7460.8, REV-1, Section 4-27(B)(1)). HUD regulations further
                             require that “Requests for Proposals” be publicized and identify
                             all evaluation factors and their relative importance, and that
                             proposals be solicited from an adequate number of sources (24
                             CFR 85.36 (d)(3)(i) and (ii)). The PHA did not adhere to
                             these procurement regulations for two consultants (the CGP
                             Consultant previously referred to and a Housing Opportunities
                             for People Everywhere (HOPE) VI Consultant). As a result,
                             there is no assurance that the PHA obtained the best possible
                             service available.

                             The PHA procured the services of a CGP Consultant based on
                             a recommendation by the Deputy Director of the Housing
                             Authority of the City of Stamford, Connecticut without the
                             benefit of formal advertising. An Agreement for Consulting
                             Services was executed on June 6, 2000 at an hourly rate of
                             $75/hour. The PHA’s Chief Executive Officer advised that he
                             considered one additional firm but he could not provide the
                             evaluation factors utilized in selecting one firm over the other.
                             We were further advised by the Chief Executive Officer that the
                             firm not selected was never interviewed for the position, but a
                             resume was submitted for the PHA’s evaluation. The PHA’s
                             Chief Executive Officer advised that he had no prior working
                             relationship with the CGP Consultant and did not know him
                             personally.

                             Nonetheless, the absence of a formal solicitation and the lack of
                             documentation evaluating the firms may raise the perception,
                             whether warranted or not, that the PHA either pre-selected or
                             favored the firm to whom the contract was awarded. More
                             importantly, the PHA cannot assure HUD that it obtained the
                             best possible service from the most qualified source because it
                             can offer no documentation with regard to how the firms were
                             evaluated, the factors evaluated, and how they reached their
                             conclusion.

                             To assist in a HOPE VI Program application process, the PHA
                             issued a Request for Qualifications publication during February
                             and March 2000. The PHA received two responses; one from

2001-BO-1005                      Page 8
                                                                               Finding 1


                          Cornerstone Housing, LLC and the other from Secour
                          Associates, LLC, the same firm awarded the CGP Consulting
                          contract with the PHA. In response to our draft audit report,
                          we were advised that another firm, Holland and Knight, LLP,
                          submitted a letter of interest but was not evaluated. The PHA’s
                          Chief Executive Officer stated that the PHA’s former Director
                          of Modernization was responsible for the procurement and
                          recommended Cornerstone Housing, LLC. However, the
                          PHA’s Chief Executive Officer advised that he was never
                          presented with a formal memorandum or other type of report or
                          evaluation from his former Director of Modernization on how he
                          came to his conclusion. We were unable to locate any
                          documentation regarding the evaluation factors considered and
                          how the PHA reached their conclusion.

                          HUD regulations require grantees and sub-grantees to maintain
                          records sufficient to detail the significant history of a
                          procurement (24 CFR 85.36 (b)(9)). In both instances above,
                          the PHA did not maintain sufficient records and there is no
                          assurance that the PHA followed proper HUD Procurement
                          regulations.

                          On March 10, 2000, Cornerstone Housing, LLC submitted
HOPE VI Contract Should   their proposal to the MHA to “plan, prepare, and submit a
be Re-negotiated          comprehensive redevelopment plan (HOPE VI Application)
                          to secure HOPE VI funding by May 18, 2000.” In its cost
                          proposal, Cornerstone Housing, LLC proposed a fixed fee
                          price of $166,400 due to the intense deadline pressure (less
                          than 70 days) to meet the requirements specified and submit a
                          HOPE VI application by May 18, 2000. On March 22, 2000,
                          the PHA awarded a contract to Cornerstone Housing, LLC for
                          the proposed amount of $166,400. According to the contract,

                             “if performance of this contract is terminated by either
                             party, prior to the completion of the application for the
                             HOPE VI grant, by consultant/developer, the MHA will
                             negotiate in good faith the contract costs to agreed date
                             in time, which will be less than the fixed price of
                             $166,400.”

                          The PHA never submitted a HOPE VI application during May
                          2000 due, in part, to the tenant opposition expressed and the
                          concerns of Cornerstone Housing, LLC itself over the effects

                               Page 9                                       2001-BO-1005
Finding 1


                          the $689,769 in CGP funds recaptured by HUD would have on
                          the PHA’s HOPE VI application. The PHA’s Chief Executive
                          Officer advised that the PHA has put its submission plans on
                          hold. As the “intense deadline” cited in Cornerstone Housing
                          LLC’s fee proposal no longer exists, the $166,400 fixed fee
                          should be re-negotiated by the PHA. The Chief Executive
                          Officer advised that he spoke with the principals at Cornerstone
                          Housing, LLC regarding the need to re-negotiate the contract
                          terms and they were receptive to the idea, but at the time of our
                          review no formal meeting had been scheduled.

                          As noted above, the PHA has not adhered to its own
 Procurement Procedures   procurement policy or HUD procurement regulations. Proper
 Need Improvement         procurement is vital to ensuring PHAs receive the most
                          advantageous prices for goods and services they obtain and to
                          help reduce the negative perception of favoritism that comes
                          with insufficient evaluation documentation.



Auditee Comments          Overall, the PHA did not disagree with our assessment.
                          However, the PHA stated that significant changes have
                          occurred in the Modernization department. The PHA believes
                          that they have taken the necessary steps to ensure that proper
                          procurement requirements are adhered to, and a contract
                          administrative system is in place allowing the PHA to document,
                          track and monitor contract awards and establish a service
                          contract file for its recurring service needs. The PHA disagreed
                          with our conclusion that HUD regulations were not followed in
                          the procurement of their HOPE VI Consultant.

                          The PHA expressed that its former Director of Modernization
                          left the PHA in May 2000. The PHA stated that, at that point,
                          they were faced with an emergency situation and were
                          attempting to locate, identify and reconstruct all present and
                          past (CGP) purchases. The PHA stated that, at times, the
                          records were either non-existent or unable to be located.

                          The PHA felt a consultant with considerable modernization and
                          fiscal expertise was an essential, immediate need. The PHA
                          stated that although Secour Associates, LLC was subsequently
                          hired, another firm, Eagle Consulting Services, submitted a letter
                          of interest, but had limited housing experience. The PHA
                          advised that Secour Associates, LLC has located or

2001-BO-1005                  Page 10
                                                      Finding 1


reconstructed all necessary records and documentation thereby
allowing the PHA to close out four CGPs with the formal
approval from HUD.

The PHA stated that Secour Associates, LLC also introduced a
computer program that internally monitors all past, present and
future expenditure requirements in the Modernization Program
and believes the probability of not obligating funds in a timely
manner is somewhat negated. Per the PHA, the computer
program includes a contract log, which tracks all expenditures
and contract payments to the contractor as well as any change
orders.

To address our concern that the PHA did not utilize formal
bidding procedures for its recurring services, the PHA stated
that it obtained formal written proposals from various painting
contractors from January 13, 1997 to October 27, 1999. The
PHA stated that the painting contractor was hired on an “as
needed” basis for painting vacant unit turnovers, when the
volume was more than could be handled through the “in house
– maintenance staff.”

With regard to the PHA’s hiring of a HOPE VI Consultant, the
PHA stated that they located a document in which the former
Director of Modernization outlines criteria for selection of a
consultant. Included in the criteria, a scoring procedure is
described which the PHA believes is the criteria utilized by the
former Director of Modernization in making his decision to
recommend Cornerstone Housing, LLC. The PHA, however,
stated that the actual scoring sheet could not be located. The
PHA also advised that a number of firms requested information
on HOPE VI and one firm sent a letter of interest, but was not
evaluated by the previous Director of Modernization. Lastly,
the PHA advised that the present Director of Modernization
and Procurement contacted a representative of Cornerstone
Housing, LLC, requesting that negotiations be reopened and
received verbal assurance from the representative that
negotiations could be reopened.




    Page 11                                        2001-BO-1005
Finding 1




OIG Evaluation of   We recognize the PHA’s efforts to ensure that proper
Auditee Comments    procurement requirements are adhered to, and a contract
                    administration system is in place allowing the PHA to document,
                    track and monitor contract awards. We believe the PHA is
                    taking positive steps to address our concerns. Nonetheless, our
                    concerns remain.

                    At the time of our review, the computer program introduced by
                    Secour Associates, LLC to track all past, present and future
                    expenditure requirements in the Modernization Program,
                    including the addition of a contract log, was a work in progress.
                    Additionally, the PHA recently hired a new Director of
                    Modernization and Secour Associates, LLC is no longer
                    intimately involved in the PHA’s operations. Given this
                    transition, we are concerned with the full implementation of the
                    computerized tracking system and the PHA’s ability to readily
                    provide information regarding whom it has contracted with, for
                    how long or for how much, and whether the contracts are near
                    expiration or have expired.

                    Additionally, although the PHA received written proposals for
                    painting services from January 1997 through October 1999, the
                    PHA did not provide any documentation that they ever formally
                    solicited for painting services, whereas responses were
                    received, evaluated, scored, and a decision was made. The
                    written proposals received by the PHA were over the course of
                    almost three years. The PHA, during the course of the audit,
                    advised that because procurement of small purchases had not
                    been adequately documented in the past, the PHA did not
                    know when formal contracting procedures were applicable.
                    The PHA did not address the other recurring service need
                    referred to in the report.

                    We disagree with the PHA that the HOPE VI Consultant was
                    procured in accordance with HUD regulations and with the
                    benefit of the competitive proposals method. One of the main
                    components of the competitive proposals method is the
                    evaluation of the responses received. The PHA received two
                    formal responses, one from Cornerstone Housing, LLC and
                    one from Secour Associates, LLC. The PHA advised that they
                    also received a letter of intent from a third firm, Holland and

2001-BO-1005            Page 12
                                                                          Finding 1


                  Knight, LLP, but to the best of their knowledge, this firm was
                  not evaluated. The PHA readily admits that they were unable
                  to locate the actual scoring sheet used to evaluate the
                  respondents by the former Director of Modernization and no
                  other evaluation documentation was provided. The PHA
                  cannot document its rationale for selecting one firm over the
                  other and cannot assure HUD that the most advantageous price
                  was obtained. Finally, we commend the PHA for pursuing
                  contract renegotiations with Cornerstone Housing, LLC. As
                  Cornerstone Housing, LLC has not formally responded to the
                  PHA’s request, our recommendation remains.


Recommendations   We recommend that your office require and assure that the
                  PHA:

                  1A.      Establishes adequate procurement management controls
                           to identify, track, and monitor contract awards and
                           payment activity;

                  1B.      Establishes service contracts for its reoccurring service
                           needs by formally soliciting for such contracts; and

                  1C.      Pursues contract re-negotiation with Cornerstone
                           Housing, LLC.




                        Page 13                                        2001-BO-1005
Finding 1




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2001-BO-1005      Page 14
                                                                                            Finding 2


               PHA Needs To Improve
        Administration Of Its Section 8 Programs

The Housing Authority of the City of Meriden (PHA) has not administered its Section 8 Certificate and
Voucher programs in an effective and efficient manner. Lease-up rates were under the 95 percent
threshold desired by HUD. The lease-up rates for fiscal years (FYs) 1998, 1999, and 2000 averaged
only 85 percent. The PHA also received excess Section 8 subsidies of $23,242 due to the improper
calculation of ongoing administrative fees.




                                      HUD requires that the Field Office monitor the leasing progress
 Utilization Must Be Greater          of a PHA if there is a substantial discrepancy between the
 Than 95%                             authorized units under Annual Contributions Contract (ACC)
                                      and the actual units under lease. HUD desires that at least 95
                                      percent occupancy be achieved. HUD may reduce the number
                                      of units authorized if there is a substantial discrepancy in the
                                      leasing performance or HUD may prohibit use of all or part of
                                      the operating reserve for other housing purposes until HUD
                                      determines that administration is adequate (HUD Handbook
                                      7420.3, REV-2, CHG-14, “Section 8 Housing Assistance
                                      Payments Program,” Chapter 5).

                                      The PHA’s Section 8 Certificate and Voucher programs were
 Lease-up Rates Below 95%             underutilized. The lease-up rates for FYs 1998, 1999, and
                                      2000 were less than the desired 95 percent. The lease-up rates
                                      were as follows:

                                       FISCAL YEAR ENDED                   LEASE-UP RATE
                                       September 30, 1998                      84.81%
                                       September 30, 1999.                     84.18%
                                       September 30, 2000                      86.34%

                                      The Section 8 Certificate and Voucher programs provide rental
                                      assistance to help very low-income families afford decent, safe,
                                      and sanitary rental housing. The PHA’s failure to maintain an
                                      acceptable level of utilization limited affordable housing
                                      opportunities for low-income families.



                                           Page 15                                       2001-BO-1005
Finding 2


                               The PHA was aware of the low lease-up rates. The
 Depleted Waiting Lists        underutilization of the Section 8 programs was caused by
                               depleted Section 8 waiting lists. The waiting lists for 2, 3, and
                               4-bedroom units were closed to new applicants in March 1993,
                               and the waiting list for 1-bedroom units was closed to new
                               applicants in August 1996. The depleted waiting lists did not
                               provide an adequate applicant pool to select from.

                               The PHA opened the Section 8 waiting list twice during FY
                               2000. The PHA also dropped some of the federal preferences
                               in accordance with Sections 514 and 545 of the Quality
                               Housing and Work Responsibility Act (QHWRA) of 1998. The
                               QHWRA repealed the mandatory Federal preferences which
                               included applicants involuntarily displaced, living in substandard
                               housing, or paying more than 50 percent of family income for
                               rent and authorized PHAs to develop locally-based admission
                               preferences based upon local housing needs and priorities. The
                               PHA has since admitted several former public and state housing
                               residents into the Section 8 Program. PHA records indicated
                               that the lease-up rate increased to 91.98 percent as of
                               November 1, 2000. However, in response to our draft audit
                               report, the PHA advised the lease-up rate, as of April 1, 2001,
                               was 95 percent.

                               HUD pays a PHA an ongoing administrative fee for each
 Excess Subsidy Received for   authorized program unit under a Housing Assistance Payments
 Administrative Fees           (HAP) contract (24 CFR 982.152(b)). Section 8 portability
                               provisions require a PHA to bill the initial PHA for
                               administrative fees for incoming portable units or absorb those
                               units into its own program (24 CFR 982.355 (d) and (e).
                               Section 8 portability allows families to move and receive
                               assistance outside of the jurisdiction of the administering PHA
                               (24 CFR 982.353(b)).

                               The PHA received $23,242 in excess subsidy from HUD in the
                               form of ongoing administrative fees for which the PHA was not
                               entitled to during FY 1999. The PHA improperly calculated
                               earned ongoing administrative fees by including incoming
                               portable units and units not supported by HAP contracts. The
                               PHA’s fee accountant prepared the financial statements and
                               calculated the ongoing administrative fees based on hand written
                               information provided by the PHA. However, there was no
                               evidence that the PHA verified the units under HAP contract.

2001-BO-1005                       Page 16
                                                                           Finding 2




Auditee Comments
                    The PHA agreed with our assessment of its lease utilization rate.
                    However, the PHA reported that their utilization rates have
                    steadily increased since our departure, and as of April 1, 2001
                    the utilization rate was 95 percent. The PHA also stated that as
                    the number of Section 8 applicants dwindled, the waiting list
                    would be re-opened. The PHA did not respond to our
                    concerns regarding administrative fees.

                    The PHA further pointed out a couple of inaccuracies for our
                    consideration regarding the number of authorized Section 8
                    units and how Section 8 certificates were issued.


OIG Evaluation of   We commend the PHA for its continued efforts to increase its
Auditee Comments    lease utilization rate. Based on the PHA’s response and the
                    supporting documentation provided, we consider our concern
                    with the PHA’s utilization rate resolved and no recommendation
                    is required. As the PHA did not respond to our concerns
                    regarding administrative fees, the report remains unchanged.

                    We considered the PHA’s comments and made the necessary
                    corrections to the number of authorized Section 8 units and how
                    Section 8 certificates were issued.


Recommendations     We recommend that your office require and assure that the
                    PHA:

                    2A.          Establishes controls over the calculation of ongoing
                             administrative fees and provide assurance to HUD that
                             no excess subsidy was claimed for FY 2000; and

                    2B.      Returns the excess subsidy in the amount of $23,242.




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Finding 2




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2001-BO-1005       Page 18
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls that
were relevant to our audit objectives. We considered the management control systems of the Housing
Authority of the City of Meriden (PHA), specifically as related to its Low-Income Public Housing and
Section 8 Programs, in order to determine our auditing procedures and not to provide assurance on
management controls.

Management controls consist of a plan or organization and methods and procedures adopted by
management to ensure that resource use is consistent with laws, regulations, and policies; that resources
are safeguarded against waste, loss, and misuse; and that reliable data is obtained, maintained, and fairly
disclosed in reports.




                                         We determined the following management controls were
  Relevant Management                    relevant to our audit objectives:
  Controls
                                         Ø General administration accounting

                                         Ø Management controls over program expenditures

                                         Ø Management controls over procurement and contracting

                                         Ø Management controls over the leasing of Section 8 units

                                         Ø Administration of the Comprehensive Grant Program

                                         Ø Maintenance operational policies

                                         Ø Fiscal reporting and management

                                         A significant weakness exists if management controls do not
  Assessment Results                     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 is
                                         obtained, maintained, and fairly disclosed in financial statements
                                         and reports.

                                         Our review identified significant weaknesses over the PHA’s
  Significant Weaknesses                 overall procurement procedures and its ability to properly
                                         administer certain aspects of its Section 8 Programs. These
                                         weaknesses are described in the Findings section of this report.

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Management Controls




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2001-BO-1005            Page 20
                                                                                              Appendix A

Ineligible Costs



                                                                  Ineligible Section 8 Subsidy
                                                                   (Administrative Fees) 1/
     Finding 1

        o Excess Section 8 subsidy received in the                           $23,242
          form of ongoing administrative fees for
          which the PHA was not entitled during
          FY 1999


     Total                                                                   $23,242




1/        Ineligible amounts violated law, contract, HUD or local agency policies or regulations.




                                               Page 21                                         2001-BO-1005
Appendix A




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2001-BO-1005     Page 22
                             Appendix B

Auditee Comments




                   Page 23   2001-BO-1005
Appendix B




2001-BO-1005   Page 24
          Appendix B




Page 25   2001-BO-1005
Appendix B




2001-BO-1005   Page 26
                                                                                  Appendix C

Distribution
Secretary, S
Office of Administration, S
Chief of Staff, S
Senior Advisor to the Secretary, S
Senior Staff Member, S
Deputy General Counsel for Housing Finance and Operations, S
Deputy Chief of Staff for Policy and Program, S
Executive Office for Administrative Operations and Management, S
Office of Government National Mortgage Association, T
Director, Office of Departmental Equal Employment Opportunity, U
Chief Procurement Officer, N
Director, Office of Departmental Operations and Coordination, I,
Department of Enforcement Center, DEC
Office of the Chief Financial Officer, F
Deputy Chief of Staff for Intergovernmental Affairs, S
Chief Information Officer, Q
Director, Real Estate Assessment center, X, 1280 Maryland Avenue, SW, Suite 800
Director, Office of Multifamily Assistance Restructuring, Y,
General Deputy Assistant Secretary for Housing, H
Inspector General, G
Deputy Assistant Inspector General for Audit, GA
Assistant Inspector General for Audit, GA
Assistant Inspector General for Investigation, GI
Acting Director, Program Research and Planning Division, GAP
Acting Director, Financial Audits Division, GAF
Director, Information Systems Audit Division, GAA
Counsel to the Inspector General, GC
Central Records, GF
Semi-Annual Report Coordinator, GF
Office of Inspector General Webmaster - Electronic format
Public Affairs Office, G
Acquisitions Librarian, Library, AS
District Inspector General (2-11)
Acting Secretary’s Representative, 1AS
Special Agent-In-Carge, 1AGI
Primary Field Audit Liaison Officer, 3AFI
Management Analyst, PF
Departmental Audit Liaison Officer, FM

Auditee (2)



                                         Page 27                                  2001-BO-1005
Appendix C


Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, 1700G Street, NW, Room
4011, Washington, DC 20552

Sharon Pinkerton, Staff Director, Subcommittee on Criminal Justice, Drug Policy & Human Resources,
B373 Rayburn House Office Bldg., Washington DC 20515.

The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen Senate
Office Building, United States Senate, Washington, DC 20510

The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706 Hart
Senate Office Bldg., United States Senate, Washington, DC 20510

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515

The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204
Rayburn Bldg., House of Representatives, Washington, DC 20515

Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neill House Office
Building, Washington, DC 20515

Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street, NW, Room
9226, New Executive Office Building, Washington, DC 20503

Stanley Czerwinski, Associate Director, Resources, Community, and Economic Development Division,
United States General Accounting Office, 441 G Street, NW, Room 2T23, Washington, DC 20548




2001-BO-1005                              Page 28