oversight

Saginaw Housing Commission Low Income Housing Section 8 and Drug Elimination Grant Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-01-04.

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

     AUDIT REPORT




SAGINAW HOUSING COMMISSION
 Low-Income Housing, Section 8 and
  Drug Elimination Grant Programs


      SAGINAW, MICHIGAN

          2001-CH-1003

        JANUARY 4, 2001


     OFFICE OF AUDIT, MIDWEST
         CHICAGO, ILLINOIS



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                                                                  Issue Date
                                                                         January 4, 2001
                                                                  Audit Case Number
                                                                        2001-CH-1003




TO:            Joann L. Adams, Director, Office of Public Housing, Michigan State Office,
               5FPH

               /signed/
FROM:          Dale L. Chouteau, District Inspector General for Audit, Midwest, 5AGA

SUBJECT:       Audit of Saginaw Housing Commission
               Low-Income Housing, Section 8 and Drug Elimination Grant Programs
               Saginaw, Michigan

We completed an audit of Saginaw Housing Commission. The audit was conducted in response to
a HUD request and a complaint to the OIG Hotline. The objectives of the audit were to determine
whether the Housing Commission operated its programs effectively and in compliance with HUD
requirements and other applicable regulations. Generally, the Housing Commission’s programs
were effectively administered, but we noted problems involving drug elimination grant expenses, a
property disposition transaction, and Section 8 unit inspections that did not comply with HUD
requirements.

The Housing Commission disbursed $19,552 in ineligible and unsupported Drug Elimination Grant
funds, and did not assure that one of its subrecipients properly administered its own drug
elimination program. As a result, grant activity reports submitted to HUD were inaccurate. The
Housing Commission also did not obtain HUD approval before selling a parcel of land, and City of
Saginaw officials appeared to have undisclosed conflicts of interest regarding the property sale.
HUD regulations were violated as a result, and the Housing Commission may not have acted in its
best interests or those of its tenants. In addition, we inspected 18 public housing units and found
278 Housing Quality Standards violations that subjected tenants to hazardous and unhealthy living
conditions.

Within 60 days, please provide us, for each recommendation made in this report, a status report on:
(1) the corrective action taken; (2) the proposed corrective action and the date to be completed; or
(3) why action is considered unnecessary. Also, please provide us copies of any correspondence or
directives issued because of the audit.

Should you or your staff have any questions, please contact me at (312) 353-7832, or Ronald
Huritz, Assistant District Inspector General for Audit, at (312) 353-6236, extension 2675.

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Executive Summary
We completed an audit of the Saginaw Housing Commission. The audit resulted from a HUD
request and a complaint to the Hotline. The complainant alleged that the President of the Board of
Commissioners of the Housing Commission created a conflict of interest by voting on matters that
benefited an outside organization of which he was the executive director. The objectives of our
audit were to determine whether the Housing Commission operated its programs effectively and in
compliance with HUD requirements and other applicable regulations. Generally, the Housing
Commission’s programs were effectively administered, but we noted problems involving drug
elimination grant expenses, a property disposition transaction, and Section 8 unit inspections that
did not comply with HUD requirements.

The Housing Commission disbursed $19,552 in ineligible and unsupported Drug Elimination Grant
funds, and did not assure that one of its subrecipients properly administered its own drug
elimination program. As a result, grant activity reports submitted to HUD were inaccurate.

The Housing Commission also did not obtain HUD approval before selling a parcel of land, and
City of Saginaw officials appeared to have undisclosed conflicts of interest regarding the property
sale. HUD regulations were violated as a result, and the Housing Commission may not have acted
in its best interests or those of its tenants. In addition, we inspected 18 public housing units and
found 278 Housing Quality Standards violations that subjected tenants to hazardous and unhealthy
living conditions.



Payroll Costs Were                    The Housing Commission paid $3,632 in unsupported
Unsupported                           payroll costs to the Saginaw Police Department for two pay
                                      periods. These costs resulted from patrol services that were
                                      furnished to public housing sites. We determined that the
                                      Housing Commission’s Accounting Department reimbursed
                                      the costs to the police department before discovering that
                                      supporting time records were incomplete.

Scholarships Exceeded Limit           The Housing Commission overpaid $3,157 in scholarship
                                      money to subrecipient Delta College for eight public housing
                                      residents. Awards for these residents exceeded the limit of
                                      $500 per individual cited in the Notice of Funding
                                      Availability. The over-payments ranged from $78 to $813.
                                      The Housing Commission informed us that it was not aware
                                      of the $500 limit.

 Tenants Organization Had             The Saginaw Tenants Organization had weak controls over
 Weak Controls Over Its               its grant funds. We reviewed 100 percent of the financial
 Grant Funds; Disbursed               transactions for Drug Elimination Program Year 1997. The
 Funds That Should Have               Tenants Organization did not keep track of the costs that
 Been Returned To HUD                 were or were not reimbursed to it by the Housing
                                      Commission.

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                                 The Tenants Organization disbursed checks from its grant-
                                 funded bank account totaling $5,947 after February 1, 1999,
                                 the date on which the Saginaw Housing Commission stopped
                                 funding the Tenants Organization. The disbursements
                                 continued until November 1999, nine months after funding
                                 was stopped. The $5,947 should have been returned to HUD
                                 at the time the Tenants Organization was notified by the
                                 Housing Commission that funding was being stopped, but
                                 the Housing Commission failed to seek repayment of the
                                 funds. The disbursements made after February 1, 1999,
                                 resulted from the Tenant Organization’s poor accountability
                                 for its drug elimination grant activities.

Housing Commission Sold          The Housing Commission obtained two appraisals for 2.2
Land Below Fair Market           acres of land, but sold the land at the lower appraised value
Value Without HUD                of $9,000 without HUD approval and without justifying its
Approval                         action to the Housing Commission’s Board of Directors.
                                 The former Housing Commission Executive Director
                                 informed us that a Board Member employed by a Saginaw
                                 organization having an interest in the land sale
                                 recommended to the Board that the $9,000 figure be
                                 accepted as the selling price.          An Application for
                                 Disposition of Real Property, required to be submitted
                                 along with both appraisals to HUD prior to the land sale,
                                 was submitted six months after the Housing Commission
                                 Board authorized the sale. Only the $9,000 appraisal
                                 accompanied the application.           As a result, HUD
                                 requirements were violated, and the Housing Commission
                                 may not have received fair compensation for the property.

 Section 8 Units Had Health      We inspected 18 public housing units and found 278 health
 And Safety Violations           and safety violations, 271 of which existed at the time the
                                 Housing Commission performed its own inspections. The
                                 violations primarily involved structure and materials
                                 problems, electrical problems and sanitation issues. The
                                 Housing Commission’s inspector cited only 22 of the 278
                                 violations that were noted by the OIG’s inspector. As a
                                 result of these problems, HUD’s Housing Quality Standards
                                 were violated, and tenants were subjected to living
                                 conditions that were hazardous to their health and safety.

  Recommendations                We recommended that the Director, Office of Public
                                 Housing, Michigan State Office, assures that the Saginaw
                                 Housing Commission: repays to HUD $3,632 in unsupported

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                                                                               Introduction


                               Police Department payroll costs; repays to HUD $3,157 for
                               scholarship awards that exceeded the $500 individual limit;
                               implements a system to measure its Drug Elimination Grant
                               activities; seeks repayment of $5,947 from the Saginaw
                               Tenants Organization for funds that should have been
                               returned to HUD; obtains fair market value for the parcel of
                               land by re-soliciting bids and selling it at no less than the
                               highest appraised value; and corrects the health and safety
                               violations in the 18 units we inspected.

Auditee Response To Draft      We presented our draft findings to the Housing
Findings                       Commission during the course of the audit. We held an
                               exit conference with the Executive Director on November
                               3, 2000. The Housing Commission provided written
                               comments to our draft findings, which are included in their
                               entirety as an Appendix to this report.

                               In his response to our draft findings, the Housing
                               Commission’s new Executive Director (appointed on
                               March 27, 2000) acknowledged that the Housing
                               Commission had lacked a strategic vision to guide
                               management and staff toward the achievement of sound
                               programs and controls. He indicated his belief that in his
                               seven months of service, the Housing Commission had
                               begun to strategically plan and improve its operations. He
                               generally agreed with our recommendations related to
                               improving grant administration and correcting the health
                               and safety violations (Findings 1 and 4), and generally
                               disagreed with the recommendations related to the Tenants
                               Organization and the sale of the land parcel (Findings 2 and
                               3).

                               Excerpts of the comments are included with each finding.
                               Where appropriate, changes were made to the draft findings
                               to reflect additional information or clarification resulting
                               from the exit conference and auditee comments.




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Management Memorandum                                                       i



Executive Summary                                                         iii



Introduction                                                               1


Findings

1    The Saginaw Housing Commission Needs To Improve Grant
     Administration And Evaluate Its Effectiveness                         3

2    The Saginaw Housing Commission Did Not Assure That The
     Tenants Organization Properly Administered Its Drug Elimination
     Grant                                                                 9

3    The Saginaw Housing Commission Did Not Follow HUD
     Requirements When It Sold Housing Commission Land                    15

4    Section 8 Units Had Health And Safety Violations                     23


Management Controls                                                      33


Follow Up On Prior Audits                                                35




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Appendices

   A Schedule of Questioned Costs                           37

   B Auditee Comments                                       39

   C Distribution                                           51




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Introduction
The Saginaw Housing Commission was established in 1947 under the Michigan Housing Act of
1937. The Housing Commission was created to provide and manage decent, safe and sanitary
housing facilities for low income families.

The Housing Commission operates Low Income Housing, Section 8 and Drug Elimination Grant
programs. It manages five high-rise buildings consisting of 492 low income housing units
designated for elderly and disabled residents. An additional 112 single family scattered site units
receive Section 8 rental assistance. Between 1995 and 1997, 365 units comprising two
multifamily developments known as Daniels Heights were demolished due to deteriorating
conditions.

The Low Income Housing Program is designed to promote homeownership opportunities for
families whose annual income does not exceed 80 percent of the median income for the
surrounding community. The Section 8 Rental Assistance Program increases affordable housing
choices for low-income households by allowing families to choose privately owned rental
housing. Families or individuals apply to a local public housing authority or other government
agency for a rental certificate or voucher. The housing authority pays the landlord the difference
between 30 percent of the household’s income and the fair market rent. HUD’s Drug
Elimination Grant Program, in existence since 1988, awards competitive grants to public housing
authorities to reduce drug-related crime in and around public housing sites.

A five-member Board of Commissioners, appointed by the Mayor of Saginaw, is the Housing
Commission’s governing board. The Executive Director is Troy White, and the President of the
Board of Commissioners is Frederick D. Price. The Housing Commission’s official records are
maintained at 1803 Norman Street, Saginaw, Michigan.



Audit Objectives                      The objectives of the audit were to determine whether the
                                      Housing Commission operated its programs effectively and
                                      in compliance with HUD requirements and other applicable
                                      regulations.

Audit Scope and                       To achieve our objectives, we interviewed both the former
Methodology                           and current Saginaw Housing Commission Executive
                                      Directors regarding the Commission’s operations, and other
                                      staff members as necessary. We reviewed Housing
                                      Commission and HUD records, including: subrecipient
                                      monitoring reports, independent audits, budgets and
                                      financial statements, the Housing Commission’s bank
                                      account statements, accounts payable invoices, personnel
                                      records, and minutes of the Board of Directors’ meetings.
                                      We used attribute sampling techniques to test
                                      disbursements that were made during the audit period.

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Introduction


                  To analyze the disposition of Housing Commission
                  property, we reviewed Board of Directors’ resolutions and
                  other correspondence, the Application for Disposition of
                  Real Property, and appraisal and environmental assessment
                  reports.

                  To determine the adequacy of the Housing Commission’s
                  Section 8 housing unit inspection program, we interviewed
                  personnel responsible for overseeing the function, and
                  examined inspection procedures and reports.

                  Regarding the Housing Commission’s subrecipient,
                  Saginaw Tenants Organization, we reviewed its funding
                  and disbursement records, consulting contracts and Board
                  minutes, and interviewed its management personnel.

                  The audit, which was conducted in accordance with
                  generally accepted government auditing standards, covered
                  the period January 1, 1997, through August 31, 1999. We
                  extended our audit period as necessary. We performed the
                  audit between August 16, 1999, and September 30, 2000.

                  We provided a copy of this report to the Housing
                  Commission’s Executive Director.




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                                                                                                  Finding 1


  The Saginaw Housing Commission Needs to
 Improve Grant Administration and Evaluate Its
                Effectiveness
The Saginaw Housing Commission needs to improve its Drug Elimination Grant administration and
evaluate its effectiveness. The Housing Commission disbursed $6,789 in unallowable costs, and could
not demonstrate the benefit or results of its drug elimination activities. As noted in Finding 2, the
Housing Commission also did not assure that one of its subrecipients properly administered its Drug
Elimination Grant activities. This occurred because the Housing Commission did not execute contracts
with its subrecipients; did not establish controls over its planned expenditures to assure that only eligible
costs were charged to the grants; and did not implement a system for evaluating, monitoring and
reporting program outcomes and benefits. As a result, grant activity reports submitted to HUD were
inaccurate, and HUD could not be assured that the Saginaw Housing Commission met the objective of
the drug elimination program.


Drug Elimination Program                 The objective of the drug elimination program is to curtail
Objective                                drug-related crime in and around public housing sites.
                                         Applicants for grant funds must develop a comprehensive
                                         program to eliminate drug-related crime in their
                                         developments. To achieve this desired outcome, sound
                                         management practices must be implemented. Management
                                         must develop a system to measure program effectiveness.
                                         The elements of such a system include the setting of
                                         quantifiable performance standards and a monitoring process
                                         to measure program effectiveness.

HUD Requirements                         24 CFR 761.35 establishes that grantees are responsible for
                                         managing the day to day operations of the grant and subgrant
                                         activities. Grantees must monitor grant and subgrant
                                         activities to assure compliance with applicable regulations.

                                         The 1997, 1998 and 1999 Notices of Funding Availability
                                         state that education scholarships may be awarded in amounts
                                         not exceeding $500 per individual award.

                                         24 CFR Part 761.35 (a)(1) requires the Housing Commission
                                         to submit a semi-annual performance report that evaluates
                                         the grantee’s performance against its plan. The report should
                                         include: any change or lack of change in crime statistics or
                                         other indicators drawn from the applicant’s plan assessment
                                         and an explanation of any differences; a discussion of any

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                                                                                               2001-CH-1003
Finding 1


                                 problems encountered in implementing the plan and how
                                 they were addressed; an evaluation of whether the rate of
                                 progress met expectations; a discussion of the grantee’s
                                 efforts in encouraging residents’ participation; and a
                                 description of any other programs that may have been
                                 initiated, expanded or deleted as a result of the plan, with an
                                 identification of the resources and the number of people
                                 involved in the programs and their relation to the plan.

Police Payroll Costs Were        The Housing Commission paid $3,632 in unsupported
Unsupported                      payroll costs to the Saginaw Police Department for pay
                                 periods beginning December 19, 1997, and January 16, 1998.
                                 These costs resulted from police patrol services furnished to
                                 public housing sites.       The Housing Commission’s
                                 Accounting Department reimbursed the costs to the police
                                 department before discovering that supporting time records
                                 were incomplete. The Accounting Department made no
                                 attempt to obtain the necessary records or recover the
                                 unsupported payments from the police department.

Scholarships Exceeded Limit      The Housing Commission overpaid $3,157 in scholarship
                                 money to subrecipient Delta College for eight public housing
                                 residents. Awards for the eight residents exceeded the limit
                                 of $500 per individual cited in the Notices of Funding
                                 Availability. The over-payments ranged from $78 to $813.
                                 The Housing Commission informed us that it was not aware
                                 of the $500 limit.

Incomplete Performance           The Housing Commission submitted semi-annual
Reports                          performance reports to HUD. However, the narratives
                                 generally lacked one or more of the elements required by the
                                 regulations to evaluate the grantee’s progress in reducing or
                                 eliminating drugs from its developments. The Housing
                                 Commission did not have a plan against which progress
                                 could be evaluated. Progress reports for the 1997 Drug
                                 Elimination Grant contained some elements, including
                                 descriptions of drug prevention services, levels of
                                 participation, and crime statistics for the period. However,
                                 the reports generally did not describe changes in crime
                                 statistics. Reports also did not state whether any of the
                                 activities were successfully completed, whether any
                                 problems were encountered, or whether the rate of progress
                                 met expectations. As a result, the Housing Commission did
                                 not have an adequate system for measuring and evaluating
                                 the accomplishments, benefits and effectiveness of its

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                                                                      Finding 2


                      various grant-funded activities, such as those discussed
                      below:

                      Computer Learning Center. The semi-annual reports
                      contained examples of educational activities conducted
                      during the prior six month period, but there was no
                      information indicating how many students participated, if
                      any grade improvements resulted from the activities, or if
                      there was any effect on school drop outs. There were no
                      quantifiable goals or measurements of results.

                      Policing. The semi-annual reports generally showed the total
                      number of crimes committed in Saginaw and the number of
                      crimes committed at Housing Commission properties, but
                      there were no crime reduction goals or outcome measures.
                      The reports did not demonstrate the extent to which policing
                      efforts had reduced drug-related crime in the projects. The
                      Housing Commission had reports of suspected criminal
                      activity and other details, but did not establish a management
                      information system to compile, summarize and compare this
                      information, or to measure the program’s effectiveness in
                      reducing drug-related crime.

                      Delta College. The semi-annual reports stated that eight
                      students were enrolled. However, there were no measurable
                      goals or outcome measures. There were no indications of
                      how many students graduated, changes in the employment
                      rate of program participants, or annual income increases
                      resulting from the schooling.

                      As a result, the semi-annual reports were incomplete and HUD
                      could not be assured that the Saginaw Housing Commission
                      had met the objective of the drug elimination program.



Auditee Comments      Excerpts from the auditee’s comments on our draft finding
                      follow. Appendix B contains the complete text of the
                      comments:

                      Housing Commission staff will contact the Saginaw Police
                      Department and request the supporting payroll
                      documentation for the periods beginning December 19, 1997
                      and January 16, 1998. If the information is not available, the
                      Housing Commission will request a letter from the Saginaw

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                                                                       2001-CH-1003
Finding 1


                       Police Department to verify the specific dates the officer was
                       on duty.

                       In September 2000, the scholarship program was
                       discontinued due to the lack of program goals and exceeding
                       the limits of funding per individual.         The Housing
                       Commission will repay HUD the overpayment amount of
                       $3,157 for not following the notice of funding program
                       guidelines.

                       The Housing Commission will develop a quantitative
                       performance evaluation measurement system that
                       encompasses all of the elements of the Drug Elimination
                       Grant regulation within 90 days. The new system will be
                       implemented within 30 days from the completion of the new
                       evaluation system.

                       The submission of completed semi-annual reports to HUD
                       will be achieved through the new reporting requirement to
                       subgrantees and staff. A quarterly review will be instituted
                       for all activity under the Drug Elimination funding. The
                       review will be done through a monthly activity report staff
                       will be required to submit to the Executive Director for
                       review and comment. The monthly report will serve as a
                       guide to determine if program measures are being met.

OIG Evaluation of      The auditee’s comments were responsive to our
Auditee Comments       recommendations. Discussion of these items at the exit
                       conference confirmed that the Executive Director was
                       committed to improving the Housing Commission’s Drug
                       Elimination Grant reporting.


 Recommendations       We recommend that the Director, Office of Public Housing,
                       Michigan State Office, assures that the Saginaw Housing
                       Commission:

                       1A.     Recovers from the Saginaw Police Department and
                               repays to HUD $3,632 in unsupported payroll costs,
                               or obtains time records that support the dollar
                               amount;

                       1B.     Repays HUD $3,157 for scholarship awards that
                               exceeded the $500 individual limit;


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                                               Finding 2


   1C.   Implements a system for measuring the effects of its
         Drug Elimination Grant funded activities
         encompassing all the elements required by the
         regulations; and

   1D.   Submits complete semi-annual reports to HUD
         describing program progress and accomplishments in
         sufficient detail to allow HUD to assess the Housing
         Commission’s effectiveness in administering the
         Drug Elimination Grant Program.




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                                                                                             Finding 2


 The Saginaw Housing Commission Did Not
Assure That The Tenants Organization Properly
   Administered Its Drug Elimination Grant
The Saginaw Housing Commission did not assure that the Saginaw Tenants Organization, a grant
subrecipient, properly administered the Outreach portion of the Drug Elimination Grant Program. As a
result, the Tenants Organization: had weak controls over its grant funds; improperly disbursed $5,947 of
grant funds that should have been returned to HUD; did not maintain support for its program
accomplishments; and paid unsupported consultant fees which were not included in the budget approved
by HUD. These conditions occurred because: a Sub-recipient Agreement was not in effect; the Housing
Commission’s Board of Directors did not provide adequate guidance to the Tenants Organization; and
the Tenants Organization staff were not properly trained on accounting and recordkeeping requirements.
Consequently, Drug Elimination Grant funds were not used for their intended purpose, and financial
reports and reports of program accomplishments submitted to HUD were not accurate.


HUD Requirements                       24 CFR 85.20 (b)(3) states that subgrantees must maintain
                                       effective control and accountability for all subgrant cash, real
                                       and personal property, and other assets. Subgrantees must
                                       adequately safeguard all such property and must assure that it
                                       is used solely for authorized purposes.

                                       24 CFR 85.20 (b)(6) states that accounting records must be
                                       supported by source documentation such as canceled checks,
                                       paid bills, payrolls, time and attendance records, contract and
                                       subgrant award documents.

                                       24 CFR 761.35 states that Grantees are responsible for
                                       managing the day-to-day operations of grant and subgrant
                                       supported activities. Grantees must monitor grant and
                                       subgrant supported activities to assure compliance with
                                       applicable Federal requirements and that performance goals
                                       are being achieved.

                                       24 CFR 761.35 (d)(1) states that the final accountability
                                       report to close out the grant will be a cumulative summary of
                                       expenditures to date and must indicate the exact balance of
                                       unexpended funds. The Grantee shall remit all Drug
                                       Elimination Program funds, including any unexpended
                                       funds, to HUD.




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Finding 2


                             24 CFR 961.28 (a)(1) requires that semi-annual and annual
                             reports of program accomplishments contain detailed
                             evidence of activities that satisfy program objectives, such
                             as: expectations of the program; the rate of progress toward
                             achieving the expectations; efforts in encouraging resident
                             participation; and an identification of the resources and
                             number of people involved in the programs.

 NOFA Requirements           Section (I)(C)(6) of the 1997 Notice of Funding Availability
                             states that funding is permitted for reasonable, necessary and
                             justified program costs, such as meals, beverages and
                             transportation incurred only for prevention programs,
                             employment training, education and youth activities directly
                             related to reducing or eliminating drug-related crime.

                             Section (I)(C)(7) of the Notice states that in order to
                             implement a HUD-approved activity, the housing authority
                             must be the grantee, and must enter into a subgrantee
                             contract with the Resident Organization setting forth: the
                             amount of funds; applicable terms and conditions; financial
                             controls; payment schedule; performance and financial report
                             requirements; special conditions, including sanctions for
                             violation of the agreement; and monitoring. Expenditures for
                             activities will not be incurred by the Housing Authority and
                             funds will not be released by the local HUD Field Office
                             until the grantee has met all of the above requirements.

OMB Requirements             OMB Circular A-122, Attachment B, Paragraph 39a, states
                             that costs of professional and consultant services rendered by
                             persons who are members of a particular profession or who
                             possess a special skill, and who are not officers or employees
                             of the organization, are allowable when reasonable in
                             relation to the services rendered and when not contingent
                             upon recovery of the costs from the Federal government.

                             OMB Circular A-122, Attachment B, Paragraph 16, states
                             that costs of fines and penalties resulting from violations of,
                             or failure of the organization to comply with Federal, State,
                             and local laws and regulations, are unallowable.

Sub-recipient Agreement      Throughout the life of the 1997 Drug Elimination Grant, no
Was Not In Effect            sub-recipient agreement existed between the Housing
                             Commission and the Tenants Organization, as required by
                             the 1997 Notice of Funding Availability.          Housing
                             Commission personnel advised us that they attempted to

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                                                                                Finding 2


                               execute an agreement with the Tenants Organization, but the
                               Tenants Organization’s management insisted on including
                               various terms in the agreement that were not acceptable to
                               the Housing Commission. This led to a stalemate that
                               resulted in the grant activities being conducted without a
                               contractual relationship between the parties. HUD disbursed
                               grant funds to the Housing Commission without being aware
                               that the required agreement was not in effect.

Tenants Organization Had       The Saginaw Tenants Organization had weak controls over
Weak Controls Over Its         the way it accounted for its grant funds. We reviewed 100
Grant Funds                    percent of the financial transactions for Drug Elimination
                               Program Year 1997. Of $46,083 in grant funds disbursed
                               between March 6, 1998, and May 7, 1999, the Tenants
                               Organization failed to keep track of the majority of costs that
                               were or were not reimbursed to it by the Housing
                               Commission. As a result, the Tenants Organization was not
                               assured that its records accurately reflected all disbursement
                               and reimbursement activity, and the Saginaw Housing
                               Commission was not assured that Drug Elimination Grant
                               funds were being used for their intended purpose.

Housing Commission             The Housing Commission paid the gross wage amount when
Overpaid Tenants               it reimbursed the Tenants Organization for payroll costs.
Organization For Payroll       The reimbursed amount included the employee withheld
Taxes                          portion as well as the employer portion. Only the employer
                               portion should have been reimbursed. As a result, the
                               Housing Commission overpaid the Tenants Organization for
                               payroll taxes and other items by at least $2,466.

 Tenants Organization          Because of the Tenants Organization’s poor accountability
 Disbursed Funds That Should   for its Drug Elimination Grant activities, the Housing
 Have Been Returned To         Commission advised the Tenants Organization that it would
 HUD                           not be reimbursed for any costs incurred after February 1,
                               1999. The Housing Commission was not aware that the
                               Tenants Organization had unused grant funds because of
                               poor communication between the parties caused by tensions
                               over the subrecipient agreement discussed above. This
                               caused the Housing Commission to decrease its monitoring
                               of the Tenants Organization’s financial activity, allowing the
                               unused funds to go undetected.

                               The Tenants Organization disbursed checks from its grant-
                               funded bank account totaling $5,947 after February 1 for
                               expenses such as telephone bills, payroll, consultant fees,

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                                 Internal Revenue Service taxes and penalties, and insurance
                                 premiums. Some, but not all, of these expenses were incurred
                                 by the Tenants Organization prior to February 1, but all were
                                 paid after that date. The disbursements continued until
                                 November 1999, nine months after funding was stopped.
                                 The funds in the account should have been returned to HUD
                                 at the time the Tenants Organization was notified by the
                                 Housing Commission that funding was being stopped, but
                                 the Housing Commission failed to seek repayment of the
                                 unused funds.

Payroll Taxes And Quarterly      The Housing Commission did not assure that the Tenants
Reports Not Submitted            Organization paid its payroll taxes on a timely basis. On
Timely                           several occasions, after being reimbursed by the Housing
                                 Commission, a Tenants Organization accounting clerk
                                 prepared the payroll tax deposit check and placed it in a desk
                                 drawer. The clerk did not submit the check to the Internal
                                 Revenue Service for the calendar quarter it was due;
                                 however, she indicated on the quarterly report submitted to
                                 the Internal Revenue that the taxes were paid. The delays in
                                 submitting the tax payments ranged from 10 days to 296
                                 days. At one point in 1998, the IRS placed a lien against the
                                 Tenant Organization’s checking account in the amount of
                                 $2,148 until the delinquent taxes were paid. We could not
                                 determine the exact amount of penalties and interest that
                                 were assessed by the Internal Revenue Service as a result.
                                 This failure to make timely Federal tax deposits violated
                                 OMB Circular A-122.

Reported Accomplishments         The Housing Commission did not assure that the Tenants
Were Not Supported               Organization established well-defined goals for its Drug
                                 Elimination Grant activities. The Tenants Organization also
                                 did not have an effective system to determine whether
                                 program objectives were accomplished.

                                 We reviewed the semi-annual and annual progress reports
                                 submitted by the Tenants Organization to HUD for Calendar
                                 Year 1998. Of 57 accomplishments listed in the reports, 50
                                 were not properly supported. The remaining seven items
                                 were supported only with participant sign-in sheets that did
                                 not detail the nature of the accomplishments. HUD
                                 regulations at 24 CFR 961.28 require detailed reporting of
                                 program expectations, the rate of progress toward achieving
                                 the expectations, and activities completed to satisfy the
                                 expectations.

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                                                                                    Finding 2



Consultant Fees Not Included      In 1998 and 1999, the Tenants Organization paid fees of
In HUD-Approved Budget            $4,350 from 1997 grant funds to an outside financial
                                  consultant. The fees were not included in the budget
                                  approved by HUD. Although the consultant was engaged to
                                  provide a package of accounting and training services for the
                                  organization, we could not locate supporting documentation
                                  to determine the specific deliverables for which the
                                  consultant was paid.

Summary of Questioned             The following costs were ineligible expenses under the 1997
Costs                             Notice of Funding Availability:

                                       •   $2,466 – Overpaid by Saginaw Housing
                                           Commission to Saginaw Tenants Organization for
                                           payroll withholding taxes;

                                       •   $5,947 – Disbursed after the Drug Elimination
                                           Grant was closed out.

                                  The following costs lacked supporting documentation:

                                       •    $4,350 – Paid to financial consultant



Auditee Comments                  Excerpts from the auditee’s comments on our draft finding
                                  follow. Appendix B contains the complete text of the
                                  comments:

                                  As a subcontractor or subgrantee to the Housing
                                  Commission, the Saginaw Tenants Organization would be
                                  responsible to make all payroll tax payments without any
                                  direction from the Housing Commission. If an overpayment
                                  occurred, it would be the responsibility of the grantee to
                                  repay HUD the funding and seek repayment from the
                                  subgrantee. The Housing Commission’s possible error in the
                                  overpayment will be resolved in reviewing the original
                                  program budget with the Tenants Organization and providing
                                  supporting documentation for the total payroll tax payments.

                                  The Housing Commission informed the Tenants
                                  Organization that no costs incurred after February 1, 1999
                                  would be reimbursable. The Housing Commission
                                  distributed the $5,947 to the Tenants Organization prior to

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Finding 2


                       the funding restriction.     The fact that the Tenants
                       Organization paid its expenses months later does not
                       invalidate the funding especially since the Housing
                       Commission did not seek a lien on the Tenant Organization’s
                       bank account. I believe these funds should not be repaid to
                       HUD.

                       The Housing Commission will request the Saginaw Tenants
                       Organization to submit all supporting documentation and
                       deliverables that the Organization received from the
                       consultant.

OIG Evaluation of      At the exit conference, the Director of Public Housing,
Auditee Comments       Michigan State Office, indicated to the Housing
                       Commission’s Executive Director that the Tenants
                       Organization was a subgrantee, not a subcontractor, and that
                       it was the Housing Commission’s responsibility to make sure
                       that the Tenants Organization followed all HUD
                       requirements.

                       Because there was no subrecipient agreement in effect
                       between the Housing Commission and the Tenants
                       Organization during the time period of the Drug Elimination
                       Grant, the original budget submitted by the Housing
                       Commission to HUD was the controlling instrument for
                       reimbursable payments. The expenses that were paid by the
                       Tenants Organization after February 1, 1999, were not part of
                       that budget, and therefore, were not eligible costs allowable
                       by the Notice of Funding Availability.


Recommendations        We recommend the Director, Office of Public Housing,
                       Michigan State Office, assures that the Saginaw Housing
                       Commission:

                       2A.      Repays HUD $2,466 for excess payroll withholding
                                taxes paid by the Housing Commission to the
                                Saginaw Tenants Organization;

                       2B.      Instructs the Tenants Organization to repay HUD
                                $5,947 disbursed after February 1, 1999; and

                       2C.      Provides documentation to HUD supporting $4,350
                                in fees paid to the Tenant Organization’s consultant.


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    The Saginaw Housing Commission Did Not
     Follow HUD Requirements When It Sold
           Housing Commission Land
The Saginaw Housing Commission did not get prior HUD approval when it sold 2.2 acres of land
to a developer in August 1999. A legal closing took place for the transaction but the settlement
funds were placed into escrow due to an unresolved contingency. The Housing Commission
ignored HUD regulations by not: submitting to HUD an Application for Disposition of Public
Housing property prior to sale of the land; performing an environmental assessment in accordance
with environmental regulations before taking an action committing HUD or local funds; and
obtaining HUD approval before disposing of the land at less than fair market value.

This activity occurred, in part, because the Housing Commission had not developed a formal long
range revitalization plan for the area encompassing the 2.2 acre parcel, formerly known as the
Daniels Heights Public Housing site. Such a plan would have disclosed if the land was to be
disposed of or retained for future development. Also, Housing Commission Board members
approved a resolution disposing of the property without conducting research into HUD disposition
requirements. Further, some Board members appeared to have conflicts of interest between the
Housing Commission and their private employers, who, along with the City of Saginaw, would
have benefited from the land sale. Consequently, the Housing Commission: (1) may not have
acted in the best interests of the Housing Commission and its tenants; (2) did not obtain an
impartial environmental assessment as required; and (3) did not receive fair compensation for the
property it attempted to sell.


HUD Regulations                      HUD Regulations at 24 CFR Part 970.8 require written
                                     approval by HUD before the Housing Commission may
                                     undertake any transaction involving disposition of real
                                     property. The Housing Commission must submit an
                                     application to the appropriate HUD Office with various
                                     documentation justifying the proposed disposition to allow
                                     HUD to determine what is in the best interests of the tenants
                                     and the Housing Commission.

                                     24 CFR Part 970.4 and 24 CFR Part 50 require that the
                                     disposition meet Environmental Review Regulations and
                                     prohibits acquiring, rehabilitating, converting, leasing,
                                     repairing or constructing property or committing HUD or
                                     local funds to the activity until HUD approval is obtained.

                                     24 CFR Part 970.9(a) requires the Housing Commission to
                                     dispose of real estate promptly by soliciting bids at fair

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                              market value unless HUD authorizes a negotiated sale for
                              reasons in the best interests of the Housing Commission or
                              the Federal Government.

Annual Contributions          A Comprehensive Grant Program Amendment dated October
Contract                      19, 1998, to the Consolidated Annual Contributions Contract
                              Paragraph 5, requires the Housing Commission to continue
                              to operate each development as low-income housing in
                              compliance with the Annual Contributions Contract and all
                              HUD regulations for a period of 20 years after the last
                              disbursement of comprehensive grant assistance.
                              Furthermore, no disposition of any development covered by
                              the amendment can occur for a period of ten years following
                              the last payment of operating subsidy unless approved by
                              HUD.

 Disposition Application      The Saginaw Housing Commission sold a 2.2-acre parcel of
 Submitted To HUD After       vacant land in August 1999. The parcel was part of the
 Land Was Sold                former Daniels Heights Development, a public housing site
                              in northeast Saginaw, Michigan, that was demolished in
                              1997. The Housing Commission’s Board approved the
                              disposition of this parcel of land in Board Resolution 99-04
                              on June 23, 1999. The Purchase Agreement, originally
                              prepared in June, was executed and signed on August 3,
                              1999. The closing date was identified as August 13, 1999.
                              The sale price was $9,000 with a deposit of $1,000 dated
                              June 17, 1999, from the buyer, K-Properties Leasing, LLC.
                              After the closing, a warranty deed transferring ownership of
                              the land was executed on September 1, 1999, and given to
                              Lawyers Title Insurance Company. However, the title
                              transfer was not recorded by the Saginaw County Registrar
                              of Deeds because the title company identified unpaid bonds
                              in a Declaration of Trust that needed to be resolved first.
                              Thus, a closing took place but all documents were held in
                              trust by the title company and the settlement funds were
                              placed in escrow until the condition cited by the title
                              company could be resolved. This situation has remained
                              unresolved as of December 15, 2000.

                              HUD approval for the disposition of the land was not
                              formally requested until the Housing Commission submitted
                              an Application for Disposition of Real Property on
                              December 15, 1999, to HUD’s Special Applications Center.
                              This action was nearly six months after the Housing
                              Commission Board approved its resolution to dispose of the

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                                                                           Finding 3


                           site. Prior HUD approval is required by Title 24 Part 970
                           regulations regarding disposition of real property. By selling
                           the land without HUD approval, the Housing Commission
                           also violated its obligation under the Annual Contributions
                           Contract to operate the property as low-income housing. As
                           of August 2000, the Application for Disposition of Real
                           Property was still pending HUD approval.

Environmental              The 2.2 acre tract is one of three parcels on which
Assessment Prepared        manufacturing plants for two new General Motors suppliers
After The Sale Closed      were planned to be built. The two plants, financed with $6.7
                           million in revenue bonds issued through Saginaw County’s
                           Economic Development Corporation, have already been
                           constructed on the other two parcels. No construction has
                           started on the 2.2 acre site pending HUD approval of the
                           sale. All three parcels were purchased by the same
                           developer.

                           A Phase I Environmental Site Assessment Report covering
                           all three parcels was issued June 21, 1999, and a Phase II
                           Environmental Site Assessment Report covering the same
                           parcels was issued August 25, 1999. However, the Housing
                           Commission did not submit its completed environmental
                           assessment to the Detroit HUD Office in compliance with
                           HUD’s environmental regulations until about April 14, 2000.
                           As indicated earlier, the closing took place on August 13,
                           1999, and the warranty deed between the Housing
                           Commission and the buyer was signed on September 1,
                           1999. These dates passed before the Housing Commission
                           completed its environmental assessment. Consequently, the
                           Housing Commission failed to comply with the
                           environmental requirements because it sold the land before
                           the environmental assessment report was completed.

                           The environmental assessment was not prepared prior to the
                           sale because of confusion over who had responsibility for the
                           activity. The Saginaw Housing Commission expected the
                           City to perform the assessment; the City expected HUD to
                           perform the assessment. Responsibility for this activity
                           shifted from HUD to the City as a result of a change in the
                           Federal Regulations that became effective May 30, 1996.
                           HUD decided in February 2000 to allow the Housing
                           Commission to contract out this activity since neither the
                           City nor the Housing Commission had the time or expertise
                           to conduct the assessment in house.

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Land Was Sold At Less       The Housing Commission obtained two independent
Than Fair Market Value      appraisals for the subject parcel in July 1999. The first
                            appraisal was for $9,000; the second was for $13,250. The
                            appraisals were prepared on July 12 and July 16,
                            respectively. The second appraisal was more extensive and
                            was based on six comparable sales while the first appraisal
                            was based on only three comparable sales.

                            The Housing Commission established $9,000 as the sale
                            price for its parcel based on the lower of the two appraisals
                            without giving any justification to the Housing
                            Commission’s Board. We examined the Board Meeting
                            Minutes and Board Advisories covering the period May
                            through September of 1999 but could not locate any
                            references to the property being sold for less than fair market
                            value. The former Executive Director informed us that the
                            Board Member employed by Saginaw Future, Inc.
                            recommended that the $9,000 figure be accepted as the
                            selling price.

                            HUD Regulations at 24 CFR Part 970.8 describe what
                            documents must be included in the Housing Commission’s
                            application seeking HUD approval. Part 970.8(l) requires an
                            estimate of fair market value for the property, established on
                            the basis of one independent appraisal, unless HUD
                            determines that more than one appraisal is warranted. In this
                            case, HUD’s Grand Rapids Office requested two
                            independent appraisals, according to statements made by the
                            Executive Director in the Board Minutes of July 26, 1999.
                            However, the second appraisal that resulted in a higher
                            valuation for the property was apparently ignored by the
                            Housing Commission. HUD files indicated that only the
                            $9,000 appraisal was received with the Application for
                            Disposition of Real Property, preventing HUD from
                            considering the higher valuation.

Board Members And The       The Saginaw Housing Commission Board consists of five
Mayor Had Undisclosed       members appointed by the Mayor of the City of Saginaw to
Conflicts Of Interest       staggered five year terms. At least two of the Board
                            Members and the Mayor appeared to have conflicts of
                            interest because the property sale would have benefited one
                            or more General Motors suppliers. One of the members
                            works for Saginaw Future, Inc., the agency responsible for
                            initiating the idea of attracting companies to Saginaw with an
                            interest in building new facilities in close proximity to

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                                                                Finding 3


                General Motors. The other Board Member and the Mayor of
                Saginaw are both employed by Delphi Automotive, a major
                supplier that was part of General Motors until it was spun off
                as an independent company in 1999.

                Based on our review of Board Minutes, we concluded that
                neither Board member disclosed their potential conflict of
                interest during the Board Meeting at which Resolution 99-04
                was passed that authorized the land sale. Neither Board
                member abstained from voting on the resolution. The
                Minutes do not reflect that the $9,000 selling price was voted
                on by the Board, or that the price was advocated by a
                particular Board member.

                Since the Mayor of Saginaw appoints the Board Members,
                and the Mayor and the Board Members in question work for
                a General Motors supplier and an organization promoting
                business for General Motors suppliers, there is an appearance
                that the disposition of the land may not have been in the best
                interests of the Housing Commission. The transaction would
                have primarily benefited the City of Saginaw.

Conclusion      The Saginaw Housing Commission ignored HUD’s Part 970
                Regulations by: (1) not preparing an application to HUD for
                disposition of public housing property prior to selling the
                land; (2) not performing an environmental assessment in
                accordance with the environmental regulations before taking
                an action committing HUD or local funds; and (3) failing to
                obtain HUD approval before selling the land at less than fair
                market value. Board members approved a resolution
                authorizing the sale of the property without conducting
                research into HUD’s disposition requirements. Furthermore,
                conflict of interest relationships existed between some
                Board members and their private employers that appeared to
                influence the decision to sell the property for less than fair
                market value before the environmental assessment was
                completed.

                Consequently, an impartial environmental assessment could
                not be prepared, the disposition action may not have been in
                the best interests of the Housing Commission, and fair
                compensation for the property was not assured.




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Auditee Comments       Excerpts from the auditee’s comments on our draft finding
                       follow. Appendix B contains the complete text of the
                       comments:

                       Under a previous administration, the Housing Commission
                       started the disposition process for the 2.2 acres of land
                       without regard to HUD regulations that are very clear about
                       disposition of property. A security deposit for the property in
                       the amount of $1,000 was issued and held by the Housing
                       Commission. However, a formal closing did not take place
                       because of the unpaid bond on the land. A closing cannot
                       take place when land has not been legally cleared of all
                       obligations. As a result, the signed warranty transfer was not
                       valid.

                       The Housing Commission did comply with the
                       environmental requirements because the land was never
                       legally transferred or sold.

                       I disagree that two Board Members and the Mayor had
                       undisclosed conflicts of interest. The fact that the Board
                       Members and Mayor were advocating for the selling of the
                       property to increase economic opportunity for the residents
                       of the City of Saginaw does not constitute a conflict of
                       interest in my opinion. The appearance and actual conflict of
                       interest are two vastly different issues. The Mayor and
                       Board Member that work for a General Motors supplier did
                       not benefit directly or indirectly from the transaction. As the
                       Executive Director, I will assure HUD that the Housing
                       Commission has and will take all necessary safeguards to
                       ensure compliance of regulations and address conflicts of
                       interest.

OIG Evaluation of      A formal closing did occur at Lawyer’s Title Insurance
Auditee Comments       Company on August 13, 1999. Documents were signed
                       acknowledging the legal requirements needed before the
                       closing could be recorded at the Saginaw County Registrar of
                       Deeds Office. Thus, a closing did take place but it could not
                       be legally recorded until the conditions cited by the title
                       company were removed.

                       The environmental requirements at 24 CFR Part 970.4
                       prohibit any disposition activity committing HUD or local
                       funds to the activity until HUD approval is obtained. The

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                                                                       Finding 3


                     purchase agreement for the land was executed on August 3,
                     1999.     A lease was executed between the Housing
                     Commission and the purchaser in January 2000. Both
                     actions took place before the environmental review was
                     completed.      These activities show that the Housing
                     Commission did not comply with the environmental
                     requirements even if the Housing Commission disagrees that
                     a closing for the land took place on August 13, 1999.

                     Conflict of interest disclosure requirements cover both actual
                     and apparent conflicts. The Mayor and two Board Members
                     should have disclosed their interest in the land sale to the rest
                     of the Board and the public. We disagree with the Executive
                     Director that the Board Member employed by Saginaw
                     Future, Inc. did not benefit indirectly from the land sale.
                     Without the sale, there would not have been two
                     manufacturing plants built in the area, and Saginaw County’s
                     Economic Development Corporation would not have
                     financed part of the construction with $6.7 million in revenue
                     bonds. Since securing jobs had been a major concern for the
                     City, the sale of the land would have benefited General
                     Motors by having its suppliers nearby. Actions that
                     benefited the community may have influenced the Mayor to
                     re-appoint the Board Members to another five-year term.


Recommendations      We recommend that the Director, Public Housing, Michigan
                     State Office, assures that the Saginaw Housing Commission:

                     3A.     Considers taking appropriate action against Board
                             members for not disclosing potential conflicts of
                             interest to the full Board and for authorizing
                             disposition of Housing Commission land without
                             ensuring that HUD requirements were followed.




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                                                                                              Finding 4


          Section 8 Units Had Health and Safety
                        Violations
The Saginaw Housing Commission’s Section 8 units contained numerous health and safety violations.
The 18 units inspected by OIG’s Inspector had a total of 278 violations, 271 of which existed at the time
of the Housing Commission’s last inspection. These deficiencies existed because: the Housing
Commission’s contract inspector did not properly report violations; the Housing Commission did not
consistently do quality control inspections to evaluate the performance of its contracted inspector; the
Housing Commission did not remove landlords from the program who consistently had units with large
numbers of Housing Quality Standards violations; and the Housing Commission did not remove tenants
from the program who abused their units. As a result, HUD’s Housing Quality Standards were violated,
and tenants were subjected to conditions that were hazardous to their health and safety.


HUD Requirements                        24 CFR Part 982.1(a) requires that Section 8 dwelling units
                                        be decent, safe and sanitary.

                                        24 CFR Part 982.401(a)(1) says that Section 8 housing must
                                        comply with the Housing Quality Standards, both at initial
                                        occupancy of the dwelling unit, and during the term of the
                                        assisted lease.

                                        24 CFR Part 982.404 says that a family [occupying the unit]
                                        is responsible for a breach of the Housing Quality Standards
                                        that is caused by any member of the household or guest
                                        damaging the dwelling unit or premises (damages beyond
                                        ordinary wear and tear). If the family has caused a breach of
                                        the quality standards, the public housing authority must take
                                        prompt and vigorous action to enforce the family obligations,
                                        which may include terminating assistance for the family.

                                        The Housing Quality Standards address 13 conditions:

                                        •   Sanitary Facilities
                                        •   Food Preparation and Refuse Disposal
                                        •   Space and Security
                                        •   Thermal Environment
                                        •   Illumination and Electricity
                                        •   Structure and Materials
                                        •   Interior Air Quality
                                        •   Water Supply
                                        •   Lead-based Paint
                                        •   Access

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Finding 4


                                 •   Site and Neighborhood
                                 •   Sanitary Conditions
                                 •   Smoke Detectors

Sample Selection and             We judgmentally selected units for inspection from a total
Inspections                      universe of 318 units. Of the 318 units, our sample selection
                                 was limited to the same 13 units that had been inspected by
                                 the Housing Commission between October 1999 and
                                 February 2000. We expanded our scope to include five
                                 additional units inspected by the Housing Commission
                                 during the same time period that were identified to us as
                                 having landlords with a history of repeat quality standards
                                 violations. Our inspections were conducted between March
                                 15 and March 22, 2000. We provided photographs of the
                                 units and copies of the inspection reports to the Housing
                                 Commission’s Section 8 Manager.

 Units Contained Health and      Of the 18 units we inspected, all had health and safety
 Safety Violations               violations. OIG’s inspector determined that 271 of the 278
                                 violations he observed existed at the time of the Housing
                                 Commission’s last inspection. The Housing Commission’s
                                 inspector identified only 22 of the violations in his reports.
                                 The following is a list of the violations by category of
                                 Housing Quality Standard:

                                     HOUSING QUALITY              Violations   Percent of   Identifie
                                        STANDARD                   Found         Total        d by
                                                                                              SHC
                                 Structure and Materials             120        43.17%         8
                                 Illumination and Electricity         53        19.06%         0
                                 Sanitary Bathroom Facilities         19         6.83%         3
                                 Site and Neighborhood                19         6.83%         1
                                 Food Preparation and Refuse          17         6.12%         1
                                 Disposal
                                 Lead-based Paint                     15        5.40%           0
                                 Interior Air Supply                  11        3.96%           2
                                 Space and Security                   10        3.60%           0
                                 Thermal Environment                   4        1.44%           2
                                 Access                                4        1.44%           0
                                 Smoke Detectors                       4        1.44%           1
                                 Water Supply                          1        0.36%           4
                                 Sanitary Conditions(pest free)        1        0.36%           0
                                                    TOTALS           278       100.00%         22

 Structures and Materials        In the Structures and Materials category, 120 violations were
                                 identified in 18 units. Violations included air infiltration due

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                                                                                         Appendix B


                                           to windows and exterior doors not fitting properly, rotted
                                           window trim, torn carpet, chimney mortar missing, broken
                                           windows, foundations with severe cracks, unsafe stoop steps,
                                           and deteriorated floors.

                                           To satisfy this standard, the unit must be structurally sound.
                                           The structure must not present any threat to the health and
                                           safety of the occupants and must protect the occupants from
                                           the environment.




Foundation has a large horizontal crack
at 2615 Prescott. This condition existed
 during the Housing Commission’s last
              inspection.




 Foundation is severely cracked and a
 few inches out of alignment at 2126
Collingwood. This condition existed
during the Housing Commission’s last
             inspection.




Illumination and Electricity               Twelve units had 53 illumination and electricity violations.
                                           The violations included missing and broken outlet covers,
                                           exposed electrical wiring, a bedroom not having a ceiling
                                           fixture controlled by a wall switch or a wall outlet controlled
                                           by a wall switch, a kitchen did not have a permanent light
                                           fixture operated by a wall switch. Kitchen and bathroom
                                           outlets were not protected by Ground Fault Circuit
                                           Interrupters.

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                                         HUD regulations require that each room have adequate
                                         natural or artificial illumination to permit normal indoor
                                         activities and support the health and safety of occupants.
                                         Sufficient electrical sources must be provided to permit the
                                         use of essential electrical appliances while assuring safety
                                         from fire. Fires and electrical shock can result from
                                         inadequate or improperly installed electrical facilities.
                                         Although ground fault protected outlets are not a requirement
                                         under HUD’s Housing Quality Standards, they are required
                                         by the City of Saginaw Housing Code, the Consumer
                                         Product Safety Commission and the National Electrical
                                         Code.




  Basement at 717 North Fayette has
  many electrical hazards.




Sanitary Bathroom Facilities             Eleven units had 19 Sanitary Bathroom Facilities violations.
                                         The violations included lack of privacy due to missing
                                         bathroom door hardware, toilets leaking at the base, and
                                         basins and tubs not in proper operating condition.

                                         HUD Regulations require that the dwelling unit must include
                                         sanitary facilities located in the unit and the facilities must be
                                         usable in privacy. The regulations also require that the
                                         dwelling unit have a fixed basin, shower or tub in proper
                                         operating condition with hot and cold running water.




 2001-CH-1003                         EXIT   Page 28                                Table of Contents
                                                                                            Appendix B




 Bathroom toilet leaking at the base at
 2414 Narloch Street




 Site and Neighborhood                       Twelve units had 19 violations in Site and Neighborhood.
                                             Violations included standard one-hour fire-rated door
                                             missing from an unfinished mechanical room next to the
                                             finished living area, and hot water pipes in the living area not
                                             insulated to protect children from burns.

                                             HUD regulations require that site and neighborhood may not
                                             be subject to serious adverse environmental conditions,
                                             natural or manmade, such as dangerous walks or steps,
                                             instability, flooding, poor drainage, septic tank backups or
                                             sewage hazards, excessive accumulations of trash, vermin or
                                             rodent infestation, or fire hazards.




Exposed hot water pipe in the living
area (arrow) is not insulated to
protect children from burns at 1531
Cornelia Street




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 Food Preparation And Refuse            Nine units had 17 Food Preparation violations. The
 Disposal                               violations included inoperable appliances, missing
                                        refrigerator parts causing food to not maintain a low enough
                                        temperature, and dripping faucets.

                                        HUD Regulations require that the dwelling unit must have
                                        suitable space and equipment to store, prepare and serve
                                        foods in a sanitary manner.

 Lead Based Paint                       Eight units had 15 violations in Lead Based Paint. HUD’s
                                        Housing Quality Standards state that lead-based paint is a
                                        serious health hazard to small children living in older
                                        structures. All chewable, protruding, painted surfaces up to
                                        five feet from the floor or ground which are readily
                                        accessible to children under six years of age and have
                                        cracking, chipping, peeling or loose surfaces may contain
                                        harmful amounts of lead-based paint. All chewable surfaces
                                        must be tested and if lead-based paint is found, the surfaces
                                        must be treated.

 Interior Air Supply                    Seven units had 11 Interior Air Supply violations. They
                                        included water flue pipe severely pinched, plumbing sewer
                                        clean out cap missing, open sewer lines not properly capped,
                                        water heater and furnace room not properly ventilated, and
                                        bath vent fan inoperative.

                                        HUD Regulations require that the dwelling unit must be free
                                        from dangerous levels of air pollution from carbon
                                        monoxide, sewer fuel gas, dust and other harmful pollutants.




Plumbing sewer clean-out cap
is missing at 1531 Cornelia. Sewer
gas is permeating the unit.




 2001-CH-1003                        EXIT   Page 30                             Table of Contents
                                                                                    Appendix B




Space and Security                     Five units had 10 violations related to Space and Security.
                                       The violations included missing and non-functional locks on
                                       windows and doors.

                                       All windows and doors that are accessible from the outside
                                       must be lockable to reduce the risk of burglary or other
                                       unlawful entry into the dwelling. The following picture
                                       shows that a bedroom window accessible from the outside
                                       was missing the locking mechanism. A mother and her two
                                       young daughters lived in the unit.




 Bedroom window with exterior access
 is missing a locking mechanism.




Contract Inspector Failed To           The Housing Commission’s Contract Inspector failed to
Cite Violations                        properly cite violations. OIG determined that 271 of the
                                       violations identified during our inspections existed at the
                                       time of the Housing Commission’s last inspection. We
                                       based this conclusion on information received from tenants
                                       in relation to the nature of the violations. Of the 18 units
                                       failed by OIG, all 18 were passed by the Housing
                                       Commission inspector.

Excessive Inspections In               The Housing Commission entered into an agreement on
Narrow Time Frame                      April 1, 1997, with a contractor to perform Housing Quality
                                       Standard inspections. He was to perform initial and annual
                                       inspections, and quality control audits of units requested by
                                       the Section 8 Coordinator or the Administrator of Housing
                                       Operations. The contractor received $35.00 per completed
                                       inspection which included a follow-up inspection verifying
                                       that all deficiencies had been corrected.

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                                                                                        2001-CH-1003
Finding 4



                                 In reviewing a billing submitted by the contractor, we noted
                                 that he performed 15 follow-up inspections on August 11,
                                 1999, 26 follow-up and four initial/annual inspections on
                                 August 18, 1999, 24 follow-up inspections on August 19,
                                 1999, 25 initial/annual inspections on August 20, 1999, and
                                 16 initial/annual inspections on August 24, 1999. The
                                 inspector operates as a single individual, not as part of a
                                 larger staff that might have been able to accomplish the
                                 number of inspections billed. According to a HUD official,
                                 it was unlikely that the inspector could complete as many as
                                 25 inspections in one day. Tenants advised us that the
                                 inspector spent very little time in their units. He asked
                                 tenants if there were any known problems.

Quality Control Inspections      The Housing Commission did not consistently perform
Not Consistently Performed       quality control inspections to evaluate the performance of its
                                 contracted inspector. The Commission’s Section 8 housing
                                 manager informed us that one contracted inspector
                                 performed quality control inspections on units inspected by a
                                 second contracted inspector, but we were unable to confirm
                                 this. The Housing Commission did not have documentation
                                 to support those quality control inspections. Therefore, the
                                 Housing Commission had no assurance that its inspection
                                 program for Section 8 units was adequate or that deficiencies
                                 were properly cited and corrected.

Landlords Not Terminated         The Housing Commission has not terminated landlords who
                                 have a history of units that did not pass HUD’s Housing
                                 Quality Standards. However, the Housing Commission has
                                 denied housing assistance payments to some landlords until
                                 the deficiencies were corrected.

                                 When landlords sign the Housing Assistance Payment
                                 Contract, they certify that they will maintain the unit in
                                 accordance with Housing Quality Standards. The Housing
                                 Commission may terminate a Housing Assistance Payment
                                 contract for a breach of the Housing Quality Standards.

Tenants Not Terminated           The Housing Commission has not terminated tenants who
                                 have violated the Housing Quality Standards, as provided in
                                 24 CFR Part 982.404. The Housing Commission has denied
                                 tenants access to the program if the tenants owed money to a
                                 landlord, but when they paid what was owed, they were
                                 allowed to continue with the program. However, the Housing

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                                                                      Appendix B


                       Commission took no action against tenants who failed to
                       correct housing violations for which they were responsible.

                       Thirty six of the 278 violations cited were the responsibility
                       of the tenant to correct. In all, 13 tenants were cited for one
                       or more violations.

                       As a result of the problems detailed above, HUD’s Housing
                       Quality Standards were violated, and tenants were subjected
                       to conditions that were hazardous to their health and safety.



 Auditee Comments      Excerpts from the auditee’s comments on our draft finding
                       follow. Appendix B contains the complete text of the
                       comments:

                       After reviewing this section, it is clear that the Housing
                       Commission needs to improve the inspection process for all
                       of its Section 8 Certificate and Voucher holders. I agree with
                       the report that the inspection of properties has been a weak
                       link in the program. The 18 Section 8 units will be re-
                       inspected by the Housing Commission’s staff inspector to
                       determine if the violations in the report have been repaired.
                       If the landlord has not made repairs, the inspector will issue a
                       letter indicating the items that need to be repaired and a
                       reasonable time period to make them. If all repairs are not
                       completed in the allotted time, the Housing Commission will
                       stop housing assistance payments to the landlord(s). The
                       contract inspector’s services were discontinued during the
                       audit, and we began utilizing a staff member familiar with
                       the Housing Quality Standards inspection protocol.

OIG Evaluation of      The auditee’s comments           were    responsive    to   our
Auditee Comments       recommendations.



 Recommendations       We recommend that the Director, Office of Public Housing
                       Hub, Michigan State Office, in coordination with the
                       Michigan State Office’s Director of Community Planning
                       and Development, assures that the Saginaw Housing
                       Commission:



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                                                                          2001-CH-1003
Finding 4


                  4A.      Advises property owners to correct the deficiencies in
                           the 18 Section 8 units where we identified violations;

                  4B.      Ensures that its contract or internal inspectors receive
                           sufficient training on HUD inspection procedures to
                           assure that violations noted during their inspections
                           are reported in compliance with HUD reporting
                           requirements; and

                  4C.      Establishes and maintains an effective quality control
                           system to evaluate the performance of its inspectors.




2001-CH-1003   EXIT     Page 34                              Table of Contents
Management Controls
In planning and performing our audit, we considered the management controls of the Saginaw
Housing Commission in order to determine our auditing procedures, not to provide assurance on
the controls. Management controls include the plan of organization, methods and procedures
adopted by management to ensure that its goals are met. Management controls include the
processes for planning, organizing, directing, and controlling program operations. They include the
systems for measuring, reporting, and monitoring program performance.



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

                                      ·   Program Operations - Policies and procedures that
                                          management has implemented to reasonably ensure that a
                                          program meets its objectives.

                                      ·   Validity and Reliability of Data - Policies and procedures
                                          that management has implemented to reasonably ensure
                                          that valid and reliable data are obtained, maintained, and
                                          fairly disclosed in reports.

                                      ·   Compliance with Laws and Regulations - Policies and
                                          procedures that management has implemented to
                                          reasonably ensure that resource use is consistent with
                                          laws and regulations.

                                      ·   Safeguarding Resources - Policies and procedures that
                                          management has implemented to reasonably ensure that
                                          resources are safeguarded against waste, loss, and
                                          misuse.

                                      We assessed all of the relevant controls identified above.

                                      It is a significant weakness if management controls do not
                                      provide reasonable assurance that the process for planning,
                                      organizing, directing, and controlling program operations
                                      will meet an organization’s objectives.

Significant Weaknesses                Based on our review, we believe the following items are
                                      significant weaknesses:



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                                                                                        2001-CH-1003
Management Controls


                         ·   Program Operations

                         The Housing Commission’s controls did not ensure that a
                         system was established for evaluating, monitoring and
                         reporting Drug Elimination Grant Program outcomes and
                         benefits. (See Finding 1.) Also, controls did not ensure that
                         landlords who had a repeat history of housing quality
                         standards violations, and tenants who abused their living
                         units, were removed from the housing subsidy program.
                         (See Finding 4.)

                         ·   Compliance with Laws and Regulations

                         The Housing Commission did not exercise adequate control
                         over its planned expenditures to assure that only eligible
                         costs were charged to its grant programs. (See Finding 1.)
                         Also, controls were inadequate to assure that HUD
                         requirements were met regarding the need to submit an
                         Application for Disposition of Real Property and
                         environmental assessment report before attempting to sell the
                         2.2-acre parcel of land. (See Finding 3.)




2001-CH-1003          EXIT   Page 36                             Table of Contents
Follow Up On Prior Audits
This is the first audit conducted by the HUD Office of Inspector General of the Saginaw Housing
Commission in at least the past eight years.




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Follow Up On Prior Audits




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2001-CH-1003                EXIT   Page 38                  Table of Contents
                                                                                      Appendix A

Schedule of Questioned Costs


Recommendation                                             Type of Questioned Costs
   Number                                          Ineligible 1/         Unsupported 2/

      1A                                                                    $3,632
      1B                                            $ 3,157
      2A                                              2,466
      2B                                              5,947
      2C                                           _______                    4,350

     Total                                          $11,570                 $7,982




1/     Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
       that the auditor believes are not allowable by law, contract or Federal, State or local
       policies or regulations.

2/     Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
       activity and eligibility cannot be determined at the time of audit. The costs are not
       supported by adequate documentation or there is a need for a legal or administrative
       determination on the eligibility of the costs. Unsupported costs require a future decision
       by HUD program officials. This decision, in addition to obtaining supporting
       documentation, might involve a legal interpretation or clarification of Departmental
       policies and procedures.




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Appendix A




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                                                             2001-CH-1003
                                                                                    Appendix B

Auditee Comments


Saginaw Housing Commission


October 30, 2000

Mr. Ronald F. Huritz
Assistant District Inspector General for Audit
U. S. Department of Housing and Urban Development
Office of Inspector General
77 West Jackson Boulevard, Room 2646
Chicago, IL 60604

Dear Mr. Huritz:

Enclosed are my comments to the Draft Audit Findings at the Saginaw Housing Commission. I
have been the new Executive Director since March 27, 2000, and I have taken some actions prior to
the completion of the audit to improve program management, provide more staff accountability,
and improve the delivery of services. Although the Saginaw Housing Commission has been a
standard performing agency over the past three years under PHMAP, the Housing Commission has
lacked a strategic vision to guide management and staff toward the achievement of sound programs
with controls. In my short seven months, the Housing Commission has begun to not only
strategically plan but also more importantly, improve.

Should you have any questions, please do not hesitate to contact me at (517) 755-8183, extension
137.

Sincerely,



Troy D. White
Executive Director




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Appendix C




  Saginaw Housing Commission Needs to
Improve Grant Administration and Evaluate
            its Effectiveness
Finding 1

Police Payroll Cost
Were Unsupported         It is my understanding from speaking to staff that cross
                         communication between divisions was extremely poor
                         between December 1997 and January 1998. The lack of
                         consistent cross dialog with the various departments caused
                         poor program management. However, I disagree that the
                         accounting department made no attempts to obtain the
                         supporting documentation from the Saginaw Police
                         Department. The accounting department contacted the
                         housing operations department responsible for program
                         management of all social service funds. The accounting
                         department paid the billing based on the information
                         submitted. Since my arrival as Executive Director, the
                         payment structure has been changed.

Scholarships Exceed
Limits                   I agree with this finding. The Housing Commission did not
                         follow the HUD notice of funding available which clearly
                         states that scholarships are not to exceed $500.00 per
                         individual.

Incomplete Performance
Reports                  I agree that the semi-annual performance reports need to
                         improve in terms of measurable quantifiable outcomes for
                         each program. Unfortunately, under another administration
                         the Housing Commission did not provide specific
                         performance measures for programs funded under Drug
                         Elimination. The information on file does not provide true
                         program measures because staff was not required to be
                         responsible to measure program performance.

                         The Computer Learning Center, Policing, and Delta College
                         reporting is lacking detail on program outcomes that should
                         be included in the semi-annual reports.



2001-CH-1003             EXIT      Page 42                        Table of Contents
                                                                               Appendix B




Recommendations
Office Of Inspector General

1A. Recover from the Saginaw Police Department and repay to HUD $3,632 in
unsupported payroll cost, or obtain time records that support the dollar amount.

Housing Commission staff will contact the Saginaw Police Department and request the
supporting payroll documentation for the period beginning December 19, 1997 and
January 16, 1998. If the information is not available the Housing Commission will
request a letter from the Saginaw Police Department, Chief of Police, to verify the
specific dates the officer was on duty.

Currently, the billing for the Saginaw Police Department is reviewed and approved by
the Resident Initiative Coordinator. The documentation is sent over to the Administrator
of Business Operations for review and approval. Payments are recorded on the
computer system and presented to the Executive Director in weekly payment reviews.

As of November 6, 2000 the process will be changed as follows; the billing for he
Saginaw Police Department will be reviewed and approved by the Resident Initiative
Coordinator, the supporting documentation will be sent over to the Accounting
Coordinator for review and approval. The Accounting Coordinator will review all
Supportive Service payments with the Executive Director weekly for approval. Bills to be
paid weekly are recorded on the computer system and presented to the Administrator
of Business Operations for approval, then given to the Executive Director for final
approval prior to a check being issued for payment.

                                 1B. Repay HUD $3,157 for scholarship awards that
                                 exceeded the $500 individual limit.

                                 The scholarship program was put on hold internally in
                                 August 2000 because the program did not have any specific
                                 guidelines or goals. In September 2000 the entire program
                                 was discontinued due to the lack of program goals and
                                 exceeding the limits of funding per each individual. The last
                                 payment made on this program was within the program
                                 guidelines on August 24, 2000. The Housing Commission
                                 will repay HUD the overpayment amount of $3,157 for not
                                 following the notice of funding program guidelines.

                                 1C. Implement a system for measuring the effects of its
                                 Drug Elimination Grant funded activities encompassing all
                                 the elements required by the regulations.



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                                                                                   2001-CH-1003
Appendix C


                               The Housing Commission will develop a quantitative
                               performance evaluation measurement system that
                               encompasses all of the elements of the Drug Elimination
                               Grant regulation within 90 days. The new system will be
                               implemented within 30 days from the completion of the new
                               evaluation system. The Housing Commission will
                               incorporate these changes into all newly executed sub
                               grantees funded under the Drug Elimination Grant.

                               1D. Submit complete semi-annual reports to HUD describing
                               program progress and accomplishments in sufficient detail to
                               allow HUD to assess the Housing Commission’s
                               effectiveness in administering the Drug Elimination Grant
                               Program.

                               The submission of completed semi-annual reports to HUD
                               will be achieved through the new reporting requirement to
                               sub grantees and staff. A quarterly review will be instituted
                               for all activity under the Drug Elimination funding. The
                               review will be done through a monthly activity report staff
                               will be required to submit to the Executive Director for
                               review and comment. The monthly report will serve as a
                               guide to determine if program measures are being met.



   Saginaw Housing Commission Did Not
   Assure That The Tenants Organization
 Properly Administered Its Drug Elimination
                  Grant
Finding 2
Sub-recipient agreement
Was not in effect              The former agreement between the Saginaw Housing
                               Commission and the Saginaw Tenants Organization
                               was executed on February 19, 1996. I agree that
                               there was no formal contractual agreement in place
                               during the time of funding.

Tenants Organization did
Not maintain control over


2001-CH-1003                EXIT   Page 44                              Table of Contents
                                                                      Appendix B

its grant funding              I disagree with this finding. The Saginaw Tenants
                               Organization did have control over the funding and
                               was aware of disbursements from the Saginaw
                               Housing Commission.

Housing Commission overpaid
Tenants Organization for
Payroll taxes                  The Saginaw Housing Commission should have been
                               paying the Saginaw Tenants Organization as a sub
                               contractor to the Saginaw Housing Commission. The
                               Saginaw Tenants Organization would then be
                               responsible to pay all cost as any business that works
                               with the Saginaw Housing Commission.

Tenants Organization disbursed
Funds that should have been
returned to HUD                The Housing Commission informed the Saginaw
                               Tenants Organization that no costs incurred after
                               February 1, 1999 would be reimbursable. The
                               Housing Commission prior to the funding restriction
                               distributed the $5,947 of funding the Saginaw
                               Tenants Organization used. The fact that the
                               expenditures occurred considerably after the date
                               they were received does not make them ineligible.
                               Additionally, I have not seen any documentation from
                               the Housing Commission requesting funding back
                               from the Saginaw Tenants Organization or an attempt
                               to put a hold/lien on the Saginaw Tenants
                               Organization’s bank account during this time period
                               by the Saginaw Housing Commission. I disagree that
                               this funding should be returned to HUD.

Payroll taxes and
quarterly reports not
submitted timely               Paying prompt payroll taxes is an important and key
                               element of operating a business. The Saginaw
                               Tenants Organization was treated in many respects
                               as an independent consultant. As such, the Housing
                               Commission would not have been directly responsible
                               to ensure payment of payroll taxes.

Reported accomplishments
were not supported             The establishment of specific program measures was
                               and is lacking in the Drug Elimination Program. The
                               Housing Commission should have requested detailed
                               information from the Saginaw Tenants Organization

                         EXIT             Page 45                 Table of Contents
                                                                           2001-CH-1003
Appendix C

                                 to measure the performance of the programs. I agree
                                 that the information was not sufficient. However the
                                 Housing Commission should instruct all sub grantee
                                 of what type of quantifiable reports are acceptable.

Consultant fees not included
In HUD approved budget
                                 The Housing Commission is responsible for
                                 requesting and approving additional services if those
                                 services impact the Drug Elimination budget. The
                                 funding to support the consultant should have been
                                 included in the budget when submitted to HUD.

Recommendations
Office Of Inspector General

2A. Repay HUD $2,466 for excess payroll withholding taxes paid by the Housing
Commission to the Saginaw Tenants Organization.

As a sub contractor or sub grantee to the Housing Commission, the Saginaw Tenants
Organization would be responsible to make all payroll tax payments without any
direction from the Housing Commission. If an overpayment occurred it would be the
responsibility of the grantee to repay HUD the funding and seek repayment from the
sub grantee. The Housing Commissions possible error in the overpayment will be
resolved in reviewing the original program budget with the Saginaw Tenants
Organization and providing supporting documentation for the total payroll tax payments.

2B. Instruct the Tenants Organization to repay HUD $5,947 disbursed after February 1,
1999.

The funding received prior to the Housing Commission discontinuing funding were
eligible expenses as per both the Housing Commission and Saginaw Tenants
Organization. The fact that the Saginaw Tenants Organization paid its expense months
later does not invalidate the funding especially since the Housing Commission did not
seek a lien on the Saginaw Tenants Organizations bank account. I believe these funds
should not be repaid to HUD.

2C.   Provide documentation to HUD supporting the fees paid to the Tenant
Organization’s consultant.

                                 The Housing Commission will request the Saginaw
                                 Tenants Organization to submit all supporting
                                 documentation and deliverables the Organization
                                 received from the consultant.




2001-CH-1003              EXIT       Page 46                        Table of Contents
                                                                         Appendix B


     Saginaw Housing Commission Did Not
    Follow HUD Requirements When It Sold
          Housing Commission Land
Finding 3
Disposition application submitted
to HUD after land was sold        Unfortunately, this was partly true. Under a previous
                                  Administration the Housing Commission started the
                                  disposition process for the 2.2 acres of land without
                                  regards to HUD regulations that are very clear in
                                  regards to the disposition of property.    A security
                                  deposit for the property in the amount of $1,000 was
                                  issued and held by the Housing Commission.
                                  However, a formal closing did not take place because
                                  of the unpaid bond on the land. A closing cannot take
                                  place when land has not been legally cleared of all
                                  obligations. As a result the signed warranty transfer
                                  was not valid. This document supposedly transferred
                                  ownership of the property. It should be noted that on
                                  September 23, 1999 during this transaction the
                                  Executive Director voluntarily resigned. The
                                  application for disposition of real property was
                                  submitted once the Board of Commissioners
                                  appointed a new Interim Executive Director.


Environmental Assessment
prepared after the sale closed   Again, I disagree that a legal closing took place on
                                 August 13, 1999 when the property still had
                                 obligations and debt against it. Thus, the execution of
                                 the warranty was void. However, I do agree that the
                                 final environmental information was not submitted
                                 until April 2000. This was done under the Interim
                                 Executive Director and issued to the Detroit HUD
                                 Field Office by the current Executive Director. The
                                 Housing Commission did comply with the
                                 environmental requirements because the land was
                                 never legally transferred or sold.




Land was sold at less than

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                                                                              2001-CH-1003
Appendix C

fair market value             In my review of the disposition application, I did not
                              see any documentation regarding a higher sales price
                              for the parcel. The former Executive Director had an
                              obligation to ensure that the highest amount or at
                              least fair market value would be received for the
                              property. This was a failure in the system.
                              Additionally, it was not revealed in my review that the
                              Board Member that works at Saginaw Futures, Inc.
                              ever stated what the former Executive Director
                              alleged.


Board members and the
Mayor had undisclosed
conflict of interest          I disagree that two Board Members and the Mayor
                              had undisclosed conflicts of interest. The fact that the
                              Board Members and Mayor were advocating for the
                              selling of the property to increase economic
                              opportunity for the residents of the City of Saginaw
                              specifically, the residents within the proximity of the
                              new plants does not constitute a conflict of interest in
                              my opinion. The appearance and actual conflict of
                              interest are two vastly different issues. The Mayor
                              and Board Member that work for a General Motors
                              supplier did not benefit directly or indirectly from the
                              transaction. Whether the land was sold or not had
                              and has no bearing on the employment of these two
                              individuals.     The Board Member that works at
                              Saginaw Futures, Inc. did not benefit directly or
                              indirectly from the transaction. Additionally, this
                              individual was never the primary staff person
                              responsible for the completion of the land sale at
                              Saginaw Futures, Inc.          I believe that all three
                              members listed in the report are guilty of trying to
                              improve the economic prosperity of the northeast
                              section of Saginaw by advocating for jobs and
                              economic opportunity for the residents of the
                              neighborhood where the new plants were to be
                              constructed. This section of Saginaw has the lowest
                              median income and highest unemployment rate in the
                              City of Saginaw. I do not believe that there was a
                              conflict of interest on the disposition of land.

Recommendations
Office Of Inspector General


2001-CH-1003            EXIT     Page 48                          Table of Contents
                                                Appendix B



   3A. Take appropriate action against Board members
   for not disclosing potential conflicts of interest to the full
   Board and requesting any necessary waivers from
   HUD.

   I do not believe the Board Members had a conflict of
   interest in the selling of the 2.2 acres of land in Daniels
   Heights. The responsibility of following HUD
   regulations and safe guarding the Housing
   Commission from any irregularities was the
   responsibility of the past administration. The Board
   Members interest was for the community where the
   new facilities are to be constructed. The area serves
   Public Housing and Section 8 residents that the
   Housing Commission administers. As the Executive
   Director, I will assure HUD that the Housing
   Commission has and will take all necessary safe
   guards to ensure compliance of regulations and
   address conflicts of interest.

   3B. Obtain fair market value compensation for the
   subject property by either (1) accepting the higher
   appraised value of $13,250 or (2) publicly resoliciting
   bids for the property and selling it at no less than the
   highest appraised valued.

   On September 7, 2000 the Office of the Assistant
   Secretary for Public and Indian Housing approved the
   Saginaw Housing Commission’s request for the
   disposition of 2.2 acres of vacant land at Daniels
   Heights. The approval was for the fair market value of
   $9,000. If the Housing Commission sells any land in
   the future it will be done following HUD regulations for
   the highest appraised amount.


   3C. Consider removing the current Board members
   who were responsible for authorizing disposition of
   Housing Commission land without adequate oversight
   to assure that the disposition met HUD requirements.

   Providing adequate oversight begins with the
   administration running the day-to-day operations of the
   Saginaw Housing Commission. The Executive Director
   is responsible to provide direction to the Board of

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Appendix C

                                  Commission. The Board of Commissioners are the
                                  policy makers and were, unfortunately put in a position
                                  to be involved in more than policy decisions. The
                                  disposition process should have been clearly
                                  discussed with the full Board of Commissioners. The
                                  failure of providing direction resulted in a process that
                                  was nearing violation of HUD regulations. The Board of
                                  Commissioners Interim Executive Director followed the
                                  appropriate HUD regulations to begin to dispose of the
                                  property. I do not believe that the Board Members
                                  should be removed. As the Executive Director, I have
                                  taken responsibility to inform the Board Members of
                                  HUD regulations.




       Section 8 Units Had Health and Safety
                     Violations
Finding 4

After reviewing this section it is clear that the Housing Commission needs to improve
the inspection process for all of its Section 8 Certificate and Voucher holders. I agree
with the report that the inspection of properties has been a weak link in the program.
Obviously, when the OIG inspector finds 278 violations and the Housing Commissions
contracted inspector identifies only 22 at the same 18 units there is a serious problem
in the program. Additionally, the photographs of the violations concrete the gross
negligence by the hired inspection contractor and lack of staff over sight in the process.

Recommendations
Office Of Inspector General

4A. Ensure that the owners correct the violations in the 18 Section 8 units where we
identified violations.

The 18 Section 8 units in this report will be re-inspected by the Housing Commissions
staff inspector to determine if the violations in the report have been repaired. If the
landlord has not made repairs, the inspector will issue a letter indicating the items that
need to be repaired and a reasonable time period to make these repairs. If all of the
repairs are not completed in the allotted time period the Housing Commission will stop
HAP payments to the landlord(s).



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                                                                              Appendix B

4B. Ensure that its contract inspector properly cites all violations during his inspections.
If the inspector fails to identify all violations, the Housing Commission should take
action to obtain a new inspector.

                                   The contract inspector services were discontinued on
                                   June 7, 2000. The Housing Commission began
                                   utilizing a staff member familiar with the HQS
                                   inspection protocol to inspect the Section 8 properties.
                                   The staff member was sent to Uniform Physical
                                   Condition Standards training in July 2000 to learn the
                                   new inspection standards. A temporary staff member
                                   was also hired to assist in the inspection of Section 8
                                   properties and public housing annual inspections. A
                                   request for qualifications (RFQ) was issued in June
                                   and September of this year to secure contracted
                                   inspection services to assist staff in a limited capacity.
                                   The Housing Commission rejected all bidders.
                                   Currently, the Housing Commission has a full and part
                                   time staff member responsible for Section 8
                                   inspections. This new system has improved the quality
                                   and control of inspections at the Section 8 properties.
                                   As the Section 8 program expands at the Housing
                                   Commission additional inspection staff will be added to
                                   safe guard health and safety violations at Section 8
                                   properties.




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                                                                                       Appendix C

Distribution
Secretary
Deputy Secretary
Chief of Staff
Office of Administration
Acting Assistant Secretary for Congressional and Intergovernmental Relations
Deputy Assistant Secretary, Office of Public Affairs
Deputy Assistant Secretary for Administrative Services, Office of the Executive Secretariat
Deputy Assistant Secretary for Intergovernmental Relations
Acting Deputy Chief of Staff
Deputy Chief of Staff for Policy
Deputy Chief of Staff for Programs
Special Counsel to the Secretary
Senior Advisor to the Secretary
Special Assistant for Inter-Faith Community Outreach
Executive Officer for Administrative Operations and Management
General Counsel
Assistant Secretary for Housing/Federal Housing Commissioner
Assistant Secretary for Policy Development and Research
Assistant Secretary for Community Planning and Development
Assistant Deputy Secretary for Field Policy and Management
Office of Government National Mortgage Association
Assistant Secretary for Fair Housing and Equal Opportunity
Director, Office of Departmental Equal Employment Opportunity
Chief Procurement Officer
Assistant Secretary for Public and Indian Housing
Director, Office of Departmental Operations and Coordination
Office of the Chief Financial Officer
Chief Information Officer
Acting Director, Enforcement Center
Acting Director, Real Estate Assessment Center
Director, Office of Multifamily Assistance Restructuring
Secretary’s Representative, Midwest (2)
Senior Community Builder, Michigan State Office
Director, Office of Public Housing, Michigan State Office
Acting General Deputy Assistant Secretary, Public and Indian Housing
Deputy Assistant Secretary, Office of Administration and Budget/Chief Financial Officer
Deputy Assistant Secretary, Office of Native American Programs
Deputy Assistant Secretary for Public and Assisted Housing Delivery
Deputy Assistant Secretary, Office of Troubled Agency Recovery
Deputy Assistant Secretary for Public Housing Investments
Audit Liaison Officer, Office of Public and Indian Housing
Deputy Assistant Chief Financial Officer for Financial Management
Director, Audit Coordination Division, Departmental Audit Liaison Officer
Director, Risk Management Division

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Chief Financial Officer, Audit Liaison Officer
Primary Audit Liaison Officer – Eastern Districts (Philadelphia)
Acquisitions Librarian
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 Building, United States, Senate, Washington, DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
  Building, House of Representatives, Washington, DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204
  Rayburn Building House of Representatives, Washington DC 20515
Armando Falcon, Director, Office of Federal Housing Enterprise Oversight, 1700 G Street, NW
   Room 4011, Washington, DC 20552
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212 O’Neil House
  Office Building, Washington, DC 20515
Stanley Czerwinski, Associate Director, Resources, Community and Economic Development
  Division, United States General Accounting Office, 441 G Street, NW, Room 2T23, Washington
  DC 20548
Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street, NW,
  Room 9226, New Executive Office Building, Washington, DC 20503




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