oversight

Detroit Housing Commission, HOPE VI Program, Detroit, Michigan

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-05-16.

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

          AUDIT REPORT




       DETROIT HOUSING COMMISSION
            HOPE VI PROGRAM

           DETROIT, MICHIGAN

               2001-CH-1007

               MAY 16, 2001



          OFFICE OF AUDIT, MIDWEST
              CHICAGO, ILLINOIS




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                                                                      Issue Date
                                                                         May 16, 2001

                                                                     Audit Case Number
                                                                         2001-CH-1007




  TO:            David Sowell, Director-Senior Advisor of Public Housing Investments, PI
                 Joann Adams, Director of Public Housing Hub, Michigan State Office

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

  SUBJECT:       Detroit Housing Commission
                 HOPE VI Program
                 Detroit, Michigan

  We completed an audit of the Detroit Housing Commission’s HOPE VI Program. The objectives of
  our audit were to determine whether the Housing Commission administered its HOPE VI Program in an
  efficient, effective, and economical manner and in compliance with HUD’s requirements. We
  performed the audit based upon our Fiscal Year 2000 annual audit plan.

  The Housing Commission did not administer its HOPE VI Program in an efficient, effective, and
  economical manner and failed to comply with HUD’s requirements. The Commission used an estimated
  $740,790 of HUD funds (HOPE VI, Development, and Comprehensive Grant Program) to pay for
  construction work that was improperly performed or that was not provided. The work improperly
  performed or work not provided occurred in 95 of the 116 units (82 percent) and all 45 buildings
  inspected by our inspectors. Sixty-six units and 38 buildings did not meet HUD’s Housing Quality
  Standards.

  The Housing Commission also: paid $11,245,351 and approved for payment an additional $815,105
  for change orders without sufficient supporting documentation; failed to obtain HUD’s prior approval
  for 20 change orders, as required by the HOPE VI Grant Agreements; used $568,548 to pay
  construction expenses for the Frankfort Sewer project that the City should have provided at no cost to
  the Commission; and paid $3,643,031 and approved for payment an additional $1,278,651 for
  unreasonable, unnecessary, and/or unsupported expenses. As a result, HUD lacks assurance that the
  Commission’s HOPE VI Program resources were used to the maximum extent to benefit low and
  moderate income individuals.




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  Management Memorandum


  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 furnish us copies of any correspondence or
  directives issued because of the audit.

  Should you or your staff have any questions, please have them contact me at (312) 353-7832 or Heath
  Wolfe, Assistant District Inspector General for Audit, at (312) 353-6236 extension 2677.




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  Executive Summary
  We completed an audit of the Detroit Housing Commission’s HOPE VI Program. The objectives of
  our audit were to determine whether the Housing Commission administered its HOPE VI Program in an
  efficient, effective, and economical manner and in compliance with HUD’s requirements. We
  performed the audit based upon our Fiscal Year 2000 annual audit plan.

  The Housing Commission did not administer its HOPE VI Program in an efficient, effective, and
  economical manner and failed to comply with HUD’s requirements.


                                       The Housing Commission and its former and current Executive
   The Commission’s                    Directors failed to follow Federal requirements, State of
   Administration Of The               Michigan law, and the Commission’s requirements regarding the
   HOPE VI Program Was                 administration of the HOPE VI Program. Specifically, the
   Very Poor                           Commission used or approved for payment over $18 million in
                                       HUD funds (HOPE VI, Development, and Comprehensive
                                       Grant Program) to pay for: construction work that was
                                       improperly performed or not provided; construction and
                                       professional services that were not supported with detailed
                                       work specifications; sewer construction work that the City of
                                       Detroit should have provided at no cost to the Commission; and
                                       unreasonable and unnecessary expenses, or expenses without
                                       documentation to support that they benefited the Commission’s
                                       Jeffries Home or the Villages at Parkside HOPE VI Projects or
                                       were reasonable and necessary expenses.

                                       The Housing Commission did not follow the Annual
   The Commission Paid For             Contributions Contract, HUD’s regulations, and the HOPE VI
   Revitalization Work To The          Grant Agreement to ensure units at the Villages at Parkside II
   Villages At Parkside That           and IV were decent, safe, and sanitary after revitalization. The
   Was Improperly Performed            Commission used an estimated $678,969 of HUD funds
   Or Not Provided                     (HOPE VI, Development, and Comprehensive Grant Program)
                                       to pay for revitalization work that was improperly performed or
                                       that was not provided. The work improperly performed or
                                       work not provided occurred in all of the units and buildings (66
                                       units and 43 buildings) inspected by our inspectors. Fifty-one
                                       units and 36 buildings did not meet HUD’s Housing Quality
                                       Standards.




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                               The Housing Commission did not follow the Annual
   The Commission Paid For     Contributions Contract, HUD’s regulations, and the
   Modernization Work To       Commission’s Revitalization Plan to ensure units at the Jeffries
   Jeffries Homes That Was     Homes HOPE VI Project were decent, safe, and sanitary after
   Improperly Performed Or     modernization. The Commission used an estimated $61,821 of
   Not Provided                Comprehensive Grant Program funds to pay for modernization
                               work that was improperly performed or that was not provided.
                               The work improperly performed or work not provided
                               occurred in 29 of the 50 units (58 percent) and the two
                               buildings inspected by our inspector. Fifteen of the 29 units and
                               the two buildings did not meet HUD’s Housing Quality
                               Standards.

                               The Housing Commission did not maintain an effective system
   The Housing Commission’s    of controls over its contracting process. Contrary to Federal
   Contracting Process Was     requirements, State of Michigan law, and/or the Cooperation
   Not Performed In An         Agreement with the City of Detroit, the Commission improperly
   Efficient, Effective, And   used HUD funds (HOPE VI, Development, and
   Economical Manner           Comprehensive Grant Program) or inappropriately approved
                               for payment $13,181,214 for construction or professional
                               services. The improper expenses included: (1) $11,245,351
                               paid and an additional $815,105 approved for payment for
                               change orders without sufficient supporting documentation; (2)
                               $568,548 paid in construction expenses for the Frankfort
                               Sewer project that the City should have provided at no cost to
                               the Commission; and (3) $550,980 paid and an additional
                               $1,230 approved for payment for excessive construction costs,
                               interest expenses, and repair costs to correct contractor
                               damages that were not reasonable and necessary expenses of
                               the Commission. The Housing Commission failed to obtain
                               HUD’s prior approval for 20 change orders, as required by the
                               HOPE VI Grant Agreements. The Commission also lacked
                               documentation to support that HOPE VI construction or
                               professional services contracts were awarded through full and
                               open competition, or in an efficient and effective manner.

                               The Housing Commission did not maintain sufficient control
   The Commission Lacked       over HUD funds (HOPE VI and Comprehensive Grant) for the
   Control Over Funds For      Villages at Parkside HOPE VI Project. The Housing
   The Villages At Parkside    Commission: (1) lacked documentation to show that $999,128
   HOPE VI Project             of HUD funds paid and an additional $1,269,377 approved for
                               payment benefited the Commission’s Parkside HOPE VI
                               Project or were reasonable and necessary expenses; and (2)

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                               paid $5,096 in interest expense from HUD funds and approved
                               for payment another $8,044 for interest expense that was not
                               reasonable and necessary to the Parkside HOPE VI Project.

                               The Housing Commission did not follow the HOPE VI Grant
   The Commission Paid         Agreements, HUD’s regulations, Office of Management and
   $2,087,827 In Unsupported   Budget Circular A-87, and State of Michigan law regarding the
   Costs For The Jeffries      use of funds for the Jeffries Homes HOPE VI Project. The
   Homes HOPE VI Project       Commission lacked documentation to show that $2,087,827 of
                               HOPE VI funds paid benefited the Jeffries Homes Project or
                               were reasonable and necessary expenses.

                               We recommend that HUD declare the Housing Commission in
   Recommendations             default of the HOPE VI Grant Agreements and take action to
                               place the administration of the Commission’s HOPE VI
                               Program under a third party, acceptable to HUD, or HUD
                               petition for the appointment of a receiver for the Program. We
                               also recommend that HUD assure the Commission: implements
                               controls to correct the weaknesses cited in this report; and
                               takes appropriate action on all other concerns addressed in this
                               report.

                               We presented our draft findings to the Housing Commission’s
                               Executive Director and HUD’s staff during the audit. We held
                               an exit conference with the Commission on April 26, 2001.

                               The Housing Commission disagreed with our draft findings.
                               The Commission acknowledged that the Villages at Parkside
                               and Jeffries Homes HOPE VI Projects experienced
                               extraordinary construction delays, contractor disputes and
                               performance issues, and cost overruns.           However, the
                               Commission indicated that its current administration had begun
                               to implement operational enhancements and controls for the
                               HOPE VI Program.

                               We included paraphrased excerpts of the Housing
                               Commission’s comments with each finding. The complete text
                               of the comments is in Appendix B with the exception of 83
                               attachments that were not necessary for understanding the
                               Commission’s comments.           A complete copy of the
                               Commission’s comments were provided to HUD’s Director-
                               Senior Advisor of Public Housing Investments and the Michigan
                               State Office Director of Public Housing Hub.

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  Management Memorandum                                                  i



  Executive Summary                                                  iii



  Introduction                                                       1



  Findings
  1    The Commission’s Administration Of The HOPE VI
       Program Was Very Poor                                         5

  2    The Commission Paid For Revitalization Work To
       The Villages At Parkside That Was Improperly
       Performed Or Not Provided                                    21

  3    The Commission Paid For Modernization Work To
       Jeffries Homes That Was Improperly Performed Or
       Not Provided                                                 39

  4    The Housing Commission’s Contracting Process Was
       Not Performed In An Efficient, Effective, And
       Economical Manner                                            53

  5    The Commission Lacked Control Over Funds For The
       Villages At Parkside HOPE VI Project                         79

  6    The Commission Paid $2,087,827 In Unsupported Costs
       For The Jeffries Homes HOPE VI Project                       87



  Management Controls                                               93




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  Follow Up On Prior Audits                        97



  Appendices

         A       Schedule Of Questioned Costs     99


         B       Auditee Comments                 101


         C       Inspectors’ Cost Estimates       131


         D       Distribution                     135




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  Introduction
  The Detroit Housing Commission was established under State of Michigan law. The Housing
  Commission contracts with HUD to provide low and moderate-income persons with safe and sanitary
  housing through rent subsidies. In May 1996, the housing authority was changed from the Detroit
  Housing Department of the City of Detroit to the Detroit Housing Commission. The change resulted
  from a December 1995 agreement with HUD to provide the Housing Commission a greater amount of
  independence in such areas as personnel, procurement, finance, and human resources. The City
  Council needed to amend the City ordinance to create a completely independent housing entity and
  transfer all assets to the Housing Commission. However, as of April 2001, the City Council had not
  amended the ordinance.

  The HOPE VI Program was developed as a result of recommendations contained in a report submitted
  to Congress on August 10, 1992 by the National Commission on Severely Distressed Public Housing.
  The Commission recommended revitalization in three general areas: physical improvements,
  management improvements, and social and community services to address resident needs. Congress
  responded immediately to the Commission’s report and appropriated $300 million on October 6, 1992.

  The HOPE VI Program permits expenditures for the capital costs of demolition, construction,
  rehabilitation and other physical improvements, development of replacement housing, and community
  and supportive services. Public housing authorities are encouraged to seek new partnerships with
  private entities to create mixed-finance and mixed-income affordable housing that is different from
  traditional public housing projects. Housing authorities can use HOPE VI Program funds in conjunction
  with modernization funds or other HUD funds, as well as municipal and State contributions, public and
  private funds, and low-income housing tax credit equity. HUD awards HOPE VI grants to public
  housing authorities on a competitive basis based upon applications to a Notice of Funding Availability.

  HUD awarded the Housing Commission eight HOPE VI Grants (Implementation, Planning, and
  Demolition) between August 1994 and September 1999. The eight Grants totaled $126,346,651 and
  were to be used to revitalize three of the Housing Commission’s severely distressed developments. The
  three developments are the Villages at Parkside, Jeffries Homes, and Herman Gardens. The following
  table shows the HOPE VI Grants awarded for each development.

                      Development             Implementation   Planning     Demolition       Total
       Villages at Parkside                  $ 47,620,227      $499,922   $          0    $ 48,120,149
       Jeffries Homes                          39,807,342                  10,000,000       49,807,342
       Herman Gardens                          24,224,160                    3,795,000      28,019,160
       Villages at Parkside/Herman Gardens              0       400,000              0         400,000
                        Totals               $111,651,729      $899,922   $13,795,000    $126,346,651


  In addition to the HOPE VI Grants, over $24 million in Development, Comprehensive Grant, and/or
  Low-Income Housing Tax Credit funds awarded to the Housing Commission were to fund its
  revitalization plans for the developments. The Commission had only received $1,000 in Low-Income
  Housing Tax Credit funds as of June 2000. As of June 2000, the Commission had spent over $103.1

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  million in HUD funds for the revitalization efforts to the Villages at Parkside ($53.8 million), Jeffries
  Homes ($32.1 million), and Herman Gardens ($17.2 million).

  The Parkside Project’s revitalization efforts include four Villages with the objective of creating a mixed-
  income development, unit reconfiguration, providing resident homeownership, and reducing the
  Project’s density. The Housing Commission has demolished over 20 buildings at the four Villages, and
  modernized 22 buildings and constructed 21 buildings at Villages II and IV. The Commission plans to
  construct an additional 64 buildings at Villages I and III. The number of units at Parkside will be
  reduced from 1,066 units before revitalization to 462 units after revitalization.

  The revitalization efforts for Jeffries Homes and Herman Gardens Projects also include creating mixed-
  income developments, unit reconfiguration, providing resident homeownership, and/or reducing the
  Projects’ density. The Housing Commission has demolished 28 buildings and modernized two senior
  high-rise buildings at Jeffries. The Commission plans to modernized two additional buildings and
  construct over 60 new buildings. The number of units at Jeffries will be reduced from 1,920 units
  before the revitalization to 750 units after revitalization. The Commission has demolished all 167
  buildings at Herman Gardens and plans to construct 672 new units.

  The Housing Commission’s HOPE VI Program has experienced substantial problems since the award
  of the HOPE VI Grants. Specifically, the Commission’s Villages at Parkside and Jeffries Homes
  HOPE VI Projects have suffered from extraordinary construction delays, contractor disputes and
  performance issues, cost overruns, numerous changes to construction plans, and unpaid invoices. Once
  HUD was aware of the cost overruns and the unpaid invoices, HUD suspended the Commission’s
  ability to draw down funds for the HOPE VI Program in April 1999. In May 2000, HUD lifted the
  suspension because an agreement was executed with the Commission to settle the unpaid invoices.
  HUD provided the Commission an additional $8.4 million as part of the agreement.

  The Housing Commission’s principal manager is an Executive Director. The Executive Director is
  responsible for carrying out the Housing Commission’s policies and managing the day-to-day operations
  of the Commission. The Director is also responsible for maintaining the Housing Commission’s
  compliance with Federal, State, and local laws, as well as the Commission’s policies and procedures.

  The Housing Commission has experienced a turnover at its Executive Director position during the past
  five years. Between July 1996 and April 1998, Carl Green was the Commission’s Executive Director.
  After Mr. Green left the Commission, Irene Hannah was appointed Interim Executive Director until
  April 4, 1999. As of April 5, 1999, John Nelson, Jr. was appointed the Commission’s Executive
  Director.

  A five member Board of Commissioners governs the Housing Commission. The Mayor of the City of
  Detroit, currently Dennis Archer, appoints the Board members for two-year terms. The Chairperson of
  the Board is Lisa Webb Sharpe. The Commission’s books and records are located at 2211 Orleans
  and 1301 East Jefferson in Detroit, Michigan.


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                         The audit objectives were to determine whether the Housing
   Audit Objectives      Commission administered its HOPE VI Program in an efficient,
                         effective, and economical manner and in compliance with
                         HUD’s requirements.

                         We conducted the audit at HUD’s Office of Public Housing
       Audit Scope And   Investments, HUD’s Michigan State Office, and the Housing
       Methodology       Commission’s offices. We performed our on-site audit work
                         between March 2000 and March 2001. Since construction
                         work had not commenced at the Commission’s Herman
                         Gardens HOPE VI Project, we limited our audit to the Villages
                         at Parkside and Jeffries Homes HOPE VI Projects.

                         To accomplish our audit objectives, we interviewed: HUD’s
                         staff; City of Detroit officials; Army Corp of Engineers’
                         employees; the Commission’s current and former Executive
                         Directors, Board members, staff, and current and former
                         contractors/consultants; and 99 residents. We analyzed the
                         following items: tenant files; cash disbursement reports,
                         canceled checks, and bank statements; vendor files, contracts,
                         invoices, and change orders; unit inspection reports;
                         construction plans and specifications; Board meeting minutes;
                         cash receipts and general ledgers; audited financial statements;
                         Total Development Cost reports; Revitalization and Business
                         Plans; certificates of occupancy; and the Authority’s policies
                         and procedures. We also reviewed: HUD’s files for the
                         Commission; Sections 201 and 209 of the Annual Contributions
                         Contract between HUD and the Commission; Parts 24, 85,
                         882, and 968 of Title 24 of the Code of Federal Regulations;
                         Office of Management and Budget Circular A-87; the
                         Cooperation Agreement between the Commission and the City
                         of Detroit; the Housing Facilities Act (Public Act 18) of the
                         Michigan Complied Laws Annotated Section 125.685; and the
                         HOPE VI Grant Agreements for the Jeffries Homes and the
                         Villages at Parkside.

                         We statistically selected 116 of the 481 units and all 45
                         buildings for inspection that were revitalized/modernized at the
                         Housing Commission’s Jeffries Homes and the Villages at
                         Parkside HOPE VI Projects. The Army Corp of Engineers
                         inspected the units and buildings to determine whether the
                         Commission received the revitalization/modernization work

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                 according to the construction contracts and whether the units
                 and buildings were decent, safe, and sanitary after the work
                 was completed. We also judgmentally selected 23 construction
                 or professional services contracts and 88 change orders
                 executed by the Housing Commission to determine whether the
                 Commission procured the construction or professional services
                 according to Federal requirements and the Commission’s
                 Procurement Policies. The Army Corp of Engineers assisted us
                 in the review of the contracts and change orders.

                 The audit covered the period March 1, 1998 through February
                 29, 2000. This period was adjusted as necessary. We
                 conducted the audit in accordance with generally accepted
                 government auditing standards.

                 We provided a copy of this report to the Mayor of the City of
                 Detroit, and Housing Commission’s Executive Director and to
                 the Chairperson of the Board.




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                                                                                                Finding 1


  The Commission’s Administration Of The HOPE
          VI Program Was Very Poor
  The Detroit Housing Commission and its former and current Executive Directors failed to follow Federal
  requirements, State of Michigan law, and the Housing Commission’s requirements regarding the
  administration of the HOPE VI Program. Specifically, the Housing Commission used or approved for
  payment over $18 million in HUD funds (HOPE VI, Development, and Comprehensive Grant Program)
  to pay for: construction work that was improperly performed or not provided; construction and
  professional services that were not supported with detailed work specifications; sewer construction
  work that the City of Detroit should have provided at no cost to the Commission; and unreasonable and
  unnecessary expenses, or expenses without documentation to support that they benefited the
  Commission’s Jeffries Home or the Villages at Parkside HOPE VI Projects or were reasonable and
  necessary expenses. Because the Housing Commission did not administer the HOPE VI Program
  properly, the Commission will exceed HUD’s maximum development costs for the Jeffries Homes and
  the Villages at Parkside without a substantial capital contribution. The Commission’s current and former
  Executive Directors did not exercise their responsibilities to ensure that the Commission complied with
  Federal, State, and local laws as well as the Commission’s requirements. As a result, HUD lacks
  assurance that the Commission’s HOPE VI Program resources were used to the maximum extent to
  benefit low and moderate income individuals.


                                         The HOPE VI Implementation Grant Agreements, between
   Federal Requirements                  HUD and the Detroit Housing Commission dated August 12,
                                         1994 for the Jeffries Homes HOPE VI Project and February 8,
                                         1995 for the Villages at Parkside HOPE VI Project, say HUD
                                         may impose special conditions or restrictions on the
                                         Commission due to unsatisfactory performance or default. The
                                         special conditions or restrictions include the following:

                                             •    Withholding authority to proceed to the next phase of
                                                  activities until receipt of evidence of acceptable
                                                  performance;
                                             •    Requiring additional, more detailed financial reports;
                                             •    Additional project monitoring;
                                             •    Requiring the Commission to obtain technical or
                                                  management assistance; or
                                             •    Establishing additional prior approvals.

                                         The HOPE VI Grant Agreements also say a default by the
                                         Housing Commission may be declared if one of the following
                                         events occur:

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  Finding 1


                     •     Use of Grant funds for any purpose other than as
                           authorized by the Grant Agreement;
                     •     Failure to comply with the HOPE VI requirements or
                           any other Federal, State, or local laws, regulations, or
                           requirements; or
                     •     Failure to comply with any covenants, conditions, or
                           terms of the Grant Agreement.

                 The HOPE VI Grant Agreements provide HUD an option of
                 requiring the Housing Commission to contract with an alternate
                 administrator, acceptable to HUD, if it fails to cure all defaults
                 within set time periods. HUD also has the option of taking any
                 of the following remedial or enforcements actions upon written
                 notice to the Commission:

                     •     Petition for the appointment of a receiver for the HOPE
                           VI Development;
                     •     Terminate the HOPE VI Grant and initiate close-out
                           procedures;
                     •     Withdraw any unobligated balances of funding;
                     •     Take action against the Commission under 24 CFR
                           Part 24 with respect to future HUD or Federal grant
                           awards; and
                     •     Take any other available legal or equitable remedial
                           action, including but not limited to any remedial actions
                           available under the Commission’s Annual Contributions
                           Contract with HUD.

                 24 CFR Part 24.110 permits HUD to take administrative
                 sanctions against employees of recipients under HUD assistance
                 agreements that violate HUD’s requirements. The sanctions
                 include debarment, suspension, or limited denial of participation
                 which are authorized by 24 CFR Parts 300, 400, or 700,
                 respectively. HUD may impose administrative sanctions based
                 upon the following conditions:

                     •     Failure to honor contractual obligations or to proceed in
                           accordance with contract specifications or HUD
                           regulations (limited denial of participation);
                     •     Deficiencies in ongoing construction projects (limited
                           denial of participation);
                     •     Violation of any law, regulation, or procedure relating to
                           the application for financial assistance, insurance or

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                                                                                           Finding 1


                                          guarantee, or to the performance of obligations incurred
                                          pursuant to a grant of financial assistance or pursuant to
                                          a conditional or final commitment to insure or guarantee
                                          (limited denial of participation);
                                     •    Violation of the terms of a public agreement or
                                          transaction so serious as to that affect the integrity of an
                                          agency program such as a history of failure to perform
                                          or unsatisfactory performance of one or more public
                                          agreements or transactions (debarment);
                                     •    Any other cause of so serious or compelling a nature
                                          that it affects the present responsibility of a person
                                          (debarment); or
                                     •    Material violation of a statutory or regulatory provision
                                          or program requirements applicable to a public
                                          agreement or transaction including applications for
                                          grants, financial assistance, insurance or guarantees, or
                                          to the performance of requirements under a grant,
                                          assistance award, or conditional or final commitment to
                                          insure or guarantee (debarment).

                                 An Executive Director’s duties include:
   Executive Director’s Duties
   And Responsibilities          •        Overseeing the development and implementation of
                                          organizational policies and procedures for attaining the
                                          Housing Commission’s objectives;
                                 •        Carrying out the Commissioners’ policies and managing
                                          the Commission’s day-to-day operations. In this
                                          capacity, the Executive Director is responsible for
                                          keeping the Commissioners informed of operational
                                          developments and to provide them with information for
                                          future policy and program guidance; and
                                 •        Maintaining overall compliance with Federal, State, and
                                          local laws, as well as the Commission’s policies and
                                          procedures.

                                 The Housing Commission and its current and former Executive
   The Commission                Directors did not exercise their responsibilities to effectively
   Improperly Administered       manage the Commission’s HOPE VI Program. The Housing
   The HOPE VI Program           Commission and its Directors failed to follow the HOPE VI
                                 Grant Agreements, HUD’s regulations, State of Michigan law,
                                 the Annual Contributions Contract, Office of Management and
                                 Budget Circular A-87, and the Commission’s Agreements and
                                 Policies regarding the administration of the Jeffries Homes and

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  Finding 1


                              the Villages at Parkside HOPE VI Projects. The Commission’s
                              and the Directors’ actions demonstrate a lack of management
                              ability to administer the HOPE VI Program in an efficient,
                              effective, and economical manner.

                              Contrary to Federal requirements, the Housing Commission
   The Commission Paid For    failed to ensure units at the Jeffries Homes and the Villages at
   Construction Work That     Parkside HOPE VI Projects were decent, safe, and sanitary
   Was Improperly Performed   after receiving construction work. The Commission used HUD
   Or Not Provided            funds to pay for construction work that was improperly
                              performed or that was not provided. The work improperly
                              performed or work not provided occurred in 95 of the 116
                              units (82 percent) and all 45 buildings inspected by our
                              inspectors. Of the 95 units and the 45 buildings with improper
                              work or work not provided, 66 units and 38 buildings did not
                              meet HUD’s Housing Quality Standards. We projected it
                              would cost over $740,000 to repair the work that was not
                              provided or improperly performed (see Findings 2 and 3).

                              Contrary to Federal requirements, State of Michigan law, and
   Change Orders For          the Commission’s Procurement Policies, the Housing
   Services Were Not          Commission used over $11 million in HUD funds and approved
   Supported With Detailed    for payment an additional $815,105 for 46 change orders that
   Specifications             were not sufficiently supported. The change orders were paid
                              or approved for payment between June 1996 and March 2001
                              and related to construction or professional services at the
                              Commission’s Jeffries Homes or the Villages at Parkside
                              HOPE VI Projects. The HOPE VI Grant Agreements required
                              the Commission to obtain HUD’s prior approval on all change
                              orders in excess of $100,000. However, the Commission’s
                              former and current Executive Directors failed to obtain HUD’s
                              prior approval for 20 orders that exceeded $100,000 (see
                              Finding 4).

                              The Commission lacked detailed work specifications identifying
                              the construction or professional services provided for in the 46
                              change orders. The Commission also lacked documentation to
                              support that a cost analysis was performed on the orders. The
                              former and current Executive Directors for the Commission
                              approved the unsupported change orders for payment (see
                              Finding 4).



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                                                                                         Finding 1


                                Contrary to Federal requirements and the Cooperation
   HUD Funds Were Used To       Agreement with the City of Detroit, the Housing Commission
   Pay For Construction Work    improperly used over $560,000 in HUD funds to pay for
   That The City Should Have    construction costs to the Frankfort Sewer project. The sewer
   Provided                     construction costs were not reasonable and necessary expenses
                                of the Housing Commission and should have been provided by
                                the City at no cost to the Commission. Paragraph 5(b) of the
                                Cooperation Agreement required the City to vacate such streets
                                within the area of the Project that may be necessary in the
                                development, and convey without charge to the Commission
                                such interest as the City may have in such vacated area. The
                                Agreement says the City will also cause to be removed from
                                such vacated area all public or private utility lines and equipment
                                without cost or charges to the Commission. The Commission’s
                                former Deputy Director/Interim Executive Director approved
                                the sewer construction costs for payment (see Finding 4).

                                Contrary to Federal requirements and the State of Michigan
   The Commission Used          law, the Housing Commission paid or approved for payment
   HUD Funds To Pay             over $4.9 million in unreasonable, unnecessary, and
   Unreasonable,                unsupported expenses. The unreasonable and unnecessary
   Unnecessary, And             expenses related to excessive construction costs, interest
   Unsupported Expenses         charges by contractors or vendors because of late payments,
                                and repair of damages caused by contractors. The former and
                                current Executive Directors for the Commission approved the
                                unreasonable, unnecessary, and unsupported expenses (see
                                Findings 4, 5, and 6).

                                Because of the Housing Commission’s poor administration over
   The Commission’s Poor        the HOPE VI Program, the Commission was unable to maintain
   Administration Resulted In   the cost of the Jeffries Homes and the Villages at Parkside
   Cost Overruns                HOPE VI Projects within budgeted limits.

                                The Housing Commission spent a total of $30,596,740 in HUD
                                funds (HOPE VI and Comprehensive Grant Program) for
                                modernization of the Jeffries Homes HOPE VI Project as of
                                June 2000. The Commission modernized 205 units and two
                                buildings at the Jeffries Homes. Based upon the number of units
                                modernized, the Commission’s actual development cost per unit
                                for Jeffries Homes is $149,252. However, the Commission’s
                                maximum development cost per unit for Jeffries is limited to
                                $130,779. Therefore, the Commission’s actual cost per unit


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                 exceeded the maximum development cost by $18,473 per unit
                 as of June 2000.

                 According to the Housing Commission’s 1998 Business Plan,
                 the Commission planned to modernize or construct a total of
                 718 units at the Jeffries Homes HOPE VI Project. The
                 Commission’s former General Manager of Modernization said
                 the Commission plans to reduce the number of units at Jeffries
                 Homes by at least 112 units. Based upon the Commission’s
                 plan to reduce the number of units at Jeffries Homes, the
                 Commission will be unable to meet HUD’s maximum
                 development cost per unit unless cost adjustments are made
                 and/or additional capital contributions are received.

                 The Housing Commission spent a total of $57,866,369 in HUD
                 funds (HOPE VI, Development, and Comprehensive Grant
                 Program) for construction or revitalization work at the Villages
                 at Parkside HOPE VI Project as of June 2000. The
                 Commission constructed or revitalized 276 units and 43
                 buildings at Parkside. Based upon the number of constructed
                 or revitalized units, the Commission’s actual development cost
                 per unit for Parkside is $209,661. However, the Housing
                 Commission’s average maximum development cost per unit for
                 the Villages at Parkside Project is limited to $137,416 because
                 HUD authorized the Commission an increase of $8,410,297 in
                 the Project’s development cost. Therefore, the Commission’s
                 actual cost per unit exceeded the maximum development cost
                 by $72,245 per unit as of June 2000.

                 The Housing Commission’s plans for the construction and
                 revitalization work at the Villages at Parkside HOPE VI Project
                 have changed at least three times since the original proposal to
                 HUD. For example, the Commission’s May 8, 1995
                 Revitalization Plan for Parkside showed a total of 495
                 revitalized or newly constructed units.           However, the
                 Commission’s April 3, 2000 Total Development Cost Analysis
                 report shows a total of 462 units planned for Parkside. As the
                 Commission continues to reduce the number of planned units at
                 the Villages at Parkside HOPE VI Project, the Commission will
                 be unable to meet HUD’s maximum development cost per unit
                 unless cost adjustments are made and/or additional capital
                 contributions are received.


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       Auditee Comments   [Excerpts paraphrased from the Housing Commission’s
                          comments on our draft finding follow. Appendix B, pages 101
                          to 106, contains the complete text of the comments for this
                          finding.]

                          In an effort to prepare a response within the time frame
                          required, the Housing Commission conducted only a preliminary
                          review of the five draft findings and the associated
                          documentation identified as supporting of the finding. It is
                          important to note that the on-site OIG auditor’s fieldwork took
                          one year and involved thousands of documents. By way of
                          example, draft finding four’s [The Commission Paid For
                          Revitalization Work To The Villages At Parkside That Was
                          Improperly Performed Or Not Provided] supporting
                          documentation included 18 binders of inspection reports. A
                          comprehensive response by the Commission would require a
                          review of each document represented as supporting
                          documentation for the draft findings. This is particularly true in
                          consideration of the extraordinary recommendations presented
                          regarding the management of the HOPE VI Program and the
                          imposition of sanctions against the Commission’s Executive
                          Directors.

                          The Housing Commission disagrees with this draft audit finding
                          because it lacks due care or balance in its sweeping and
                          misleading generalizations regarding the ability of the
                          Commission’s current administration to manage the HOPE VI
                          process. The finding fails to provide a balanced context
                          regarding the circumstances confronting the current
                          administration when it took over. The April 1999 appointment
                          of the Commission’s current administration was amidst public
                          disclosure over the lack of progress and cost overruns
                          estimated at $7 million at two HOPE VI sites [Jeffries Homes
                          and the Villages at Parkside].

                          The Housing Commission’s historical files reveal that over $200
                          million was awarded to the Commission over a seven-year
                          period. Both Jeffries Homes and the Villages at Parkside
                          HOPE VI Projects were experiencing extraordinary
                          construction delays, contractor disputes and performance
                          issues, cost overruns, and program administration. Also, prior
                          to April 1999, HUD accelerated its oversight role through the

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                           issuance of several corrective action orders and suspended the
                           Commission’s ability to requisition Federal funds for the
                           Projects. It was against this backdrop that the Housing
                           Commission’s current administration began to implement
                           operational enhancements and internal controls over the
                           Commission’s HOPE VI Program. The current administration
                           also sought to liquidate millions in outstanding contractor claims
                           and overdue invoices against the Program.

       OIG Evaluation Of   The Housing Commission’s administration of its HOPE VI
       Auditee Comments    Program was very poor and deficiencies occurred during the
                           administration of the Commission’s two former Executive
                           Directors and the current Director. The Commission’s poor
                           administration resulted in the use or approval for payment of
                           over $18 million in HUD funds for improper construction or
                           professional services for the Jeffries Homes or the Villages at
                           Parkside HOPE VI Projects. The Commission’s former and
                           current Executive Directors authorized the improper use of
                           HUD funds for the Projects. The Director’s failed to ensure
                           that HUD funds for the HOPE VI Program were used
                           according to Federal requirements, State of Michigan law, and
                           the Commission’s requirements.

                           While the Housing Commission’s two former Executive
                           Directors were responsible for a number of improper payments,
                           the Commission’s current Director continued to authorize the
                           improper use of HUD funds. Executive Directors are required
                           to maintain overall compliance with Federal, State, and local
                           laws, as well as the Commission’s policies and procedures.
                           However, this was not done. The Commission’s Directors
                           either: authorized the payment of construction work that was
                           not performed or improperly provided; approved change
                           orders that lacked sufficient detail to determine the work
                           performed or the reasonableness of the associated costs; failed
                           to submit change orders to HUD for approval; permitted the
                           payment of sewer construction work that the City of Detroit
                           should have provided at no cost to the Commission; and/or
                           authorized the payment of unreasonable, unnecessary, and
                           unsupported expenses.

       Auditee Comments    The draft finding’s failure to clarify that virtually all change order
                           and contract deficiencies resulted from actions or inaction over
                           a seven-year period by the Housing Commission’s prior

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       administrations. The deficiencies predated the April 1999
       appointment of the Commission’s current administration. The
       finding failed, beyond a cursory mention, to analyze the prior
       administrations’ actions or inactions over the HOPE VI funded
       contractors/consultants and the impact of those actions or
       inactions upon the HOPE VI Program’s progress.

       The Housing Commission embraces the ultimate responsibility
       to resolve the long-standing issues by program enhancements
       and internal controls.     The Housing Commission takes
       exception to the draft finding’s failure to acknowledge the
       progress made by the Commission’s current administration over
       the last two years. The program enhancements and internal
       controls include:

       1.     The reorganization of the Commission’s development
              and modernization activities under the Development
              General Manager in addition to the hiring of
              experienced housing, construction, and finance senior
              managers;

       2.     The implementation of policy enhancements in the
              Commission’s procurement, development, and finance
              operations. Effective April 1999, procurement actions
              are coordinated through the Commission’s Procurement
              Division for the Parkside and Jeffries HOPE VI
              Projects. Effective September 1999, the Commission’s
              Procurement Policy was updated to clarify prior HUD
              approval of change orders;

       3.     The development of standard operating procedures for
              the Commission’s procurement and finance operations.
              The standard operating procedures are specific to the
              draft findings include:

                  •   Construction Contracts: Administration &
                      Monitoring;
                  •   Construction Contracts: Progress Payments;
                  •   Construction Contracts: Time Extensions;
                  •   Construction Contracts: Construction Logs;
                  •   Construction Contracts: Warranties;
                  •   Construction Contracts: Final Inspections; and
                  •   Construction Contracts: Acceptance.

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                           4.     The implementation of an extensive training program for
                                  the Commission’s development and finance staff in the
                                  areas of HOPE VI Program administration and Federal
                                  procurement regulations.     Currently, the Housing
                                  Commission’s Procurement and Development General
                                  Managers have met HUD’s requirements and are
                                  qualified to certify the Commission’s procurement
                                  actions;

                           5.     The establishment of an internal auditing function with
                                  the Management Analysis and Planning Division; and

                           6.     The establishment of a monthly reporting process to the
                                  Commission’s Board of Commissioners for all
                                  development activities including Parkside.

       OIG Evaluation Of   We amended Finding 4 to specifically identify the improper
       Auditee Comments    actions of the Housing Commission’s former and current
                           Executive Directors. Similarly, we identified the responsible
                           Housing Commission administrator in the other Findings where
                           appropriate.

                           While several of the deficiencies related to contracting and
                           change orders cited in Finding 4 occurred prior to the
                           Commission’s current Executive Director, the Director also
                           failed to ensure that the Commission carried out its contracting
                           process according to Federal, State, and local laws.

                           The Housing Commission did not provide detailed work
                           specifications with its comments to support the unsupported
                           change orders approved by the Commission’s current
                           Executive Director. The current Director approved eight
                           unsupported change orders that totaled $1,682,917 cited in
                           Finding 4.

                           In regards to the Housing Commission’s request that we amend
                           Finding 4 to reflect that the Commission approved the change
                           orders in accordance with the applicable HOPE VI Grant
                           Agreements and its Procurement Policy, the documentation
                           submitted by the Commission provided no basis to do so.

                           While the Housing Commission embraces the responsibility to
                           address the deficiencies in the HOPE VI Program and instituted

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                          changes in Program administration, the Commission has
                          historically been extremely resistant and slow to take corrective
                          action. HUD classified the Commission as operationally and
                          financially troubled in 1979. The Commission remained
                          troubled until 1997.          The Commission executed a
                          Memorandum of Understanding with HUD in 1997 in order to
                          address long-standing problems.

                          As detailed in this report, the Commission failed to properly
                          administer the HOPE VI Program. As a result, we believe that
                          HUD should take the necessary steps to remove the Program
                          from the Commission’s administration.

                          While the Housing Commission updated its Procurement Policy
                          in 1999, we disagree that the Policy clarified the need for
                          HUD’s prior approval of change orders. In fact, the
                          Commission’s 1999 Policy established a higher threshold for
                          HUD’s approval than that specified in the HOPE VI Grant
                          Agreements. The Policy requires that change orders that
                          exceed the greater of either $100,000 or 25 percent of the
                          original contract price will be submitted to HUD for prior
                          approval before executing the orders. However, the HOPE VI
                          Grant Agreements require HUD approval of change orders that
                          exceed $100,000. The Commission’s Policy cannot be used as
                          a basis to supercede the requirements of the Grant Agreements.

       Auditee Comments   The draft finding reflects only cursory attempts to interview or
                          the conduct of cursory interviews of the Housing Commission’s
                          former Executive Directors or principal staff; contractors; City
                          of Detroit officials; and HUD’s and the Army Corp of
                          Engineers’ staff. These parties are essential to a balanced,
                          comprehensive presentation of the historical record. Especially,
                          in light of the extraordinary and ultimate recommendations
                          proposed for the Commission’s HOPE VI Program. The
                          finding lacks any assessment of or comment upon HUD’s
                          oversight responsibilities including the extent to which HUD
                          provided technical assistance. There have been assessments
                          and audits conducted by HUD and OIG that cited HOPE VI
                          related procurement and program management issues as far
                          back as 1996. It is the Housing Commission’s position that the
                          finding should include an assessment of HUD’s actions or
                          inactions in monitoring and assisting the Commission in
                          reference to the assessments and audits.

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                           Given the inflammatory nature of the draft finding’s
                           recommendations and their impact upon the Housing
                           Commission,       the     Commission    requests    that     the
                           recommendations be held in abeyance until OIG has an
                           opportunity to fully review the Commission’s responses to all of
                           the draft findings. The Housing Commission also requests that
                           the draft findings be re-released and include the OIG’s
                           evaluations of the Commission’s comments. The Commission
                           contends that once the responses are examined, the
                           recommendation regarding the termination and/or contracting
                           out the HOPE VI Program will be rescinded in favor of a
                           cooperative work out plan with HUD and OIG.

                           The Housing Commission contends that the current Executive
                           Director was denied the opportunity to fully confront and
                           respond to the underlying allegations and the administrative
                           action recommendation. Accordingly, the Commission requests
                           that a memorandum specific to the Executive Director be issued
                           outlining the alleged violations that OIG contends give rise to the
                           administrative action recommendation.          Additionally, the
                           Commission requests an explanation as to basis that OIG
                           recommended the same level of administrative action for all the
                           Executive Directors without regard to proportionality and due
                           process considerations.

       OIG Evaluation Of   During the audit of the Housing Commission’s HOPE VI
       Auditee Comments    Program, we interviewed over 160 individuals. The interviews
                           included the Housing Commission’s current and former
                           Executive Directors, Board members, staff, contractors, and
                           residents. We also interviewed officials from the City of
                           Detroit, HUD’s staff, and employees of the Army Corp of
                           Engineers. The interviews along with the inspection of units and
                           buildings by the Army Corp of Engineers, the review of
                           disbursements, and the Commission’s contracting process
                           revealed that the Commission’s administration of the HOPE VI
                           Program was very poor. Our audit objectives did not include
                           an assessment of HUD’s oversight of the Commission’s
                           Program. However, an assessment of HUD’s actions does not
                           relieve the Commission of the responsibility to administer the
                           Program according to Federal, State, and local laws.

                           The HOPE VI Grant Agreements say HUD may impose special
                           conditions or restrictions on the Commission due to

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       unsatisfactory performance or default. The Grant Agreements
       also say a default by the Housing Commission may be declared
       if one of the following events occur: use of Grant funds for any
       purpose other than as authorized by the Grant Agreement;
       failure to comply with the HOPE VI requirements or any other
       Federal, State, or local laws, regulations, or requirements; or
       failure to comply with any covenants, conditions, or terms of the
       Grant Agreement. Our audit revealed that the Commission
       violated the terms of the Grant Agreements. Therefore, we
       recommended that HUD declare the Commission in default of
       the Agreements and recommended the HOPE VI Program be
       placed under a third party, acceptable to HUD, or HUD
       petition for the appointment of a receiver for the Program. The
       Housing Commission’s comments and documentation did not
       provide any justification to reverse our recommendation of
       removing the Program from the Commission.

       The Housing Commission’s current Executive Director was
       provided all of the draft audit findings, the Army Corp of
       Engineers’ inspection reports and change orders analysis, and
       schedules of the unsupported and ineligible disbursements. We
       requested the Director to provide written comments with
       supporting documents for any facts or conclusions that he or the
       Commission disagreed. However, the Commission’s responses
       did not change the material facts in the findings.

       The Commission was the subject of the audit, not the Executive
       Director. Therefore, a memorandum specific to the Director
       was not required. The findings identify the former and current
       Directors’ failure to follow Federal requirements, State of
       Michigan law, and the Commission’s requirements.

       We recommended that HUD consider taking appropriate
       administrative action against the Commission’s former and
       current Executive Directors as permitted by 24 CFR Part 24
       since the Directors failed to follow Federal, State, and local
       requirements. The basis for the administrative action is included
       in Recommendation 1D of this finding. We did not recommend
       any specific level of administration action to HUD regarding the
       Directors.




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       Recommendations   We recommend that the Director-Senior Advisor of Public
                         Housing Investments, in conjunction with the Michigan State
                         Office Director of Public Housing Hub:

                         1A.     Declares the Detroit Housing Commission in default of
                                 the HOPE VI Grant Agreements. We believe the
                                 following conditions warrant such a declaration:

                                 •       Payment of $740,790 in projected construction
                                         work that was not performed or improperly
                                         performed;
                                 •       Approval of $12,060,456 in change orders that
                                         lacked sufficient detail to determine the work
                                         performed or the reasonableness of the
                                         associated costs;
                                 •       Failure to submit 20 change orders to HUD for
                                         approval, as required by the HOPE VI Grant
                                         Agreements;
                                 •       Payment of $560,548 in sewer construction
                                         work that the City of Detroit should have
                                         provided at no cost to the Housing
                                         Commission; and
                                 •       Payment of $3,643,031 in unreasonable,
                                         unnecessary, and/or unsupported expenses.

                         1B.     Takes action to place the administration of the Detroit
                                 Housing Commission’s HOPE VI Program under a
                                 third party, acceptable to HUD, or HUD petition for
                                 the appointment of a receiver for the Program.

                         1C.     Assigns a HUD employee or employees with the
                                 principal responsibility for monitoring the Detroit
                                 Housing Commission’s HOPE VI Program, and the
                                 third party contractor or receiver approved to
                                 administer the Program.

                         1D.     Considers taking appropriate administrative action
                                 against the Detroit Housing Commission’s former and
                                 current Executive Directors as permitted by 24 CFR
                                 Part 24. We believe the following conditions warrant
                                 such an action:


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        •   The former Executive Director approved: four
            change orders totaling $4,557,122 without sufficient
            supporting documentation; one change order for
            $107,607 without HUD’s prior approval, as
            required by the HOPE VI Grant Agreements; and
            $1,775,250 in unreasonable, unnecessary, and/or
            unsupported expenses.

        •   The former Deputy Director/Interim Executive
            Director approved: 34 change orders for
            $5,820,417      without     sufficient   supporting
            documentation; six change orders totaling $568,548
            in construction work that the City of Detroit should
            have provided at no cost to the Commission; 17
            change orders totaling $6,618,998 without HUD’s
            prior approval, as required by the HOPE VI Grant
            Agreements; and $1,172,919 in unreasonable,
            unnecessary, and/or unsupported expenses.

        •   The current Director approved: eight change orders
            totaling $1,682,917 without sufficient supporting
            documentation; two change orders totaling
            $603,856 without HUD’s prior approval, as
            required by the HOPE VI Grant Agreements; and
            $1,973,513 in unreasonable, unnecessary, and/or
            unsupported expenses.




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       The Commission Paid For Revitalization Work
           To The Villages At Parkside That Was
          Improperly Performed Or Not Provided
  The Detroit Housing Commission did not follow the Annual Contributions Contract, HUD’s regulations,
  and the HOPE VI Grant Agreement to ensure units at the Villages at Parkside II and IV were decent,
  safe, and sanitary after revitalization. The Housing Commission used an estimated $678,969 of HUD
  funds (HOPE VI, Development, and Comprehensive Grant Program) to pay for revitalization work that
  was improperly performed or that was not provided. The work improperly performed or work not
  provided occurred in all of the units and buildings (66 units and 43 buildings) inspected by our
  inspectors. Fifty-one units and 36 buildings did not meet HUD’s Housing Quality Standards. The
  Housing Commission lacked sufficient controls to ensure the work was completed correctly or that the
  units and buildings were decent, safe, and sanitary after revitalization. As a result, HUD funds were not
  efficiently and effectively used. HUD also lacks assurance that the units and buildings at the Villages at
  Parkside HOPE VI Project met HUD’s Housing Quality Standards.


                                          Section 209 of the Annual Contributions Contract, between the
    Annual Contributions                  Detroit Housing Commission and HUD, states the Commission
    Contract                              will maintain each public housing project in good repair, order,
                                          and condition.

                                          24 CFR Part 968.115(d) requires that once revitalization
    HUD’s Regulations                     improvements are completed, housing commission owned or
                                          operated public housing units will provide decent, safe, and
                                          sanitary living conditions. Decent, safe, and sanitary living
                                          conditions are defined as meeting HUD’s Housing Quality
                                          Standards.

                                          24 CFR Part 882.102 states that public housing units are
                                          considered decent, safe, and sanitary if all the requirements of
                                          the Housing Quality Standards in 24 CFR Part 882.109 are
                                          met. However, a unit that does not comply with the Standards
                                          is not necessarily uninhabitable. The Standards include both
                                          performance and acceptability criteria requirements. The
                                          performance requirements relate to certain minimum facilities
                                          each unit must have. The acceptability criteria relate to the
                                          minimum standards the facilities must meet. These standards
                                          generally address the condition of sanitary facilities, food
                                          preparation areas, space and security, electrical, plumbing and

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                              heating systems, site and neighborhood, and structure and
                              materials.

                              The HOPE VI Implementation Grant Agreement dated
   HOPE VI Grant Agreement    February 8, 1995, between HUD and the Detroit Housing
                              Commission, required the Housing Commission to comply with
                              HUD’s regulations, Handbooks, and Notices. The Agreement
                              also required the Housing Commission to carry out its
                              revitalization of the Villages at Parkside with the objective of
                              developing units that are sustainable over the long-term.

                              We statistically selected a sample of 66 of the 276 units (24
   Sample Selection And       percent) and all 43 buildings that were revitalized at the Villages
   Inspection Results         at Parkside II and IV. For the statistical analysis, a confidence
                              level of 97 percent was used.

                              The Villages at Parkside II and IV are located at the junctions
                              of Warren, Conner, and Gray Avenues and Frankfort Road.
                              The Housing Commission revitalized the units and the buildings
                              using HOPE VI, Development, and Comprehensive Grant
                              Program funds. We selected the 66 units and the 43 buildings
                              to determine whether the Commission properly paid for
                              revitalization work and whether the units and buildings were
                              decent, safe, and sanitary after the work was completed. The
                              revitalization work occurred between 1997 and 1999. Our
                              inspectors inspected the 66 units and the 43 buildings between
                              July 7, 2000 and November 2, 2000.

                              We provided the inspection results to HUD’s Director-Senior
                              Advisor of Public Housing Investments, HUD’s Michigan State
                              Office Director of Public Housing Hub, and the Housing
                              Commission’s Executive Director.

                              The Housing Commission used HUD funds (HOPE VI,
   HUD Funds Were Used To     Development, and Comprehensive Grant Program) to pay for
   Pay For Revitalization     revitalization work that was improperly performed or that was
   Work That Was Improperly   not provided. The improper work and/or the work that was
   Performed Or Not           not provided occurred in all of the units and buildings (66 units
   Provided                   and 43 buildings) that we inspected. The Commission used
                              $49,233,875 in HUD funds to revitalize the 43 buildings that
                              contained 276 units.



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                             The Housing Commission’s contracts for the revitalization work
                             at the Villages at Parkside II and IV showed the total cost of
                             the work. Our inspectors provided cost estimates to repair the
                             work that was improperly performed or not provided.

                             Our inspectors estimated it would cost $387,260 to repair the
                             work that was not provided or improperly performed.
                             Appendix C, pages 131 to 133, of this report shows our
                             inspectors’ cost estimates to correct the revitalization work that
                             was improperly performed or not provided for each building
                             and unit inspected including the landscaping work. As
                             previously mentioned, the units inspected were statistically
                             selected for inspection. Using that analysis, we are 97 percent
                             confident that the cost to correct or complete the repair work
                             for all 276 units, the 43 buildings, and the landscaping work at
                             the Villages at Parkside II and IV totals $678,969. Our
                             projection has a possible error rate of plus or minus four
                             percent.

                             One of the goals of the Housing Commission’s HOPE VI
   The Commission Wanted     Project for the Villages at Parkside II and IV was to construct
   To Revitalize Parkside    new buildings or modernize existing buildings. The revitalization
                             work was to include such items as unit reconfiguration,
                             replacement of all plumbing and electrical systems, installation of
                             new heating and domestic hot water systems, and new windows
                             and doors.

                             The revitalization work that was performed incorrectly or that
   Improper Revitalization   was not provided related to such items as: improperly installed
   Work                      cabinetry and entranceways; drywall cracking or the drywall
                             tape separating from the walls; exposed electrical wiring;
                             missing or inoperable electrical outlets; inoperable light
                             switches; handrails not properly secured to walls; missing joist
                             braces; vinyl molding missing or not properly installed; floors
                             buckling and/or spongy; carpet not secured to floors; floor tiles
                             loose, missing, cracked, and/or missing grout; missing
                             doorstops; interior doors not fitting properly and/or door lock
                             fixtures not functioning; vents not operating or improperly
                             installed; smoke detectors missing or improperly installed; water
                             standing and/or leaking through basement walls and/or
                             windows; windows misaligned, not sealed, and/or mechanics of
                             the windows not operating properly; screens missing and/or not
                             fitting properly; missing light fixtures; window blinds not

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                                     properly installed; furnace and/or air conditioner units were not
                                     functioning properly; furnace plenum opening and/or bonnet not
                                     sealed properly; refrigerators and stoves not working properly;
                                     basement walls and stairs not finished; circuit breaker panels not
                                     labeled; insulation for attics insufficient; a unit was not set-up
                                     with a security alarm; and a handicapped unit lacked accessible
                                     plumbing fixtures. The following pictures show examples of
                                     revitalization work that was improperly performed or not
                                     provided.

  The drywall tape for the unit at
  12818 Frankfort was separating
  from the wall.




   Water is leaking through the
   wall where the former steam
   pipes were located in the
   basement for Building 308.




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  The window was not finished
  and no aluminum channel was
  installed for Building 304.




  An electrical conduit was
  improperly installed and was
  crossing over the patio at
  Building 301.




  A rebar was extending up from
  the ground, which presented a
  hazardous condition near
  Building 501.




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  Finding 2



  A drain was not working and
  construction debris was not
  removed near Building 205.




                                  The Housing Commission contracted with Capital Needs
   The Commission                 Unlimited, a consulting company, in December 1994 to
   Contracted For The             represent the Commission during the revitalization work.
   Oversight Of The Work          Capital Needs Unlimited subcontracted with Nathan Johnson
                                  and Associates, a professional architectural firm, to assure that
                                  the work was provided in accordance with the revitalization
                                  contracts and the work met HUD’s Housing Quality Standards.
                                  The Commission’s Board of Commissioners approved the
                                  subcontract on June 12, 1997. An architect from Nathan
                                  Johnson and Associates was responsible for the construction
                                  administration at the Villages at Parkside II and IV, which
                                  included the approval of contractor invoices and ensuring that
                                  deficiencies identified during the “pre-acceptance” and “final”
                                  inspections were corrected.

                                  Starting in September 1998, “pre-acceptance” inspections of
       The Pre-Acceptance         191 units and three buildings were conducted to ensure the
       Inspections Performed By   revitalization work was performed correctly. Staff from Capital
       The Commission’s           Needs Unlimited, Nathan Johnson and Associates, and The
       Contractors Were Poor      Formidable Group performed the inspections for the Housing
                                  Commission.        The Formidable Group, a professional
                                  management company, was contracted to manage the Villages
                                  at Parkside II and IV effective February 10, 1998. The “pre-
                                  acceptance” inspection reports did not always show the date of
                                  the inspections; however, they did show that deficient work
                                  existed.

                                  The Housing Commission did not ensure that deficient work
                                  identified during the “pre-acceptance” inspections was

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                                    corrected. Thirty of the 66 units we inspected contained work
                                    identified during the “pre-acceptance” inspection as improperly
                                    performed or not provided. However, our inspections revealed
                                    that the deficient work was not corrected for 27 of the 30 units.
                                    The following table shows the number of units and the deficient
                                    work that was not corrected for the 27 units.

                                                Deficient Work Not Corrected           Number Of Units
                                     Entranceway Not Properly Sealed                        11
                                     Carpet/Vinyl Cove Tile Not Properly Installed            8
                                     Drywall Tape Separating/Cracking                         6
                                     Window(s) Not Locking                                    5
                                     Plumbing/Plumbing Fixtures Improperly Installed          5
                                     Interior Doorway(s) Misaligned And Knobs Loose           5
                                     Cabinet Shelves And Vanity Base Not Secured              3
                                     Basement Stairs Not Completed                            2
                                     HVAC Not Properly Sealed                                 1
                                     Electrical Wiring Exposed                                1
                                     Handrail Not Secured To Wall                             1


                                    The Commission lacked documentation to support that a “pre-
                                    acceptance” inspection was performed for 36 of the 66 units
                                    we inspected.

                                    The following picture shows an example of the deficient work
                                    that was cited during the “pre-acceptance” inspection that still
                                    existed at the time of our inspection.

  The entranceway was not
  properly sealed for the unit at
  12122 Stringham Court.




                                    Between February 1999 and April 1999, staff from the Housing
   The Final Inspections            Commission’s contractors conducted “final” inspections of 199
   Performed By The                 units and three buildings. The purpose of the “final” inspections
   Commission’s Contractors         was to determine whether the revitalization work was
   Were Also Poor
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  Finding 2


                 completed in accordance with the contracts’ specifications and
                 the applicable construction codes. The “final” inspections were
                 also to determine whether the deficient work cited during the
                 “pre-acceptance” inspections was corrected. The “final”
                 inspection reports did not always identify which unit/building
                 was inspected or who performed the inspection. The
                 Commission lacked documentation to support that a “final”
                 inspection of 77 units and 40 buildings was performed.

                 Of the 66 units we inspected, the Housing Commission’s “final”
                 inspection reports for 40 units did not identify all of the
                 improperly completed work or work not performed that was
                 noted during our inspections. The Commission’s “final”
                 inspections also did not identify previously cited work from the
                 “pre-acceptance” inspections. The pictures cited on pages 24,
                 25, and 26 of this report are examples of the improper
                 revitalization work that was not identified during the “final”
                 inspections. The following table shows the number of units that
                 had improperly completed work or work not performed that
                 was not identified in the “final” inspection reports for the 40
                 units.

                      Improper Work Or Work Not Performed           Number Of Units
                  Drywall Tape Separating/Cracking                        39
                  Entranceways Not Properly Sealed                        30
                  Carpet/Vinyl Cove Tile Not Properly Installed           29
                  Plumbing/Plumbing Fixtures Improperly Installed         28
                  Electrical Wiring Exposed                               27
                  Bathroom/Kitchen Cabinet(s) Improperly                  21
                  Installed
                  Interior Doors Misaligned                                20
                  Window(s) Will Not Stay Open                             15
                  HVAC Improperly Sealed/Balanced                           9
                  Smoke Detector(s) Improperly Mounted/Missing              7
                  Handrail(s) Not Secured To Wall(s)                        7
                  Construction Debris Not Removed/Infestation               5
                  Basement Leaks                                            4
                  Interior Stairway(s) Improperly Completed                 4
                  Appliance(s) Not Functioning Properly                     2


                 The Commission lacked documentation of a “final” inspection
                 for 26 of the 66 units we inspected.

                 The following picture shows an example of the improperly
                 completed work or work not provided for one of the 40 units.


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  The doorbell wiring was
  exposed at the transformer for
  the unit at 12064 Stringham
  Court.




                                    Fifty-one of the 66 units (77 percent) and 36 of the 43 buildings
   Units And Buildings Did
                                    (84 percent) we inspected at the Villages at Parkside II and IV
   Not Meet Housing Quality
                                    did not meet HUD’s Housing Quality Standards. The units and
   Standards Due To
                                    buildings had 197 Housing Quality Standards violations. The
   Improper Work
                                    violations existed because the revitalization work was
                                    improperly performed or not provided.

                                    The Housing Quality Standards violations related to such items
                                    as: exposed wiring; inoperable electrical outlets and light
                                    switches; carpet not secured to floors which presented a
                                    tripping hazard; missing smoke detector; windows not operating
                                    properly; and refrigerators and stoves not working properly.
                                    The following table shows the number of units and buildings that
                                    had violations.

                                                                                       Number Of
                                           Housing Quality Standards Violations       Units/Buildings
                                   Construction Debris Not Removed/Site Hazards             41
                                   Electrical Wiring Exposed/Outlet Inoperable              32
                                   Insect/Rodent Infestation                                29
                                   Drywall Tape Separating/Cracking                         24
                                   Stairways, Handrails, Or Porches Not Secured             15
                                   Floors With Tripping Hazards/Foundations Cracked         12
                                   Heating And/Or Plumbing Inoperable                       11
                                   Windows Not Locking/Will Not Stay Up                     10
                                   Roofs Or Gutters Leaking/Improperly Secured               8
                                   Exterior Surfaces Cracked                                 7
                                   Basement Leaking/Not Sealed                               4
                                   Refrigerators/Stoves Improperly Operating                 2
                                   Ventilation Not Sufficient                                1
                                   Smoke Detector Missing                                    1




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                              According to the President of Capital Needs Unlimited, the
   The Commission Lacked      quality of the revitalization work at the Villages at Parkside II
   Sufficient Controls Over   and IV was average for Detroit. The Housing Commission’s
   The Inspections            Urban Revitalization Demonstration Administrator said the
                              Commission did not follow-up or review the results of the “pre-
                              acceptance” or “final” inspections. She said Capital Needs
                              Unlimited was responsible for accepting or rejecting the
                              revitalization work.

                              The work that was improperly performed or not provided
                              occurred because the Housing Commission lacked sufficient
                              controls over the inspection process to ensure the work was
                              completed correctly or that units were decent, safe, and sanitary
                              after the work was completed. The “pre-acceptance” and
                              “final” inspection reports were not complete or were not
                              accurate.    The reports did not consistently show who
                              performed the inspections and/or who re-inspected the
                              improperly completed work cited during the “pre-acceptance”
                              inspections. As a result, HUD funds were not efficiently and
                              effectively used. HUD also lacks assurance that units at the
                              Villages at Parkside HOPE VI Project met HUD’s Housing
                              Quality Standards after the revitalization work was accepted.


       Auditee Comments       [Excerpts paraphrased from the Housing Commission’s
                              comments on our draft finding follow. Appendix B, pages 107
                              to 111, contains the complete text of the comments for this
                              finding.]

                              The Housing Commission received the draft finding and the 16
                              binders of the Army Corp of Engineers’ inspection reports. In
                              an effort to prepare a timely response to the finding, the
                              Housing Commission reviewed in limited detail the Corp’s
                              voluminous inspection reports, researched the Commission’s
                              and the Villages at Parkside’s records (including past inspection
                              reports), and conducted interviews with residents, contractors,
                              and staff directly or indirectly engaged in the implementation of
                              the program. It is noteworthy to point out that the OIG auditors
                              spent over eight months reviewing the Corp’s reports and
                              drafting the finding. The preparation of a comprehensive
                              response by the Commission would require more time than
                              granted by OIG.


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                           The Housing Commission disagrees that an estimated $678,969
                           of revitalization work was improperly performed or not
                           provided. The Detroit Housing Commission Parkside, Inc. by
                           and through its development entity, Parkside Development
                           Company, completed the comprehensive revitalization of two of
                           the four planned Villages, as well as, necessary site planning,
                           remediation costs, and 98 percent of the infrastructure for all
                           four Villages utilizing approximately $53,000,00 in HOPE VI,
                           Development, and Comprehensive Grant Program funds. All of
                           the work noted was substantially completed effective December
                           31, 1998. The units were leased up by June 1, 1999. The
                           OIG finding is based on the July 2000 Army Corp of
                           Engineers’ inspections performed more than 18 months after the
                           buildings were completed and a year after being occupied by
                           residents.

                           The Housing Commission does not dispute the Army Corp of
                           Engineer's assessment that the Villages at Parkside’s building
                           exterior and interior, and landscape are in need of repair.
                           However, the cause and cost of several of the cited deficiencies
                           is disputed.


                           Examples of deficiencies cited by the OIG that were not
                           construction related and were not present when the site was
                           turned over include:


                           •       Refrigerators and stoves not working.              It is
                                   unreasonable to assert that residents leased the units for
                                   over a year without working appliances;
                           •       Furnaces and/or air conditioner units not working.
                                   Again, it is unreasonable to assert that residents leased
                                   the units for over a year without heat and air; and

                           •        Missing or improperly installed smoke detectors, door
                                   lock fixtures not functioning, screens missing and
                                   broken, missing door stops, and missing light fixtures
                                   are all example of deficiencies caused by resident wear
                                   and tear.

       OIG Evaluation Of   Our draft finding indicated that refrigerators, stoves, furnaces,
       Auditee Comments    and/or air conditioners were inoperable or not working. We

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                           adjusted the finding to indicate that the appliances and HVAC
                           units were not functioning properly. The Commission indicated
                           that missing or improperly installed smoke detectors, door lock
                           fixtures not functioning, screens missing or broken, missing door
                           stops, and missing light fixtures are all examples of deficiencies
                           caused by resident wear and tear. We disagree. We based the
                           cause of the improperly performed work or work not provided
                           on the Commission’s “pre-acceptance” and/or “final”
                           inspections, the Corp’s inspections, and interviews we
                           conducted with the residents, when available.

       Auditee Comments    The Army Corp of Engineers’ cost estimates to correct the
                           noted non-construction as well as other legitimate construction
                           related deficiencies are flawed. For each and every repair item
                           cited, the Corp factored in labor and gas for travel time as if a
                           labor/tradesman would come out and make only one repair per
                           trip. It is prudent to plan for and more realistic to expect that
                           multiple repairs can and will be made in one trip. Therefore, to
                           have a carpenter come out to the job site and adjust interior
                           closet doors in one unit then return to the office (as is assumed
                           in the Corp’s estimate) would be a foolish waste of tax dollars.
                           Instead, for example, a carpenter would come to the job site
                           and adjust all interior doors in the 276 units. The Corp’s report
                           has well over a 1,000 pages of repairs cited at Parkside. If the
                           report lists 1,000 repairs, the report also has at least 2,000
                           hours of travel time included in the cost. If the average
                           tradesman's wage is $40 per hour, then the Corp’s report has
                           nearly $80,000 or 10 percent of the projected repair cost
                           associated with travel and gas to the site and then back to the
                           office for each item requiring repairs. Based on this promise,
                           further reductions in the Corp’s estimate can be made by
                           eliminating overlapping equipment costs, truck usage.

       OIG Evaluation Of   The Army Corp of Engineers provided cost estimates to repair
       Auditee Comments    the revitalization work that was improperly performed or not
                           provided. While we agree that it is more prudent to have
                           multiple repairs performed per trip, the Corp cannot assume this
                           when preparing the cost estimates because access to units may
                           not be permitted and the number of repairs that can be
                           completed per trip is unknown. Therefore, the Corp provided
                           cost estimates for each item.



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       Auditee Comments    Deficiencies in work items cited by the Army Corp of Engineers
                           and referenced in the OIG finding were not in the work scope
                           of the contracts administered by the Parkside Development
                           Corporation. Examples of these items are carpet, vinyl base,
                           blind, and appliance installation. As well, installation of the
                           underground cabling and terminations inside the units for the
                           cable TV systems was contracted and managed by the
                           operations managing member to The Villages after the
                           developments was turned over for lease up.

       OIG Evaluation Of   The Housing Commission is required by the Annual
       Auditee Comments    Contributions Contract, HUD’s regulations, and the HOPE VI
                           Grant Agreement to ensure all revitalization work to the Villages
                           at Parkside was completed correctly and that units meet HUD’s
                           Housing Quality Standards when completed. Whether work
                           was completed after units were turned over for lease up does
                           not relieve the Commission of its obligations.

       Auditee Comments    There are a number of deficiencies in the work completed
                           during the Housing Commission’s previous administration that
                           legitimately should have been corrected during the construction
                           phase and/or could have been corrected during the warranty
                           period. In fact, the Commission’s current administration has
                           already charged and held the responsible contractors liable for
                           correction of many of the deficiencies. For example, repairs to
                           the walls cited in the Army Corp of Engineers’ report as fire but
                           specified in the contract documents as draft stopping were
                           made as required at the direction of the Commission’s current
                           administration. An attachment to this response is a list of
                           construction related deficiencies and associated estimate of
                           repairs. Per this work scope and estimate, the cost of
                           corrective work is approximately $250,000, which represents
                           less than one percent of the total development costs and not the
                           $679,000, which still represents less than 1.5 percent of the
                           cost quoted in the finding.

       OIG Evaluation Of   HUD should ensure that the deficient revitalization work cited in
       Auditee Comments    this finding is completed correctly using non-Federal funds.

       Auditee Comments    As is noted in the OIG finding, oversight of the project was
                           contracted out to a program management firm. This practice is
                           acceptable to, encouraged by, and often times required by
                           HUD. When a program manager is procured, housing

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                           authorities are expected to utilize the services as an extension of
                           staff and a form of staff augmentation. In fact, in the case of the
                           Jeffries Project, a former HUD grant manager required (in spite
                           of strong objection by current DHC administration) the Housing
                           Commission to allow the manager the authority to act on its
                           behalf, and engage HUD in oversight discussion without the
                           prior approval or presence of the Commission to the activity.
                           In the case of Parkside, the chosen program manager was
                           highly revered in the public housing industry and was contracted
                           by HUD as an expediter to troubled and older HOPE VI grants
                           around the country. The manager was allowed (by both HUD
                           and the Commission) to act in the capacity of a program
                           manager/developer without any provision of guarantees or
                           assumption of risk. In fact, Parkside was not provided an
                           expediter because of the confidence and professional trust in the
                           capacity and expertise of the manager under contract. Given
                           these standard operating procedures, it is not unreasonable to
                           see why the Commission’s previous administration erroneously
                           allowed the manager control of the project with minimal
                           oversight.

       OIG Evaluation Of   The Annual Contributions Contract, HUD’s regulations, and the
       Auditee Comments    HOPE VI Grant Agreement require the Housing Commission to
                           ensure that all of the revitalization work to the Villages at
                           Parkside HOPE VI Project was completed correctly. The
                           Commission was also required to ensure that revitalized units
                           met HUD’s Housing Quality Standards when completed.
                           While the Commission contracted with Capital Needs Unlimited
                           for the oversight of the work, the Commission was required to
                           maintain sufficient oversight over the Project and Capital Needs
                           Unlimited to ensure the revitalization work was completed
                           correctly. We believe the Commission failed to do this.

       Auditee Comments    The operating procedure of the Housing Commission’s current
                           administration requires regular oversight of the HOPE VI
                           activities by a team of experts inclusive of staff internal to the
                           Commission. A construction management firm has been
                           contracted to provide technical expertise for all of the
                           Commission’s modernization and development activities
                           including HOPE VI. The HOPE VI, modernization, and
                           development activities were consolidated under the General
                           Manager of Modernization and Development Division to
                           provide continuity and economy in operating the programs.

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       Developers are procured to provide funding leverage,
       guarantees, and assume the risk of development. Program
       managers are contracted to provide technical assistance to the
       internal staff responsible and accountable for the day-to-day
       oversight of the revitalization efforts.                Internal
       modernization/development staff capacity includes professional
       licensed architects, engineers, experienced construction
       inspectors, degreed construction project coordinators, certified
       property and maintenance managers, and licensed real estate
       agents. The Commission’s Executive Director has direct
       oversight of the HOPE VI activities and regular monthly
       reporting is provided to the Board of Commissioners.
       Additionally, the Commission instituted the following:

       1.     The reorganization of the Commission’s development
              and modernization activities under the Development
              General Manager in addition to the hiring of
              experienced housing, construction, and finance senior
              managers;

       2.     The implementation of policy enhancements in the
              Commission’s procurement, development, and finance
              operations. Effective April 1999, procurement actions
              are coordinated through the Commission’s procurement
              division at Parkside and Jeffries. Effective September
              1999, the Commission’s Procurement Policy was
              updated to clarify prior HUD approval of change
              orders;

       3.     The development of standard operating procedures for
              the Commission’s procurement and finance operations.
              The standard operating procedures are specific to the
              draft findings as follows:

              •        Construction Contracts: Administration and
                       Monitoring;
              •        Construction Contracts: Progress Payments;
              •        Construction Contracts: Time Extensions;
              •        Construction Contracts: Construction Logs;
              •        Construction Contracts: Warranties;
              •        Construction Contracts: Completion of Work;
              •        Construction Contracts: Final Inspection; and
              •        Construction Contracts: Acceptance.

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                           4.      The implementation of an intensive training program for
                                   the Commission’s development and finance staff in the
                                   areas of HOPE VI Program administration and Federal
                                   procurement regulations.     Currently, the Housing
                                   Commission’s Procurement and Development General
                                   Managers have met HUD’s requirements and are
                                   deemed qualified to certify the Commission’s
                                   procurement actions;

                           5.      The establishment of an internal auditing function with
                                   the creation of the Management Analysis and Planning
                                   Division; and

                           6.      The establishment of a monthly reporting process to the
                                   Commission’s Board of Commissioners for all
                                   development activity including the Villages at Parkside.

       OIG Evaluation Of   The actions being taken by the Housing Commission, if fully
       Auditee Comments    implemented, should improve its oversight of the HOPE VI
                           Program if the procedures include sufficient controls over
                           inspections to ensure that constructed and/or revitalized units,
                           buildings, and landscaping are decent, safe, and sanitary after
                           receiving revitalization work as required by the Annual
                           Contributions Contract, HUD’s regulations, and the HOPE VI
                           Grant Agreement. However, in response to prior OIG audit
                           reports (OIG report #96-CH-201-1809 dated April 30, 1996
                           and OIG audit memorandum #98-CH-201-1804), the
                           Commission promised that procedures would be developed
                           and/or were developed to improve its inspections. As indicated
                           by this report, the Commission has continued to fail to
                           implement sufficient controls and oversight of its inspections.
                           This allowed improper revitalization work to go undetected or
                           failed to ensure that improper work was corrected properly.


       Recommendations     We recommend that the Director-Senior Advisor of Public
                           Housing Investments, in conjunction with the Michigan State
                           Office Director of Public Housing Hub, assure that the Detroit
                           Housing Commission:
                           2A.    Ensures that the revitalization work cited in this finding is
                                  completed correctly using non-Federal funds.



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       2B.    Implements sufficient controls over its inspections to
              ensure that constructed and/or revitalized units,
              buildings, and landscaping are decent, safe, and sanitary
              after receiving revitalization work as required by the
              Annual Contributions Contract, HUD’s regulations, and
              the HOPE VI Grant Agreement.




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                                                                                               Finding 3


   The Commission Paid For Modernization Work
      To Jeffries Homes That Was Improperly
            Performed Or Not Provided
  The Detroit Housing Commission did not follow the Annual Contributions Contract, HUD’s regulations,
  and the Housing Commission’s Revitalization Plan to ensure units at the Jeffries Homes HOPE VI
  Project were decent, safe, and sanitary after modernization. The Housing Commission used an
  estimated $61,821 of Comprehensive Grant Program funds to pay for modernization work that was
  improperly performed or that was not provided. The work improperly performed or work not
  provided occurred in 29 of the 50 units (58 percent) and the two buildings inspected by our inspector.
  Fifteen of the 29 units and the two buildings did not meet HUD’s Housing Quality Standards. The
  improperly completed modernization work occurred because the Housing Commission lacked sufficient
  controls to ensure the modernization work was completed correctly or that units were decent, safe, and
  sanitary after rehabilitation. As a result, Comprehensive Grant Program funds were not efficiently and
  effectively used. HUD also lacks assurance that units at the Jeffries Homes HOPE VI Project met
  HUD’s Housing Quality Standards after modernization.


                                         Section 209 of the Annual Contributions Contract, between the
   Annual Contributions                  Detroit Housing Commission and HUD, requires the
   Contract                              Commission to maintain each public housing project in good
                                         repair, order, and condition.

                                         24 CFR Part 968.115(d) says modernization improvements will
   HUD’s Regulations                     provide decent, safe, and sanitary living conditions in housing
                                         commission owned or operated public housing.

                                         24 CFR Part 882.102 states that public housing units are
                                         considered decent, safe, and sanitary if all the requirements of
                                         the Housing Quality Standards in 24 CFR Part 882.109 are
                                         met. However, a unit that does not comply with the Standards
                                         is not necessarily uninhabitable. The Standards include both
                                         performance and acceptability criteria requirements. The
                                         performance requirements relate to certain minimum facilities
                                         each unit must have. The acceptability criteria relate to the
                                         minimum standards the facilities must meet. These standards
                                         generally address the condition of sanitary facilities, food
                                         preparation areas, space and security, electrical, plumbing and
                                         heating systems, site and neighborhood, and structure and
                                         materials.

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                                  Page 3-8 of the Detroit Housing Commission’s March 1996
   Revitalization Plan For        Revitalization Plan says the goal of the Jeffries Homes HOPE
   Jeffries Homes HOPE VI         VI Project is to provide a safe and secure environment for the
   Project                        residents of Jeffries Homes.

                                  We statistically selected a sample of 50 of the 205 units (24
       Sample Selection And       percent) that were modernized at the Jeffries Homes HOPE VI
       Inspection Results         Project. For the statistical analysis, a confidence level of 95
                                  percent was used.

                                  The units are located in two senior high-rise buildings, 3521
                                  John C. Lodge and 1231 Selden. The Housing Commission
                                  modernized the units and the two buildings using
                                  Comprehensive Grant Program funds. We selected the 50 units
                                  and the two buildings to determine whether the Housing
                                  Commission properly paid for modernization work and whether
                                  the units and buildings were decent, safe, and sanitary after
                                  rehabilitation. The modernization work occurred between
                                  October 23, 1995 and October 14, 1999. Our inspector
                                  inspected the 50 units and the two buildings between June 26,
                                  2000 and July 6, 2000.

                                  We provided the inspection results to HUD’s Director-Senior
                                  Advisor of Public Housing Investments, HUD’s Michigan State
                                  Office Director of Public Housing Hub, and the Housing
                                  Commission’s Executive Director.

                                  The Detroit Housing Commission used Comprehensive Grant
       HUD Funds Were Used To     Program funds to pay for modernization work that was
       Pay For Modernization      improperly performed or was not provided. The improper
       Work That Was Improperly   work and/or the work that was not provided occurred in 29 of
       Performed Or Not           the 50 units and the two senior high-rise buildings that we
       Provided                   inspected. Fifteen of the 29 units and the two buildings did not
                                  meet HUD’s Housing Quality Standards. The Commission
                                  used $4,899,375 in Comprehensive Grant Program funds to
                                  modernize the two buildings that contained 205 units.

                                  The Housing Commission’s contracts for the modernization
                                  work at the Jeffries Homes HOPE VI Project showed the total
                                  cost of the work. The contracts did not provide a break down
                                  of each work item. Therefore, our inspector provided cost
                                  estimates to repair the work that was improperly performed or
                                  not provided.

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       The following table shows our inspector’s cost estimates to
       correct the modernization work that was improperly performed
       or not provided for each building and unit inspected.

                Jeffries Homes’         Cost To Repair Improper Modernization
           Buildings/Units Inspected                    Work
          3521 John C. Lodge Building                  $12,250
          3521 John C. Lodge #206                          320
          3521 John C. Lodge #303                          640
          3521 John C. Lodge #304                          550
          3521 John C. Lodge #504                          240
          3521 John C. Lodge #605                          220
          3521 John C. Lodge #702                          850
          3521 John C. Lodge #807                          220
          3521 John C. Lodge #905                          520
          3521 John C. Lodge #1004                         330
          3521 John C. Lodge #1006                         550
          3521 John C. Lodge #1101                         190
          3521 John C. Lodge #1102                         330
          3521 John C. Lodge #1203                         320
          3521 John C. Lodge #1308                         600
          1231 Selden Building                           7,300
          1231 Selden #203                                 490
          1231 Selden #204                                 720
          1231 Selden #206                                 300
          1231 Selden #207                                 190
          1231 Selden #402                                 390
          1231 Selden #407                                 200
          1231 Selden #502                                 420
          1231 Selden #505                                 200
          1231 Selden #601                                 200
          1231 Selden #603                                 200
          1231 Selden #604                                 200
          1231 Selden #607                                 200
          1231 Selden #1004                                200
          1231 Selden #1202                                200
          1231 Selden #1306                                320
                     Total                             $29,860


       Our inspector estimated it would cost $29,860 to repair the
       work that was not provided or improperly performed. As
       previously mentioned, the units inspected were statistically
       selected for inspection. Using that analysis, we are 97 percent
       confident that the costs to correct or complete the repair work
       for all 205 units and the two senior high-rise buildings at the
       Jeffries Homes totals $61,821. Our projection has a possible
       error rate of plus or minus 18 percent.




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                                     One of the goals of the Housing Commission’s HOPE VI
   The Commission Wanted             Project for Jeffries Homes was to modernize three existing high-
   To Modernize Jeffries             rises. As of October 1999, two high-rise buildings were
                                     modernized. The modernization work was to include such
                                     items as new elevators, windows, roofs, and heating and hot
                                     water systems. The work was intended to redevelop Jeffries
                                     Homes and correct items that did not meet HUD’s Housing
                                     Quality Standards.

                                     The modernization work that was performed incorrectly or that
   Improper Modernization            was not provided, and the Housing Quality Standards violations
   Work                              related to such items as improperly installed kitchen cabinets,
                                     peeling paint or paint separating from drywall surfaces, electrical
                                     outlets not working, inoperable windows, refrigerators not
                                     keeping the proper temperature, garbage disposals not
                                     working, and exposed electrical wiring. The following pictures
                                     show examples of modernization work that was improperly
                                     performed or not provided.

  The kitchen cabinet shelves
  were improperly braced and
  separating in unit number 402 at
  1231 Selden.




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  The kitchen wall was not
  completely painted in unit
  number 603 at 1231 Selden.




  The electrical wiring for an
  exterior security light was
  exposed and not properly
  installed for the building at 3521
  John C. Lodge.




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  The paint on the vestibule at
  the 1231 Selden building was
  peeling.




                                  The Housing Commission contracted with Ghafari Association,
   The Commission                 Incorporated, a professional architectural firm, and Walbridge-
   Contracted For Oversight       Jenkins, a construction management company, to assure that the
   Of The Work                    modernization work was provided in accordance with the
                                  modernization contracts and the work met HUD’s Housing
                                  Quality Standards. Walbridge-Jenkins performed inspections
                                  of seven units at 1231 Selden on February 17, 1999. The
                                  inspection reports showed that Filmore Construction
                                  Company’s modernization work was not performed correctly.
                                  Our inspector inspected three of the seven units that were
                                  inspected by Walbridge-Jenkins. The three units were 204,
                                  206, and 207 at 1231 Selden. All three units had work that
                                  was improperly performed or not provided.

                                  The Housing Commission’s staff assumed full responsibility for
   The Commission’s               ensuring that the work was completed correctly after the
   Inspections Were Poor          contracts with Ghafari Association and Walbridge-Jenkins
                                  expired in September 1998 and March 1999, respectively. A
                                  Construction Project Coordinator for the Housing Commission
                                  said      she,    along     with    the     former      Housing
                                  Rehabilitation/Improvement Specialist and the Project Manager
                                  for Jeffries Homes, conducted “final” inspections of the Jeffries
                                  Homes’ units at 3521 John C. Lodge and 1231 Selden
                                  between April 1999 and October 1999. The purpose of the
                                  “final” inspections was to determine whether the modernization
                                  work was completed in accordance with the contracts’
                                  specifications and the applicable construction codes. The

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                                    inspections were also to determine whether Filmore
                                    Construction Company corrected the deficient work cited by
                                    Walbridge-Jenkins on February 17, 1999. When the Housing
                                    Commission’s staff identified modernization work that was
                                    incomplete, the Construction Project Coordinator said a “re-
                                    inspection” was performed to determine whether Filmore
                                    Construction made the necessary repairs.

                                    Walbridge-Jenkins’ inspection report for unit 206 at 1231
                                    Selden noted that the living room ceiling’s paint was peeling.
                                    The Housing Commission’s “re-inspection” showed the peeling
                                    paint was corrected. However, our inspection revealed that the
                                    peeling paint was not corrected. The following picture shows
                                    the condition of the living room ceiling at the time of our
                                    inspection.

  The paint on the living room
  ceiling was peeling in unit 206
  at 1231 Selden.




                                    In addition to unit 206 at 1231 Selden, the Housing
                                    Commission performed “final” inspections of 14 units in which
                                    our inspector noted improperly completed modernization work.
                                    The Commission’s “final” inspection reports also showed that
                                    the 14 units had modernization work that was improperly
                                    performed. However, the Commission’s “final” inspections did
                                    not identify all of the improperly completed modernization work
                                    that was noted during our inspections. The following table
                                    shows the number of units that had improperly completed
                                    modernization work that was not identified in the Commission’s
                                    “final” inspections reports for the 14 units.




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                                    Improper Modernization Work         Number Of Units
                                   Peeling/Blistering Paint                   5
                                   GFIs Not Functional                        2
                                   Kitchen Cabinets Not Secured               2
                                   Cracks In Drywall                          2
                                   Blinds Not Installed                       1
                                   Gaps In Floor Tile                         1


                              The Housing Commission lacked any documentary evidence
                              that it assured the improper work in nine of the 15 units was
                              corrected. However, the Commission’s reports showed the
                              improperly performed work was corrected in the remaining six
                              units.

                              The Commission’s reports were not correct. Unit 206 (cited
                              on page 45) was one of the six units. The Commission’s “final”
                              inspection noted that peeling paint existed on the unit’s living
                              room ceiling. The Commission said the improper modernization
                              work was corrected, but, as shown by the picture, the peeling
                              paint was not corrected.

                              The modernization work that was improperly performed or not
   The Commission Lacked      provided occurred because the Housing Commission lacked
   Sufficient Controls Over   sufficient controls over its inspection process to ensure the work
   Inspections                was completed correctly or that units were decent, safe, and
                              sanitary after rehabilitation.       The Commission’s “final”
                              inspection reports were not complete or were not accurate.
                              The reports did not consistently show: who performed the
                              “final” inspections; when the “final” inspections were performed;
                              who re-inspected the improperly completed modernization
                              work cited during the “final” inspections and/or by Walbridge-
                              Jenkins was corrected; or when the “re-inspection” was
                              conducted. In addition, the Commission’s former General
                              Manager of Modernization said she did not perform a
                              supervisory review of the “final” inspection reports to ensure
                              they were completed correctly or to verify that the deficient
                              modernization work was corrected. As a result, HUD funds
                              were not efficiently and effectively used. HUD also lacks
                              assurance that units at the Jeffries Homes HOPE VI Project
                              met HUD’s Housing Quality Standards after modernization.


       Auditee Comments       [Excerpts paraphrased from the Housing Commission’s
                              comments on our draft finding follow. Appendix B, pages 112

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                           to 115, contains the complete text of the comments for this
                           finding.]

                           The Housing Commission disagrees with this finding that
                           modernization work in the amount of $62,969 was improperly
                           performed or not provided.

                           The Commission completed the comprehensive modernization
                           of Jeffries Homes’ buildings 404 and 503 located at 3521 John
                           C. Lodge and 1231 Selden, respectively. The modernization
                           work was funded through the Comprehensive Grant Program
                           using approximately $4,899,375 and was completed effective
                           June 1999 and October 1999, respectively.

                           The Army Corp of Engineers’ inspection reports and cost
                           projections were based on an inaccurate unit count, 205 units
                           versus 198 units, and should be adjusted.

                           The Corp’s inspection reports dated July 2000 were
                           conducted, in one instance, more than a year after the
                           completion of the modernization work and the buildings
                           reoccupied. The Housing Commission contends that several of
                           the work items cited in the inspection reports were consistent
                           with normal wear and tear due to: re-occupancy and usage of
                           the units; work performed by the Commission’s maintenance
                           staff; and latent defects not discovered during final inspection
                           and/or not reported during the warranty period.

       OIG Evaluation Of   Our draft finding reported that an estimated $62,969 of
       Auditee Comments    modernization work was improperly performed or not
                           provided. However, unit 501 at 1231 Selden was removed
                           from the finding. The unit was removed because $280 of
                           improper modernization work cited in our draft finding was
                           accepted by the Army Corp of Engineers during its inspections
                           for HUD. Therefore, we adjusted the estimated amount of
                           improper modernization work to $61,821.

                           The Housing Commission contracted for modernization work at
                           Jeffries Homes’ buildings 404 and 503. The Commission’s
                           Master List dated May 11, 2000 showed the two buildings
                           contained 205 units. The 205 units included 198 dwelling units
                           and seven non-dwelling units. The Housing Commission was
                           required by the Annual Contributions Contract, HUD’s

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                          regulations, and the Commission’s requirement(s) to ensure the
                          modernization work was performed correctly to all of the
                          dwelling and non-dwelling units. Therefore, no adjustments are
                          necessary to the Army Corp of Engineers’ inspection reports or
                          the cost estimates for the repair of the modernization work that
                          was improperly performed or was not provided since the total
                          number of units was 205.

                          The Commission’s modernization work to Jeffries Homes’
                          buildings 404 and 503 was completed in October 1999. We
                          inspected 50 of the 205 units and the two buildings between
                          June 26, 2000 and July 6, 2000. Our inspections were
                          performed less than a year after the Commission accepted the
                          modernization work. The Commission should ensure that the
                          modernization work that was improperly performed or not
                          provided is completed correctly using non-Federal funds.

       Auditee Comments   The following are three examples where the Army Corp of
                          Engineers’ inspection reports inaccurately cited deficiencies as
                          evidence of the Housing Commission’s failure to provide
                          sufficient oversight with the subject modernization work at
                          Jeffries Homes:

                          1.      Unit 603 at 1231 Selden-The kitchen wall was not
                                  completely painted;

                          The Housing Commission’s review disclosed that the cited
                          work item was due to work in process by the Commission’s
                          maintenance staff. The item was not a result of modernization
                          work or improper modernization oversight. The existence of
                          the item is not in dispute and accordingly, the Commission has
                          taken steps to repair the item. It is important to also note that
                          the item was not cited by the Army Corp of Engineers in their
                          ongoing oversight of the modernization work and final
                          inspections for the local HUD office.

                          2.      Unit 206 at 1231 Selden-The paint on the living room
                                  ceiling is peeling; and

                          The audit finding asserts that the occurrence of improperly
                          performed modernization work or work not provided resulted
                          because the Commission lacked sufficient controls over the
                          inspection process. The finding cites the Army Corp of

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                           Engineer’s inspection that asserts that this deficiency is the same
                           peeling paint identified in the 1999 final inspection performed by
                           the Commission’s construction administrator.                    The
                           Commission’s re-inspection report cited that the contractor
                           satisfactorily completed the modernization work. Although the
                           Corp found that the same condition existed in this unit, it is
                           reasonable and likely that this condition occurred in another
                           area of the ceiling.

                           3.      Building 404 at 3521 John C. Lodge-The exposed
                                   electrical wiring for an exterior security light as not
                                   properly installed.

                           While the Housing Commission does not dispute the existence
                           of the condition, the draft finding inaccurately attributes the
                           work to the modernization contractor under the Commission’s
                           supervision. The Commission’s maintenance staff installed the
                           temporary electrical wiring for lighting necessary for on-site
                           demolition.

       OIG Evaluation Of   The Army Corp of Engineers’ inspection of unit 603 at 1231
       Auditee Comments    Selden identified that the kitchen wall was not completely
                           painted. The Housing Commission indicated that the improper
                           painting was not the result of modernization work improperly
                           performed or work not provided.             The Commission’s
                           modernization contracts included the painting of all units. The
                           resident of unit 603 informed us that the improper painting had
                           existed since July 1999.

                           Walbridge-Jenkins’ inspection report for unit 206 at 1231
                           Selden noted that the living room ceiling’s paint was peeling.
                           The Housing Commission’s “re-inspection” showed the peeling
                           paint was corrected. However, our inspection revealed that the
                           peeling paint was not corrected.           While the Housing
                           Commission may be correct that the peeling paint may have
                           occurred in another area, the inspections by Walbridge-Jenkins,
                           the Commission, and the Army Corp of Engineers all cited that
                           the unit’s ceiling had peeling paint.         Based upon the
                           documentation, we concluded the peeling paint resulted from
                           improper modernization work and a lack of sufficient controls
                           by the Commission to ensure the work was completed
                           correctly.


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                           The Army Corp of Engineers’ inspection of the Jeffries Homes’
                           building 404, 3521 John C. Lodge, revealed that the electrical
                           wiring for an exterior security light was exposed and not
                           properly installed. The Housing Commission did not provide
                           any supporting documentation, such as a work order, to show
                           that the Commission’s maintenance staff installed the security
                           light. In fact, the Commission executed change order number 4
                           in February 1996 with Filmore Construction, the modernization
                           contractor. The Commission required Filmore to install exterior
                           security lights at Jeffries Homes. Based upon the change order
                           and the Corp’s inspections, we believe the Commission failed
                           to ensure that Filmore Construction properly installed the
                           security light for building 304.

       Auditee Comments    The Housing Commission agrees that the work cited must be
                           corrected. However, the Commission strongly disagrees that
                           the deficiencies are the result of improper modernization
                           oversight. Deficiencies found by the Army Corp of Engineers
                           are the result of normal resident wear and tear, maintenance
                           repairs, and latent defects attributable to the method of
                           construction, which are not structural in nature. The Corp
                           provided quarterly and final inspections on behalf of the local
                           HUD office.

                           The Commission agrees that policies and procedures in effect
                           during the Jeffries Homes modernization work could have been
                           strengthened. The Commission disagrees that controls were so
                           deficient as to warrant an audit finding.

                           The Housing Commission recognizes that proper controls are
                           critical to the future success of the Commission’s Hope VI
                           Program as well as any other programs. The Commission has
                           either repaired or is scheduled to repair all of the cited work.
                           Standard operating procedures were drafted to provide
                           guidance in program administration and monitoring for the
                           Commission’s Modernization/ Development Division.

       OIG Evaluation Of   The Housing Commission did not provide the Army Corp of
       Auditee Comments    Engineers’ quarterly and final inspection reports with its
                           comments. Therefore, we were unable to evaluate the reports.
                           However, we obtained the Corp’s January 2000 final
                           inspection report of buildings 404 and 503 at Jeffries Homes.
                           The final report showed that the Corp only inspected four units.

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                         Our inspections of Jeffries Homes included 50 units and
                         identified that modernization work was improperly performed
                         or not provided.

                         The procedures drafted by the Housing Commission, if fully
                         implemented, should improve its oversight of the HOPE VI
                         Program if the procedures include sufficient controls over
                         inspections to ensure that modernized units and buildings are
                         decent, safe, and sanitary after receiving modernization work as
                         required by the Annual Contributions Contract, HUD’s
                         regulations, and the Housing Commission’s requirement(s).
                         However, in response to prior OIG audit reports (OIG report
                         #96-CH-201-1809 dated April 30, 1996 and OIG audit
                         memorandum #98-CH-201-1804), the Commission promised
                         that procedures would be developed and/or were developed to
                         improve its inspections. As indicated by this report, the
                         Commission has continued to fail to implement sufficient
                         controls and oversight of its inspections. This allowed improper
                         modernization work to go undetected or failed to ensure that
                         improper work was corrected properly.



       Recommendations   We recommend that the Director-Senior Advisor of Public
                         Housing Investments, in conjunction with the Michigan State
                         Office Director of Public Housing Hub, assure that the Detroit
                         Housing Commission:

                         3A.        Ensures that the modernization work cited in this
                                finding is completed correctly using non-Federal funds.

                         3B.    Implements sufficient controls over its inspections to
                                ensure that modernized units and buildings are decent,
                                safe, and sanitary after receiving modernization work as
                                required by the Annual Contributions Contract, HUD’s
                                regulations, and the Housing Commission’s
                                requirement(s).




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   The Housing Commission’s Contracting Process
   Was Not Performed In An Efficient, Effective,
             And Economical Manner
  The Detroit Housing Commission did not maintain an effective system of controls over its contracting
  process. Contrary to Federal requirements, State of Michigan law, and/or the Cooperation Agreement
  with the City of Detroit, the Commission improperly used HUD funds (HOPE VI, Development, and
  Comprehensive Grant Program) or inappropriately approved for payment $13,181,214 for construction
  or professional services. The improper expenses included: (1) $11,245,351 paid and an additional
  $815,105 approved for payment for change orders without sufficient supporting documentation; (2)
  $568,548 paid in construction expenses for the Frankfort Sewer project that the City should have
  provided at no cost to the Commission; and (3) $550,980 paid and an additional $1,230 approved for
  payment for excessive construction costs, interest expenses, and repair costs to correct contractor
  damages that were not reasonable and necessary expenses of the Commission. The Housing
  Commission failed to obtain HUD’s prior approval for 20 change orders, as required by the HOPE VI
  Grant Agreements. The Commission also lacked documentation to support that HOPE VI construction
  or professional services contracts were awarded through full and open competition, or in an efficient and
  effective manner. The Commission’s Board of Commissioners and former and current top management
  did not exercise their responsibilities to implement effective contracting controls. As a result, HUD
  funds were not used efficiently and effectively. HUD lacks assurance that the Commission’s
  procurement transactions were subject to full and open competition, or were conducted in an efficient,
  effective, or economical manner.


                                          The HOPE VI Implementation Grant Agreements, between
    Federal Requirements                  HUD and the Detroit Housing Commission dated August 12,
                                          1994 for the Jeffries Homes HOPE VI Project and February 8,
                                          1995 for the Villages at Parkside HOPE VI Project, required
                                          the Housing Commission to comply with HUD’s regulations,
                                          Handbooks, and Notices, and Office of Management and
                                          Budget Circular A-87, Cost Principles for State, Local, and
                                          Indian Tribal Governments. The Grant Agreements also
                                          required the Commission to obtain HUD’s approval on change
                                          orders in excess of $100,000.

                                          The Annual Contributions Contract, Section 201, requires the
                                          Detroit Housing Commission to operate each Project in such a
                                          manner to promote efficiency and economy.




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                 24 CFR Part 85.36(b)(9) requires grantees and subgrantees to
                 maintain records sufficient to detail the significant history of a
                 procurement, such as the rationale for the method of
                 procurement and the basis for the contract price. Part
                 85.36(c)(1) requires that all procurement transactions be
                 conducted in a manner providing full and open competition.

                 24 CFR Part 85.36(d)(2) requires that when the sealed bid
                 method is used, bids are to be publicly solicited and a firm-
                 fixed-price contract awarded to the responsible bidder whose
                 bid, conforming with all the material terms and conditions of the
                 invitation for bids, is the lowest price. The sealed bid method is
                 the preferred method for procuring construction services.

                 24 CFR Part 85.36(d)(3) says the technique of competitive
                 proposals is normally conducted with more than one source
                 submitting an offer, and either a fixed-price or cost-
                 reimbursement type contract is awarded. If this method is used:
                 requests for proposals will be publicized; proposals will be
                 solicited from a sufficient number of qualified sources; and
                 awards will be made to the responsible firm whose proposal is
                 most advantageous to the program, with price and other factors
                 considered. Grantees are required to: have a method for
                 conducting technical evaluations of the proposals; and notify the
                 responsible firm in writing regarding the contract award.

                 24 CFR Part 85.36(f)(1) requires a cost or price analysis be
                 conducted in connection with every procurement action
                 including change orders. Independent estimates should be
                 conducted before receiving bids or proposals in order to
                 determine the reasonableness of proposed contract price.

                 Office of Management and Budget Circular A-87, Attachment
                 A, paragraph C(1)(a), requires that all costs be necessary and
                 reasonable for proper and efficient performance and
                 administration of Federal awards. In addition, paragraph
                 C(1)(j) requires that all costs be sufficiently documented.
                 Attachment B, Section 26, of the Circular says interest expense
                 is not an allowable cost except for financing provided by a third
                 party used to support Federal awards. Section 23(a)(5) of
                 Attachment B says the general costs of government services
                 normally provided to the general public, such as water and
                 sewer, are not allowable expenses.

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                              The Detroit Housing Commission’s August 19, 1993,
   Commission’s Procurement   September 4, 1997, and September 2, 1999 Procurement
   Policies                   Policies say the Policies apply to all contracts for the
                              procurement of supplies, services, and change orders executed
                              by the Commission. The Policies required the Commission’s
                              Executive Director to ensure that all contracts and change
                              orders be clearly specified in writing and supported by sufficient
                              documentation regarding the procurement history. The Policies
                              also required the Commission to: comply with 24 CFR Part
                              85.36; prepare an independent cost estimate before bid
                              solicitation; conduct a cost or price analysis on responses
                              received; and notify unsuccessful firms after contract award.

                              The Commission’s 1993, 1997, and 1999 Procurement
                              Policies required that: sealed bids be utilized for construction
                              contracts under the Comprehensive Grant Program and all
                              other Federal construction/development programs which
                              exceed $100,000; and all bids be time stamped and stored in a
                              secure place. The Policies say awards will be made by written
                              notice to the lowest responsive and responsible bidder and that
                              unsuccessful bidders be notified of the solicitation results.

                              The Commission’s 1993, 1997, and 1999 Procurement
                              Policies required that a cost or price analysis be performed for
                              all procurement actions including change orders.

                              The 1997 Procurement Policy says that change orders
                              exceeding either $100,000 or 25 percent of the original
                              contract price will be submitted to HUD for prior approval
                              before executing the orders. This Policy was approved by
                              HUD, and was more stringent than the HUD approval
                              requirement in the HOPE VI Grant Agreements. The 1999
                              Procurement Policy requires that change orders that exceed the
                              greater of either $100,000 or 25 percent of the original contract
                              price will be submitted to HUD for prior approval before
                              executing the orders. The 1999 Policy was not approved by
                              HUD, and was less stringent than the HUD approval
                              requirement in the Grant Agreements. The Commission’s 1999
                              Policy cannot be used as a basis to supercede the requirements
                              in the Grant Agreements.

                              The Housing Facilities Act (Public Act 18), Michigan Compiled
   State Of Michigan Law      Laws Annotated Section 125.685, requires housing

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                               commissions to maintain and keep proper books of record and
                               account in relation to its properties, business, and affairs.

                               Paragraph 5(a) of the Cooperation Agreement, between the
       Cooperation Agreement   Detroit Housing Commission and the City of Detroit, required
                               the Housing Commission’s residents to receive the same
                               services as other City residents at no additional cost to the
                               Commission or its residents. Paragraph 5(b) of the Agreement
                               required the City to vacate such streets within the area of the
                               Commission’s Projects that may be necessary in the
                               development, and convey without charge to the Commission
                               such interest as the City may have in such vacated areas. The
                               City will also cause to be removed from such vacated areas all
                               public or private utility lines and equipment without cost or
                               charges to the Commission.

                               Public Housing Commissioners have a responsibility to HUD to
   Responsibilities Of Board   ensure national housing policies are carried out, and to the
   Of Commissioners And        Commission’s management staff and employees to provide
   Management Staff            sound and manageable directives. The Commissioners are
                               accountable to their locality and best serve it by monitoring
                               operations to be certain that housing programs are carried out in
                               an efficient and economical manner.

                               The responsibility for carrying out the Commissioners' policies
                               and managing the Housing Commission's day-to-day operations
                               rests with the Commission’s principal management staff. In
                               particular, the management staff must maintain the Commission's
                               overall compliance with its policies and procedures and
                               Federal, State, and local laws.

                               We judgmentally selected a sample of 23 of the 40 construction
       Sample Selection And    or professional service contracts awarded by the Housing
       Review Results          Commission for the Jeffries Homes or the Villages at Parkside
                               HOPE VI Projects. The 23 contracts totaled over $80 million
                               and were awarded between November 1995 and May 1999.
                               We also judgmentally selected 88 of the 105 change orders
                               approved by the Commission for the Jeffries Homes or the
                               Villages at Parkside HOPE VI Projects. The 88 change orders
                               totaled $13,262,782 and were approved by the Commission
                               between June 1996 and November 1999.



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                                 We selected the 23 contracts and the 88 change orders to
                                 determine whether the Commission properly procured the
                                 construction or professional services according to Federal
                                 requirements and the Commission’s Procurement Policies. The
                                 Army Corp of Engineers assisted in the review of the contracts
                                 and change orders to determine whether: the Commission
                                 properly procured the services; and the services were
                                 reasonable and necessary to the Jeffries Homes or the Villages
                                 at Parkside HOPE VI Projects.

                                 We provided our detailed review results of the contracts and
                                 change orders to HUD’s Director-Senior Advisor of Public
                                 Housing Investments, HUD’s Michigan State Office Director of
                                 Public Housing Hub, and the Housing Commission’s Executive
                                 Director.

                                 The Housing Commission improperly used $11,245,351 in
   The Commission Lacked         HUD funds (HOPE VI, Development, and Comprehensive
   Sufficient Documentation To   Grant Program) and approved for payment an additional
   Support Over $12 Million      $815,105 for 46 change orders that were not sufficiently
   In Change Orders              supported. The change orders were paid or approved for
                                 payment between June 1996 and March 2001 and related to
                                 construction or professional services at the Jeffries Homes or
                                 the Villages at Parkside HOPE VI Projects.

                                 The HOPE VI Grant Agreements for Jeffries Homes and the
                                 Villages at Parkside, HUD’s regulation, Office of Management
                                 and Budget Circular A-87, and State of Michigan law require
                                 housing commissions to maintain records that sufficiently identify
                                 the use of funds by the commissions. Housing commissions
                                 must ensure funds are expended for costs that are reasonable
                                 and necessary to their operations.

                                 The following table shows the 46 unsupported change orders
                                 and when the Commission approved the orders for payment.




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                                                Change Order   Change Order    Unsupported        Date
                            Contractor            Number         Amount           Amount       Approved
                 Certified Abatement Services        1          $738,858         $738,858        8/1/96
                 Certified Abatement Services        2            557,699          557,699     10/22/96
                 A-MAC Sales & Builders              1           2,250,000        2,250,000     6/25/96
                 Filmore Construction Company        1           1,010,565        1,010,565     6/25/96
                 M&M Contracting                     1             32,307           32,307      2/16/99
                 M&M Contracting                     2             15,046           15,046      3/11/99
                 DeMaria Building Company            2             25,028            8,500       4/9/98
                 DeMaria Building Company            3            153,637          153,637       4/9/98
                 DeMaria Building Company            4             89,332           32,552      6/11/98
                 DeMaria Building Company            6            194,690          194,690      6/22/98
                 DeMaria Building Company            8             18,194            6,504      10/8/98
                 DeMaria Building Company            9            585,469          448,651      10/8/98
                 DeMaria Building Company           12            402,661          402,661      12/9/98
                 DeMaria Building Company           13            603,815          603,815       1/8/99
                 DeMaria Building Company           14             29,523           29,523      1/13/99
                 DeMaria Building Company           15            168,666          168,666      2/16/99
                 DeMaria Building Company           16             36,103           36,103      3/11/99
                 DeMaria Building Company            1             97,810           15,960      2/13/99
                 ABC Paving Company                  5             70,871           70,871      5/14/98
                 ABC Paving Company                  7            175,387           99,614      8/17/98
                 ABC Paving Company                 10             67,137           67,137      10/8/98
                 ABC Paving Company                 12             12,653           12,653      12/9/98
                 ABC Paving Company                 14               6,563           6,563      1/13/99
                 ABC Paving Company                 15             29,753           29,753      3/11/98
                 A-MAC Sales & Builders              2            158,483          158,483     12/15/98
                 Filmore Construction Company        2             33,981           33,981      6/11/98
                 Filmore Construction Company        4            122,772           56,447      8/17/98
                 Filmore Construction Company        5            449,215          449,215     10/13/98
                 Filmore Construction Company        8             18,000           18,000      1/13/99
                 Filmore Construction Company        9            488,910         488,910       2/13/99
                 ABC Paving Company                  5             64,211           64,211      5/14/98
                 ABC Paving Company                  7            171,913          171,913      8/17/98
                 ABC Paving Company                  9             60,152           60,152      10/8/98
                 ABC Paving Company                 10             90,196           90,196     11/18/98
                 ABC Paving Company                 12             22,782           22,782      12/9/98
                 ABC Paving Company                 13             13,593           13,593      1/13/99
                 A-MAC Sales & Builders              1           1,698,334        1,698,334     7/20/98
                 A-MAC Sales & Builders              2             58,994           58,994     11/18/98
                 DeMaria Building Company            2             31,660           31,660      7/14/99
                 ABC Paving Company                 16            (32,357)          28,913      7/14/99
                 ABC Paving Company                 17            129,545          129,545      7/14/99
                 Filmore Construction Company       11             72,215           72,215      6/28/99
                 ABC Paving Company                 15             29,603           29,603      7/14/99
                 A-MAC Sales & Builders              4             99,296           99,296      6/10/98
                 A-MAC Sales & Builders              5            474,311          474,311      11/4/99
                 Filmore Construction Company        4            817,374          817,374      8/19/99
                              Total                                           $12,060,456


                                           In order to determine whether the Housing Commission used
                                           HUD funds for reasonable and necessary expenses regarding
                                           change orders, we reviewed such items as the Commission’s
                                           change orders, construction or professional services contracts
                                           related to the change orders, and contract payment forms. The
                                           Commission lacked detailed work specifications identifying the
                                           construction or professional services provided for the 46

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       change orders. Consequently, we could not determine whether
       HUD funds were used for only reasonable and necessary
       expenses of the Jeffries Homes or the Villages at Parkside
       HOPE VI Projects.          The Commission also lacked
       documentation to support that a cost analysis was performed on
       the 46 change orders.

       A Commissioner for the Housing Commission’s Board said the
       Board relied on the former and current principal management
       staff to ensure that HUD funds were used correctly. She said
       the Board relied on the Commission’s management staff to
       maintain sufficient documentation to support change orders.
       The former Executive Director, the former Deputy
       Director/Interim Executive Director, and the current Executive
       Director were the Commission’s principal management staff.
       They were responsible for the oversight of the HOPE VI
       Program, and were required to ensure that the Commission
       complied with its policies and procedures and Federal, State,
       and local laws. However, this was not done.

       The following table shows the number and amount of
       unsupported change orders that were paid or approved for
       payment by the former or current Executive Directors.

                                   Number Of          Amount Of
        Approved Change Order       Orders        Unsupported Orders
        Former Director                4              $4,557,122
        Former Interim Director       34               5,820,417
        Current Director               8               1,682,917


       In addition to the approval of the unsupported change orders by
       the Housing Commission’s former or current Executive
       Directors, Capital Needs Unlimited approved 40 of the 46
       unsupported change orders. The 40 orders totaled $6,211,649
       and related to construction or professional services for the
       Villages at Parkside HOPE VI Project. Capital Needs
       Unlimited was not required to approve the remaining six change
       orders because the orders did not relate to construction work at
       Parkside. The Commission contracted with Capital Needs
       Unlimited, a consulting company, in December 1994 to
       represent the Commission during the revitalization work at
       Parkside. The approval by Capital Needs Unlimited meant that
       it reviewed the change orders, and the recommended changes
       were reasonable and necessary to the Parkside HOPE VI
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                 Project. However, the 40 change orders lacked sufficient detail
                 to validate that the orders were reasonable and necessary.

                 Unsupported change orders for construction services were also
                 approved by three of the Commission’s architectural firms. The
                 three architectural firms were: Nathan Johnson & Associates;
                 Hamilton Anderson & Associates; and Ghafari Associates. The
                 Commission contracted with the firms to monitor the
                 construction work at the Jeffries Homes or the Villages at
                 Parkside HOPE VI Projects. The firms’ approvals meant they
                 reviewed the change orders and the recommended changes
                 were reasonable and necessary to the HOPE VI Projects.
                 Since the approved change orders did not include detailed
                 work specifications, the architectural firms lacked
                 documentation on which to base their approval.

                 The following table shows the number and amount of
                 unsupported change orders that were approved by the three
                 architectural firms.

                                                                   Amount Of
                                                     Number       Unsupported
                      Approved Change Order         Of Orders       Orders
                  Nathan Johnson & Associates          37          $7,143,813
                  Hamilton Anderson & Associates        1              58,994
                  Ghafari Associates                    4           4,552,250
                               Totals                  42         $11,755,057


                 The three architectural firms approved 42 of the 46
                 unsupported change orders approved by the Housing
                 Commission’s former or current Executive Directors. The 42
                 change orders totaled $11,755,057 and related to construction
                 work at the Jeffries Home or the Villages at Parkside HOPE VI
                 Projects. The three firms were not required to approve the
                 remaining four change orders because the orders related to
                 construction work that was outside of the scope of the firms’
                 services.

                 The $12,060,456 for the 46 unsupported change orders
                 represents 81 percent of the total change orders for the Housing
                 Commission’s Jeffries Homes and the Villages at Parkside
                 HOPE VI Projects. Given the large percentage of unsupported
                 change orders, the Housing Commission’s Board of


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                               Commissioners,          principal    management,        contracted
                               representative, and the three architectural firms failed to ensure
                               that the Commission operated its HOPE VI Projects in an
                               efficient, effective, and economical manner.

                               Contrary to the HOPE VI Grant Agreement for the Villages at
   The Commission Paid For     Parkside, HUD’s regulation, Office of Management and Budget
   Expenses Of The Frankfort   Circular A-87, and the Cooperation Agreement with the City of
   Sewer Project That The      Detroit, the Housing Commission used HUD funds to pay for
   City Should Have Paid       construction costs to the Frankfort Sewer project. The
                               construction costs were not reasonable and necessary expenses
                               of the Housing Commission and should have been provided by
                               the City at no cost to the Commission.

                               Between June 1998 and March 2001, the Housing Commission
                               spent $568,548 in HUD funds to pay two contractors for
                               construction services to the Frankfort Sewer project. The
                               contractors performed the construction services and submitted
                               change orders to the Commission for payment.                The
                               Commission’s former Deputy Director/Interim Executive
                               Director approved the change orders and the orders were paid.
                               The following table shows the change orders and the HUD
                               funds paid to the contractors for the Frankfort Sewer project.

                                                                   Change
                                       Contractor                   Order           Amount
                                                                   Number              Paid
                               DeMaria Building Company        5, 7, 8, and 11      $463,491
                               ABC Paving Company                 11 and 14           105,057
                                        Total                                        $568,548

                               The City of Detroit provided a land easement to the Housing
                               Commission to accommodate the Commission’s redevelopment
                               plans for the Villages at Parkside. Title to the land remained
                               with the City. Construction services were required by the City
                               to reroute the Frankfort Sewer. However, paragraph 5(b) of
                               the Cooperation Agreement required the City to vacate such
                               streets within the area of Parkside that may be necessary in the
                               development, and convey without charge to the Commission
                               such interest as the City may have in such vacated area. The
                               Agreement says the City will also cause to be removed from



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                                  such vacated area all public or private utility lines and equipment
                                  without cost or charges to the Commission.

                                  The Housing Commission’s change orders showed that the City
                                  would reimburse the Commission for the construction expenses.
                                  A January 15, 1998 memorandum from the President of Capital
                                  Needs Unlimited, the Commission’s former representative for
                                  the Villages at Parkside HOPE VI Project, also showed that
                                  the City’s Assistant Director of Water and Sewer agreed that
                                  the construction services would be paid by the City.

                                  The City of Detroit’s Assistant Director of Water and Sewer
                                  said he did not remember any agreement that the City would
                                  reimburse the Housing Commission for the construction services
                                  to the Frankfort Sewer project. We found no written
                                  agreement between the City and the Commission that required
                                  the City to pay for the services. However, the Housing
                                  Commission’s Cooperation Agreement says the City should
                                  have removed all public or private utility lines and equipment
                                  without cost or charges to the Commission. Therefore, the City
                                  should have paid for the sewer construction services. As a
                                  result, HUD funds were not efficiently and effectively used.

                                  Contrary to the Villages at Parkside HOPE VI Grant
   The Commission                 Agreement, HUD’s regulation, and Office of Management
   Improperly Paid Excessive      Budget Circular A-87, the Housing Commission improperly
   Construction Costs, Interest   paid or approved for payment unreasonable and unnecessary
   Expense, And Repair Costs      expenses. The improper expenses included: (1) $294,663 paid
   For Contractor Damages         and an additional $1,230 approved for payment for excessive
                                  construction costs; (2) $128,802 used to pay two contractors
                                  for interest charges; and (3) $127,515 paid to repair damages
                                  caused by contractors at the Villages at Parkside.

                                  As previously mentioned, the Army Corp of Engineers
                                  reviewed 88 of the 105 change orders approved by the
                                  Housing Commission for the Jeffries Homes or the Villages at
                                  Parkside HOPE VI Projects to determine whether the orders
                                  were reasonable and necessary. Of the 88 change orders
                                  reviewed: 16 included excessive construction costs; two had
                                  improper interest charges; and another two were for
                                  construction costs to repair damages caused by contractors.
                                  These 20 change orders related to construction services at the
                                  Villages at Parkside HOPE VI Project. The following table

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                                         shows: the change orders with excessive construction costs that
                                         were paid or approved for payment by the Commission; the
                                         change orders the Commission paid that had interest charges;
                                         and the change orders the Commission paid to repair damages
                                         caused by contractors.

                                                            Excessive     Approved       Paid     Paid Repairs
                                       Change Order        Construction   Excessive    Interest       For
                 Contractor                Number           Costs Paid      Costs     Charges      Damages
        DeMaria Building Company          1, 4, and 8        $55,931           $0           $0           $0
        DeMaria Building Company                1             37,300            0             0           0
        ABC Paving Company             4, 6, 7, 8, and 9      69,095            0             0           0
        ABC Paving Company                    16                   0        1,230             0           0
        ABC Paving Company             4, 6, 8, and 14        49,377            0             0           0
        Filmore Construction Company        1 and 3           82,960            0             0           0
        DeMaria Building Company                7                  0            0       62,477            0
        Filmore Construction Company            4                  0            0       66,325            0
        Filmore Construction Company      10 and 12                0            0             0     127,515
                   Totals                                   $294,663       $1,230     $128,802     $127,515


                                         The following table shows the amount of unreasonable and
                                         unnecessary expenses that were paid or approved for payment
                                         by the former or current Executive Directors.

                                                                            Amount Of Unreasonable And
                                           Approved Change Order                Unnecessary Costs
                                           Former Director                          $ 54,562
                                           Former Interim Director                   368,903
                                           Current Director                          128,745

                                         Housing Commissions and Executive Directors are not
                                         permitted to use HUD funds to pay unreasonable and
                                         unnecessary expenses. Interest charges and repairs for
                                         damages are not reasonable and necessary expenses because
                                         commissions are required to ensure invoices are paid promptly
                                         and contractors that cause damages are held responsible for the
                                         repair costs.

                                         The Housing Commission failed to obtain HUD’s prior
   The Commission Approved               approval on 20 change orders that exceeded $100,000. The
   Change Orders Without                 20 change orders were for construction services to the Jeffries
   HUD Approval                          Homes or the Villages at Parkside HOPE VI Projects. The
                                         change orders were paid or approved for payment between
                                         January 1998 and March 2001. The HOPE VI Grant
                                         Agreements for the Jeffries Homes and the Villages at Parkside

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                      required the Commission to obtain HUD’s prior approval on
                      change orders that exceeded $100,000. However, this was not
                      done.

                      The following table shows the 20 change orders and when the
                      orders were approved for payment.

                                                Change Order   Change Order       Date
                           Contractor             Number          Amount       Approved
                 DeMaria Building Company             1           $107,607       1/8/98
                 DeMaria Building Company             3            153,637       4/9/98
                 DeMaria Building Company             5            350,000      6/22/98
                 DeMaria Building Company             6            194,690      6/22/98
                 DeMaria Building Company             9            585,649     10/12/98
                 DeMaria Building Company            11            104,503     11/18/98
                 DeMaria Building Company            12            402,661      12/9/98
                 DeMaria Building Company            13            603,815       1/8/99
                 DeMaria Building Company            15            168,666      2/16/99
                 DeMaria Building Company            17            619,843       4/1/99
                 ABC Paving Company                   7            175,387      8/17/98
                 A-MAC Sales & Builders               2            158,483     12/15/98
                 Filmore Construction Company         3            170,700      6/22/98
                 Filmore Construction Company         4            122,772      8/17/98
                 Filmore Construction Company         5            449,215     10/13/98
                 Filmore Construction Company         9            488,910      2/13/99
                 ABC Paving Company                   7            171,913      8/17/98
                 A-MAC Sales & Builders               1          1,698,334      7/20/98
                 ABC Paving Company                  17            129,545      7/14/99
                 A-MAC Sales & Builders               5            474,311      11/4/99


                      The Housing Commission was cited in prior HUD reviews and
                      OIG audits for approving change orders with excessive costs or
                      for services that were outside the scope of the original contract.
                      Based upon the reviews and audits, the Commission changed its
                      Procurement Policy effective September 4, 1997 to include
                      change orders that either exceeded $100,000 or 25 percent of
                      the original contract price required HUD’s prior approval. This
                      Policy was more stringent than the approval requirement in the
                      HOPE VI Grant Agreements. The Housing Commission’s
                      former and current Executive Directors disregarded the HOPE
                      VI Grant Agreements and the Commission’s 1997 Procurement
                      Policy and approved the change orders. Nineteen of the 20
                      change orders were executed while the Housing Commission’s
                      1997 Policy was in effect.



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       The Housing Commission amended its Procurement Policy in
       1999 to require that change orders that exceed the greater of
       either $100,000 or 25 percent of the original contract price will
       be submitted to HUD for prior approval before executing the
       orders. The 1999 Policy was not approved by HUD, and was
       less stringent than the HUD approval requirement in the HOPE
       VI Grant Agreements. The Commission’s 1999 Policy cannot
       be used as a basis to supercede the requirements in the Grant
       Agreements. Only one of the 20 change orders was executed
       after the 1999 Policy was effective.

       The following table shows the number and the amount of
       change orders that were approved for payment by the former
       and current Executive Directors without HUD’s required prior
       approval.

                                          Number    Amount Of
         Approved Change Order           Of Orders Change Orders
        Former Director                      1       $ 107,607
        Former Interim Director             17        6,618,998
        Current Director                     2          603,856

       The Army Corp of Engineers determined that five of the 20
       change orders that were approved by the Housing Commission
       but were not approved by HUD included excessive
       construction costs or expenses related to the Frankfort Sewer
       project that the City should have paid. The Corp could not
       make a determination whether the costs were reasonable and
       necessary on 14 other change orders they reviewed. The
       remaining change order was not reviewed by the Corp. HUD’s
       prior review of change orders is an essential part to the
       Commission’s contracting process to ensure the process is
       conducted in an efficient, effective, and economical manner.

       HUD’s Office of Public Housing Investments was responsible
       for reviewing the Housing Commission’s change orders related
       to the HOPE VI Program. The Director-Senior Advisor of
       Public Housing Investments said his Office was not aware that
       the Commission executed change orders that required HUD’s
       approval since the Commission failed to submit the orders to
       HUD. Once HUD was aware of cost overruns and outstanding
       invoices against the Commission’s Villages at Parkside HOPE
       VI Project, the Director said he suspended the Commission’s
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                              ability to draw down funds. In May 2000, HUD lifted the
                              suspension because an agreement was executed with the
                              Commission to settle the outstanding invoices.          The
                              Commission’s current Executive Director said he believed the
                              Commission received HUD’s approval on the two change
                              orders he approved. However, the Commission lacked
                              documentation to support HUD’s prior approval was requested
                              or granted for the two orders.

                              Contrary to the HOPE VI Grant Agreements, the Annual
   The Commission Lacked      Contributions Contract, HUD’s regulations, and/or the Housing
   Documentation To Support   Commission’s Procurement Policies, the Commission lacked
   Its Contract Awards        documentation to support that its HOPE VI construction or
                              professional services contracts for the Jeffries Homes or the
                              Villages at Parkside were awarded through full and open
                              competition or in an efficient and effective manner. The
                              Commission awarded 40 construction or professional services
                              contracts for the Jeffries Homes or the Villages at Parkside
                              HOPE VI Projects. We reviewed 23 of the 40 contracts to
                              determine whether the Commission properly procured the
                              services according to Federal requirements and the
                              Commission’s Procurement Policies.

                              The 23 contracts we reviewed totaled over $80 million and
                              were awarded between November 1995 and May 1999. The
                              Commission lacked documentation to support that: 12 bid
                              solicitations were properly advertised; nine solicitations received
                              a sufficient number of bids; 22 solicitations had an independent
                              cost analysis prior to receiving bids; 15 bids were date stamped
                              at the time of receipt; six bids received technical evaluations to
                              determine whether the contractors were qualified to perform the
                              services; three contractors were notified of the contract awards;
                              and five contractors received notices to proceed on the
                              contracted services. The following table shows the 23
                              contracts and which contracts lacked documentation regarding
                              the contract award process.




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                                                                                                     No          No
                                                                                 No       No        Notice     Notice
                         Contract       Improper      Insufficien   No Cost     Date   Technical     Of          To
      Contractor         Amount       Advertisement     t Bids      Analysis   Stamp   Evaluation   Award      Proceed
Hamilton Anderson &
Associates, Inc.         $ 750,000         X              X            X        X          X
G. Fisher Construction
Company                  12,400,000                                    X
M & M Contracting          800,992                                     X        X
ABC Paving Company       1,635,900         X              X            X        X
Industrial Waste
Cleanup, Inc.              212,148         X                           X        X
A-MAC Sales &
Builders                 3,741,380         X              X            X        X
DeMaria Building
Company                  9,274,200                                     X
DeMaria Building
Company                  18,168,979
DeMaria Building
Company                    336,371                        X            X        X
A-MAC Sales &
Builders                 3,120,000         X              X            X        X
ABC Paving Company       1,136,600         X              X            X        X          X
Filmore Construction
Company                  9,650,316                                     X
Diamond Dismantling        779,319                                     X
Filmore Construction     2,284,000                                     X
DeMaria Building
Company                  1,428,367                        X            X        X
Capital Needs
Unlimited                3,560,310         X                           X        X
Nathan Johnson &
Associates, Inc.         4,206,312         X              X            X        X          X                     X

Team/Ace Joint Venture   5,000,000         X                           X        X                     X          X
EBH Design Inc.          1,000,000         X              X            X                   X
Burns International
Security Services          486,598                                     X        X                                X
Abbott, Nicholson,
Quilter, Esshaki &
Youngblood                200,000                                      X                   X          X          X
                         $200 per
Fidelity Title Company     draw            X                           X        X                     X          X
Segue, Fair, Adams &
Pope                       100,000         X                          X         X          X
         Totals                            12              9          22        15         6          3           5


                                                 The HOPE VI Grant Agreements, the Annual Contributions
                                                 Contract, HUD’s regulations, and/or the Housing Commission’s
                                                 Procurement Policies required the Commission to award the
                                                 Jeffries Homes or the Villages at Parkside HOPE VI contracts
                                                 through full and open competition, and in an efficient and

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                                   effective manner. In the 23 contracts we reviewed, the
                                   Commission did not always ensure that documentation was
                                   maintained to support the contracting process. The contract to
                                   Abbott, Nicholson, Quilter, Esshaki, & Youngblood was
                                   awarded during the administration of the Commission’s current
                                   Executive Director. The remaining 22 contracts were awarded
                                   under the Commission’s former Directors. As a result, HUD
                                   lacks assurance that the Commission’s procurement
                                   transactions were subject to full and open competition, or were
                                   conducted in an efficient, effective, or economical manner.

                                   The Housing Commission’s failure to adhere to required
       Contracting Problems        contracting requirements occurred because the Commission
       Existed Because The         lacked controls over the HOPE VI Program. The General
       Commission Lacked           Manager of the Commission’s Purchasing Department said his
       Controls Over The Program   Department was generally not involved in the contracting
                                   process at the Villages at Parkside HOPE VI Project. Instead,
                                   the Commission allowed Capital Needs Unlimited virtually full
                                   control over Parkside’s contracting process. The Commission
                                   did not sufficiently monitor Capital Needs Unlimited to ensure it
                                   followed HUD’s or the Commission’s contracting requirements.
                                   While the Housing Commission administered the contracting
                                   process for the Jeffries Homes HOPE VI Project, the
                                   Commission’s staff relied on the recommendations of the
                                   architectural and engineering firm regarding Jeffries’ contracting
                                   process.


        Auditee Comments           [Excerpts paraphrased from the Housing Commission’s
                                   comments on our draft finding follow. Appendix B, pages 116
                                   to 125, contains the complete text of the comments for this
                                   finding.]

                                   This finding chronicles the Housing Commission’s HOPE VI
                                   Program over a seven-year period and four Executive
                                   Directors. The finding confirms the Program facts as the
                                   Commission’s current administration, HUD, and the public
                                   knew them as of April 1999. However, the finding fails to
                                   distinguish between actions and inactions attributable to the
                                   Commission’s current and former administrations. Therefore,
                                   the finding is misleading and unbalanced. The finding is
                                   unbalanced and misleading since it fails to acknowledge the
                                   baseline environment confronting the Commission’s current

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                           administration nor does it acknowledge the progress made by
                           the current administration with aggressive HUD oversight over
                           the last two years.

                           The Housing Commission’s current administration appointment
                           in April 1999 was amidst public disclosure over the lack of
                           progress and cost overruns at two HOPE VI sites estimated at
                           $7 million. Over $200 million was awarded to the Commission
                           over a seven-year period and both HOPE VI Projects were
                           experiencing extraordinary construction delays, contractor
                           disputes, cost overruns, and program administration issues.
                           Prior to April 1999, HUD accelerated its oversight role through
                           the issuance of several corrective action orders and suspended
                           the Commission’s ability to requisition funds for the Projects. It
                           was against this backdrop that the current administration began
                           to implement operational enhancements and internal controls
                           necessary for the HOPE VI Program. It was also against this
                           backdrop that the current administration sought to liquidate the
                           millions in outstanding contractor claims and overdue invoices
                           arising from the Projects.

       OIG Evaluation Of   We agree that prior to the Housing Commission’s current
       Auditee Comments    Executive Director that public disclosure identified a lack of
                           progress and cost overruns in the Commission’s HOPE VI
                           Projects.    However, the Housing Commission’s current
                           Director also failed to ensure that the Commission’s
                           procurement transactions were conducted in accordance with
                           Federal requirements, State of Michigan law, and the
                           Commission’s Procurement Policies. The Director improperly
                           approved eight change orders without detailed work
                           specifications, one change order with interest charges, and two
                           orders without HUD’s prior approval. While we agree that the
                           current Director implemented changes to the administration of
                           the Commission’s HOPE VI Program, the Director failed to
                           ensure that his actions were according to the Program’s
                           requirements.

       Auditee Comments    The Housing Commission strongly disagrees with the draft
                           finding’s conclusions for the following reasons:

                           •       The finding fails to sufficiently distinguish between
                                   actions and inactions attributable to the Commission’s
                                   former and current administrations. The finding

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                        inaccurately concludes that the current administration
                        approved change orders in the amount of $1.6 million.
                        With the documentation provided, the Housing
                        Commission requests that the finding be revised to
                        reflect that the Commission approved the change orders
                        in accordance with the applicable HOPE VI Grant
                        Agreements and its Procurement Policy;

                 •      The finding fails to clarify that virtually all change orders
                        and contract deficiencies resulted from actions or
                        inactions over a seven-year period by the
                        Commission’s prior administrations that predates the
                        April 1999 appointment of the current administration;
                        and

                 •      The finding fails, beyond a cursory mention, to analyze
                        the management of the Commission’s former
                        administration     of    the   HOPE      VI      funded
                        contractors/consultants and the impact of their actions
                        or inactions upon the progress of the HOPE VI
                        Program.

                 Starting in 1999, the Housing Commission admits that it had the
                 ultimate responsibility for resolving the long-standing issues
                 found with the Commission’s HOPE VI Program. However,
                 the Commission takes exception to the finding’s failure to
                 acknowledge the progress made over the last two years that
                 include:

                 1.     The reorganization of the Commission’s development
                        and modernization activities under the Development
                        General Manager in addition to the hiring of
                        experienced housing, construction, and finance senior
                        managers;

                 2.     The implementation of policy enhancements in the
                        Commission’s procurement, development, and finance
                        operations. Effective April 1999, procurement actions
                        are coordinated through the Commission’s Procurement
                        Division for the Parkside and Jeffries HOPE VI
                        Projects. Effective September 1999, the Commission’s
                        Procurement Policy was updated to clarify prior HUD
                        approval of change orders;

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                           3.      The development of standard operating procedures for
                                   the Commission’s procurement and finance operations.
                                   The standard operating procedures are specific to the
                                   draft findings include:
                                       • Construction Contracts: Administration and
                                            Monitoring;
                                       • Construction Contracts: Progress Payments;
                                       • Construction Contracts: Time Extensions;
                                       • Construction Contracts: Construction Logs;
                                       • Construction Contracts: Warranties;
                                       • Construction Contracts: Final Inspections; and
                                       • Construction Contracts: Acceptance.

                           4.      The implementation of an extensive training program for
                                   Commission’s development and finance staff in the
                                   areas of HOPE VI Program administration and Federal
                                   procurement regulations.     Currently, the Housing
                                   Commission’s Procurement and Development General
                                   Managers have met HUD’s requirements and are
                                   qualified to certify the Commission’s procurement
                                   actions;

                           5.      The establishment of an internal auditing function with
                                   the Management Analysis and Planning Division; and

                           6.      The establishment of a monthly reporting process to the
                                   Commission’s Board of Commissioners for all
                                   development activities including Parkside.

       OIG Evaluation Of   We amended the finding to specifically identify the improper
       Auditee Comments    actions of the Housing Commission’s former and current
                           Executive Directors. While several of the deficiencies related to
                           contracting and change orders that occurred prior to the
                           Commission’s current Executive Director, the Director also
                           failed to ensure that the Commission carried out its contracting
                           process according to Federal, State, and local laws.

                           The Housing Commission did not provide detailed work
                           specifications with its comments to support the $1,682,917 in
                           unsupported change orders approved by the Commission’s
                           current Executive Director. The Director improperly approved
                           14 percent of the unsupported change orders cited in this
                           finding.

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                           In regards to the Housing Commission’s request that we amend
                           the finding to reflect that the Commission approved the change
                           orders in accordance with the applicable HOPE VI Grant
                           Agreements and its Procurement Policy, the documentation
                           submitted by the Commission provided no basis to do so.

       Auditee Comments    The finding reflects only cursory attempts to interview or the
                           conduct of cursory interviews of the Housing Commission’s
                           former Executive Directors or principal staff, contractors, City
                           of Detroit officials, HUD, and the Army Corp of Engineers.
                           These parties are essential to a balanced, comprehensive
                           presentation of the historical record. The finding lacks any
                           assessment of or comment on HUD’s oversight responsibilities
                           including the extent to which HUD provided technical assistance
                           over the period in question.

                           There were assessments and audits conducted by HUD and the
                           OIG citing HOPE VI related procurement and program
                           management issues as far back as 1996. It is the Commission’s
                           position that the finding should have included an assessment of
                           HUD’s actions or inactions in monitoring and assisting the
                           Commission in reference to the assessments and audits.

       OIG Evaluation Of   We interviewed over 160 individuals during the audit of the
       Auditee Comments    Housing Commission’s HOPE VI Program. The interviews
                           included the Commission’s former Executive Directors, Board
                           members, principal management staff, employees, and
                           contractors. We also interviewed officials from the City of
                           Detroit, HUD’s staff, and the Army Corp of Engineers. The
                           information obtained through our interviews and documentation
                           we reviewed provides the basis for our conclusions cited in this
                           report.

                           We agree that prior HUD reviews and OIG audits identified
                           long-standing deficiencies in the Housing Commission’s overall
                           administration and the management of the HOPE VI Program.
                           Specifically, OIG audit report #96-CH-201-1809 issued on
                           April 30, 1996 showed that the Commission failed to prepare
                           cost estimates for contract awards. OIG audit report #98-CH-
                           201-1804 issued on December 11, 1997 showed that the
                           Commission failed to execute change orders properly. The
                           1997 OIG report recommended the Commission follow its
                           September 1997 Procurement Policy and obtain HUD’s

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                           approval for all change orders over $100,000 or 25 percent of
                           the original contract price.        However, the Housing
                           Commission’s former and current Executive Directors
                           continued to not follow the HOPE VI Grant Agreements and its
                           1997 Procurement Policy. In fact, the Commission amended its
                           1999 Procurement Policy to one that was less restrictive than
                           required by the HOPE VI Grant Agreements.

       Auditee Comments    The draft finding is factually inaccurate and should be revised to
                           reflect the record regarding the Housing Commission’s current
                           administration. The finding inaccurately concludes that the
                           Commission’s current administration approved eight change
                           orders in the amount of $1.6 million. The Commission
                           recommends that the finding be revised to state that the change
                           orders were supported by documentation that included
                           applicable Board resolutions, specifications, costs analysis, and
                           where applicable, HUD approval.

                           In September 1999, change orders were approved by the
                           Housing Commission’s Board of Commissioners and
                           forwarded for HUD’s approval.           Under the Housing
                           Commission’s 1999 Procurement Policy, the Commission was
                           not required to submit two change orders for HUD’s prior
                           review as the orders were below 25 percent of base contract
                           price. However, the Commission submitted the change orders
                           for HUD’s approval as an October 2, 2000 letter reflects.
                           While taking issue with prior 1996 change orders, HUD
                           approved payment to two contractors. Please note that the
                           Commission did not pay the contractors until receipt of HUD’s
                           approval.

                           With regards to the Villages at Parkside change orders,
                           attached is documentation that discloses the orders represented
                           outstanding contractor claims. The resolution of the change
                           orders by the Commission’s current administration facilitated
                           Parkside’s HOPE VI efforts and was coordinated with HUD.

       OIG Evaluation Of   The documentation provided with the Housing Commission’s
       Auditee Comments    comments did not include detailed work specifications to
                           support the unsupported change orders. The Commission’s
                           documentation also did not support HUD’s approval of the
                           change orders. Therefore, no changes are necessary to this
                           finding.

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                          We agree that the Housing Commission’s Board of
                          Commissioners approved the change orders. However, as
                          reported in this finding, the Commission failed to obtain HUD’s
                          prior approval as required by the HOPE VI Grant Agreements
                          and the Commission’s 1997 Procurement Policy. While the
                          Commission’s citation of its September 1999 Procurement
                          Policy is correct, the Policy established a higher threshold than
                          the HOPE VI Grant Agreements. The Policy requires that
                          change orders that exceed the greater of either $100,000 or 25
                          percent of the original contract price will be submitted to HUD
                          for prior approval before executing the orders. The 1999
                          Policy was not approved by HUD and cannot supercede the
                          requirements of the Grant Agreements. The 20 change orders
                          cited in this finding each exceeded $100,000. Therefore, the
                          Commission was required to obtain HUD’s approval on the
                          orders.

       Auditee Comments   The Housing Commission supports the following
                          recommendations and instituted standard operating procedures
                          and operational enhancements to improve its ability to manage
                          the procurement and program management aspects of the
                          HOPE VI Program:

                          •       Provide detailed work specifications supporting the
                                  work included in the 46 unsupported change orders;

                          •       Conduct a review (using HUD staff or contractors) of
                                  the work specifications submitted to determine whether
                                  the work specified was included in the original contract.
                                  The Commission should reimburse HUD from non-
                                  Federal funds for the cost of any change orders that
                                  duplicate work in the original contract; and

                          •       Conduct a review (using HUD staff or contractors) to
                                  ascertain the reasonableness of the change order costs
                                  based upon the specifications provided.           The
                                  Commission should reimburse HUD from non- Federal
                                  funds for any unreasonable costs.

                          The Housing Commission will also work with HUD to
                          implement any additional Program enhancements deemed
                          necessary.


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       OIG Evaluation Of   HUD needs to assure that the Housing Commission fully
       Auditee Comments    implements the recommendation in this report.

       Auditee Comments    This finding is factually inaccurate and should be revised that the
                           Housing Commission paid $568,548 in expenses for the
                           Frankfort Sewer project that the City of Detroit was required to
                           pay. The change orders for the construction work to the
                           Frankfort project were approved between January 1998 and
                           January 1999, prior to the Commission’s current administration.
                           Regarding the eligibility of the expenses, the City provided an
                           easement to the Villages at Parkside. Thereafter, any
                           improvements become the responsibility of Parkside.

                           The Housing Commission disagrees with the following
                           recommendation and will, with HUD, assess the eligibility of the
                           funds:

                           •       Require the City of Detroit to reimburse the Housing
                                   Commission $568,548 for the Frankfort Sewer project
                                   construction expenses that were improperly paid. If the
                                   City does not reimburse the Housing Commission, then
                                   the Commission should reimburse its Villages at
                                   Parkside HOPE VI Project $568,548 from non-
                                   Federal funds.

                           If appropriate, the Housing Commission will reimburse HUD
                           and seek to recover the funds from the City of Detroit.

       OIG Evaluation Of   Contrary to the HOPE VI Grant Agreement for the Villages at
       Auditee Comments    Parkside, HUD’s regulation, Office of Management and Budget
                           Circular A-87, and the Cooperation Agreement with the City of
                           Detroit, the Housing Commission used HUD funds to pay for
                           construction costs to the Frankfort Sewer project. The
                           construction costs were not reasonable and necessary expenses
                           of the Housing Commission and should have been paid by the
                           City at no cost to the Commission.

                           Paragraph 5(b) of the Cooperation Agreement required the
                           City to vacate such streets within the area of the Parkside that
                           may be necessary in the development, and convey without
                           charge to the Commission such interest as the City may have in
                           such vacated area. The Agreement says the City will also cause
                           to be removed from such vacated area all public or private

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                           utility lines and equipment without cost or charges to the
                           Commission. Construction costs for water and sewer services
                           are costs that the local government should provide to the
                           Commission and its residents at no cost. Therefore, the
                           Commission should require the City to reimburse for the
                           expenses related to the Frankfort Sewer project or reimburse
                           its HOPE VI Program from non-Federal funds. The finding
                           shows that the Commission’s former Deputy Director/Interim
                           Executive Director approved the Frankfort Sewer project
                           change orders, not the current Executive Director.

       Auditee Comments    The Housing Commission disagrees that the Commission
                           improperly paid excessive construction costs, interest expense,
                           and repair costs for contractor damages. The Commission also
                           disagrees with the following recommendation:

                           •      Reimburse its Villages at Parkside HOPE VI Project
                                  $550,980 from non-Federal funds for the improper
                                  payment of excessive construction costs, interest
                                  expense, and repair costs to correct contractor
                                  damages. The Housing Commission should not use
                                  HUD funds to pay the $1,230 in excessive construction
                                  costs cited in this finding.

                           The Commission will, with HUD, conduct a review to
                           determine the appropriateness of reimbursement to HUD. If
                           applicable, the Commission will reimburse HUD and seek to
                           recover from responsible firms any excessive costs.

       OIG Evaluation Of   The Housing Commission provided no basis for its
       Auditee Comments    disagreement regarding our conclusions on excessive costs,
                           interest expenses, and contractor damages. Consequently, we
                           have no reason to revise the finding or the recommendation.

       Auditee Comments    The Housing Commission requests that the finding be revised to
                           clearly state that the procurement issues regarding the lack of
                           documentation to support the contract awards occurred prior to
                           the Commission’s current administration. The Commission
                           disagrees with the following recommendation, in general, and
                           instituted policy enhancements, internal controls, and standard
                           operating procedures to ensure the efficiency and effectiveness
                           of the procurement process:


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                           •      Establish controls to ensure that HOPE VI contract
                                  awards are conducted in accordance with the: Grant
                                  Agreement(s); HUD's regulations; the Annual
                                  Contributions Contract; and/or the Commission's
                                  Procurement Policy.

       OIG Evaluation Of   We amended the finding to include information on which
       Auditee Comments    Housing Commission administration was responsible for the
                           lack of documentation. As indicated in the finding, the
                           Commission’s current administration as well as the two former
                           administrations were responsible. The finding also shows that
                           the Commission does not currently have effective controls to
                           ensure compliance with HOPE VI requirements. Thus our
                           recommendation is appropriate.


       Recommendation      We recommend that the Director-Senior Advisor of Public
                           Housing Investments, in conjunction with the Michigan State
                           Office Director of Public Housing Hub, assure that the Detroit
                           Housing Commission:

                           4A.    Provides detailed work specifications supporting the
                                  work included in the 46 unsupported change orders
                                  totaling $12,060,456 identified in this finding. The
                                  Housing Commission should reimburse HUD from non-
                                  Federal funds for the cost of any change orders it
                                  cannot     provide     sufficient     support    (see
                                  Recommendations 4B and 4C).

                           4B.    Conducts a review (using HUD staff or contractors) of
                                  the work specifications submitted to determine whether
                                  the work specified was included in the original contract.
                                  The Housing Commission should reimburse HUD from
                                  non-Federal funds for the cost of any change orders
                                  that duplicate work in the original contract(s).

                           4C.    Conducts a review (using HUD staff or contractors) to
                                  ascertain the reasonableness of the change order costs
                                  based upon the specifications provided. The Housing
                                  Commission should reimburse HUD from non-Federal
                                  funds for any unreasonable costs.



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                 4D.     Conducts a review (using HUD staff or contractors) to
                         determine whether the work specified by the change
                         orders were properly completed.       The Housing
                         Commission should seek completion/correction of any
                         work using non-Federal funds.

                 4E.     Requires the City of Detroit to reimburse the Housing
                         Commission $568,548 for the Frankfort Sewer project
                         construction expenses that were improperly paid. If the
                         City does not reimburse the Housing Commission, then
                         the Commission should reimburse its Villages at
                         Parkside HOPE VI Project $568,548 from non-
                         Federal funds.

                 4F.     Reimburses its Villages at Parkside HOPE VI Project
                         $550,980 from non-Federal funds for the improper
                         payment of excessive construction costs, interest
                         expense, and repair costs to correct contractor
                         damages. The Housing Commission should not use
                         HUD funds to pay the $1,230 in excessive construction
                         costs cited in this finding.

                 4G.     Implements controls to ensure that HUD’s prior
                         approval is obtained on change orders in excess of
                         $100,000 as required by the Jeffries Homes and the
                         Villages at Parkside HOPE VI Grant Agreements.

                 4H.     Implements controls to ensure that HOPE VI contract
                         awards are conducted in accordance with: the Grant
                         Agreement(s); HUD’s regulations; the Annual
                         Contributions Contract; and/or the Commission’s
                         Procurement Policy.




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  The Commission Lacked Control Over Funds For
    The Villages At Parkside HOPE VI Project
  The Detroit Housing Commission did not maintain sufficient control over HUD funds (HOPE VI and
  Comprehensive Grant) for the Villages at Parkside HOPE VI Project. The Housing Commission: (1)
  lacked documentation to show that $999,128 of HUD funds paid and an additional $1,269,377
  approved for payment benefited the Commission’s Parkside HOPE VI Project or were reasonable and
  necessary expenses; and (2) paid $5,096 in interest expense from HUD funds and approved for
  payment another $8,044 for interest expense that was not reasonable and necessary to the Parkside
  HOPE VI Project. The Housing Commission’s former and current top management and its Board of
  Commissioners failed to exercise their duties to ensure that controls over disbursements were sufficient.
  As a result, HUD had no assurance that the Housing Commission paid only reasonable and necessary
  operating costs.


                                          The HOPE VI Implementation Grant Agreement dated
    HOPE VI Grant Agreement               February 8, 1995, between HUD and the Detroit Housing
                                          Commission, required the Housing Commission to comply with
                                          the cost principles of Office of Management and Budget
                                          Circular A-87, Cost Principles for State, Local, and Indian
                                          Tribal Governments. The Grant Agreement also required the
                                          Housing Commission to keep records that are sufficient to
                                          document the reasonableness and necessity of expenditures.

                                          24 CFR Part 85.20 requires the Housing Commission to
    HUD’s Regulations                     maintain accounting records that sufficiently identify the
                                          application of funds as well as expenditures. 24 CFR Part
                                          85.22(b) requires that State, local, and Indian tribal
                                          governments follow Office of Management and Budget Circular
                                          A-87. 24 CFR Part 85.3 defines a local government to include
                                          any public housing agency.

                                          Office of Management and Budget Circular A-87, Attachment
    Office Of Management And              A, paragraph C(1)(a), requires that all costs be necessary and
    Budget’s Requirements                 reasonable for proper and efficient performance and
                                          administration of Federal awards. In addition, paragraph
                                          C(1)(j) requires that all costs be documented. Attachment B,
                                          Section 26, of the Circular says interest expense is not an


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                               allowable cost except for financing provided by a third party
                               used to support Federal awards.

                               The Housing Facilities Act (Public Act 18), Michigan Compiled
   State Of Michigan Law       Laws Annotated Section 125.685, requires housing
                               commissions to maintain and keep proper books of record and
                               account in relation to its properties, business, and affairs.

                               Public Housing Commissioners have a responsibility to HUD to
   Responsibilities Of Board   ensure national housing policies are carried out, and to the
   Of Commissioners And        Commission’s management staff and employees to provide
   Management Staff            sound and manageable directives. The Commissioners are
                               accountable to their locality and best serve it by monitoring
                               operations to be certain that housing programs are carried out in
                               an efficient and economical manner.

                               The responsibility for carrying out the Commissioners' policies
                               and managing the Housing Commission's day-to-day operations
                               rests with the Commission’s principal management staff. In
                               particular, the management staff must maintain the Housing
                               Commission's overall compliance with its policies and
                               procedures and Federal, State, and local laws.

                               We reviewed 100 percent of the Housing Commission’s
   Disbursements/Invoices      disbursements from HUD funds (HOPE VI, Comprehensive
   Reviewed And Schedule       Grant, and Development) for the Villages at Parkside HOPE VI
   Provided                    Project. We also reviewed the Commission’s invoices for the
                               Parkside Project that were not paid as of June 26, 2000. The
                               disbursements occurred between April 9, 1996 and June 26,
                               2000. We reviewed the disbursements and invoices to
                               determine whether the costs were reasonable and necessary to
                               the Housing Commission’s Villages at Parkside HOPE VI
                               Project. The Commission paid $53,817,577 in HUD funds for
                               the time period reviewed. In addition, the Commission had
                               $4,267,034 in unpaid invoices as of June 26, 2000.

                               We determined that the Housing Commission paid and was in
                               the process of paying unsupported and ineligible costs from
                               HUD funds for the Villages at Parkside HOPE VI Project. A
                               schedule was prepared showing the payments and invoices not
                               paid. We provided the schedule of the unsupported and
                               ineligible costs to HUD’s Director-Senior Advisor of Public
                               Housing Investments, HUD’s Michigan State Office Director of

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                              Public Housing Hub, and the Housing Commission’s Executive
                              Director.

                              The Detroit Housing Commission used $999,128 in HUD funds
   The Commission Lacked      (HOPE VI and Comprehensive Grant) and was in the process
   Documentation To Support   of paying another $1,269,377 in invoices for the Villages at
   Payments And Invoices      Parkside HOPE VI Project without sufficient supporting
                              documentation.

                              In order to determine whether the Housing Commission used
                              HUD funds for reasonable and necessary expenses, we
                              reviewed such items as the Commission’s Expenditure Listing
                              Reports, check register, canceled checks, bank statements,
                              contractors’ invoices, and payment reports from HUD’s Line of
                              Credit Control System.

                              The $999,128 of unsupported payments represents two
                              percent of the total HUD funds spent as of June 26, 2000. The
                              following table shows the amount of unsupported payments per
                              year.

                                             Year     Unsupported Payments
                                             1996           $225,900
                                             1997             34,074
                                             1998            188,842
                                             1999                  0
                                             2000            550,312
                                             Total          $999,128


                              A Commissioner for the Housing Commission’s Board said the
                              Board relied on the former and current principal management
                              staff to ensure funds were used correctly. She said the Board
                              relied on the Commission’s management staff to maintain
                              documentation to support disbursements. The current and
                              former Executive Directors, the former Urban Revitalization
                              Coordinator, and the former General Manager of Management
                              Information Systems/General Manager of Finance were the
                              Commission’s principal management staff over the Villages at
                              Parkside HOPE VI Project. They were responsible for the
                              oversight of the Parkside Project, and were required to ensure
                              that the Commission complied with its policies and procedures
                              and Federal, State, and local laws. However, this was not
                              done.

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                               The following table shows the $999,128 of unsupported
                               expenses that were paid during the former or current Executive
                               Directors’ administration of the Parkside HOPE VI Project.

                                                                 Amount Of Unsupported
                                     Administration                   Payments
                                Former Director                        $412,692
                                Former Interim Director                  36,124
                                Current Director                        550,312

                               The $1,269,377 of unsupported, unpaid invoices represents 30
                               percent of the invoices on hand at June 26, 2000 for the
                               Villages at Parkside HOPE VI Project. The invoices were
                               approved for payment under the administration of the Housing
                               Commission’s current Executive Director.

                               The Housing Commission paid $5,096 from HUD funds on
   The Commission Paid And     June 3, 1998 for interest expenses related to late payments.
   Was Invoiced For Interest   The interest expenses were paid during the administration of the
   Expense That Was Not        Commission’s former Deputy Director/Interim Executive
   Permitted                   Director. The Housing Commission had another $8,044 worth
                               of interest charges invoiced but not yet paid as of June 26,
                               2000. The $8,044 of interest charges was approved for
                               payment under the administration of the Commission’s current
                               Executive Director.

                               The HOPE VI Implementation Grant Agreement and HUD’s
                               regulation required the Housing Commission to follow Office of
                               Management Budget Circular A-87. The Circular does not
                               permit the Housing Commission to pay interest expense for late
                               charges.

                               The Housing Commission’s General Manager of
                               Modernization/Development (formerly Urban Revitalization
                               Administrator) said when HUD suspended its funding for the
                               Villages at Parkside HOPE VI Project, the Commission felt
                               obligated to pay contractors and vendors from its operating
                               funds. However, she said there were not sufficient funds to pay
                               all the contractors and vendors. The Housing Commission’s
                               contractors and vendors charged interest expense for late
                               payments.



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                          The General Manager of Modernization/Development’s
                          comments; however, do not explain the $5,096 in interest
                          payments made on June 3, 1998. HUD did not suspend the
                          Commission’s funding for the Parkside HOPE VI Project until
                          April 1999.



       Auditee Comments   [Excerpts paraphrased from the Housing Commission’s
                          comments on our draft finding follow. Appendix B, pages 126
                          to 130, contains the complete text of the comments for this
                          finding.]

                          The Housing Commission has experienced a transition in its
                          senior management over the past five years, covering the period
                          in question with regard to the finding of unsupported costs. The
                          Commission’s current administration was appointed April 5,
                          1999. With the appointment came operational and financial
                          assessments to determine the state of the Commission and
                          specifically the status of the HOPE VI Program. The
                          assessments described numerous operational and financial
                          management deficiencies causing the Commission’s new
                          administration to take corrective action, including the
                          implementation of new procedures.

                          One of the Housing Commission’s most glaring deficiencies
                          noted were problems related to the lack of an effective
                          administrative and financial infrastructure to support the
                          program operations of the Commission. Equally important was
                          the need to recruit qualified and experienced managers to
                          oversee the Commission’s programs and operations.
                          Recruitment efforts resulted in several newly appointed General
                          Managers, among them a new General Manager of Finance
                          appointed June 19, 2000.

                          With the advent of these and other personnel changes, and the
                          Housing Commission’s implementation of a new computer
                          system designed to support the Commission’s complex
                          transactions, the Commission is beginning to make significant
                          progress to correct the systemic deficiencies discovered 18
                          months ago. In addition, the Commission’s newly established
                          Management Analysis & Planning Division has begun to
                          develop sorely needed policies and procedures, for all divisions,
                          agency-wide. This will ensure that the Commission continues to

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                           strengthen its internal controls and will provide for acceptable
                           financial management practices.

       OIG Evaluation Of   The Housing Commission did not provide any procedures with
       Auditee Comments    its comments; therefore, we are unable to evaluate them. The
                           Commission was cited in prior OIG audit reports (96-CH-201-
                           1809 issued April 30, 1996 and 98-CH-201-1804 issued
                           December 11, 1997) for failing to have sufficient procedures
                           over its vendor payments. The Commission agreed to
                           implement procedures and controls to ensure the timely
                           payment of invoices. As cited in this finding, the Commission
                           failed to implement the procedures and controls over its
                           disbursements for the Villages at Parkside HOPE VI Project.
                           The Commission needs to implements procedures and controls
                           to ensure that disbursements from HUD funds for the Parkside
                           HOPE VI Project meet the HOPE VI Grant Agreement,
                           HUD’s regulations, Office of Management and Budget Circular
                           A-87, and State of Michigan law.

       Auditee Comments    The Housing Commission’s current administration reviewed the
                           HOPE VI Grant Agreement, the program management contract
                           between the Detroit Housing Commission Parkside and Capital
                           Needs Unlimited, and 24 CFR Part 85.42 to review the
                           requirements for the administration of the Grant, record
                           keeping, and the program manager’s scope of work. While it is
                           clear that Capital Needs Unlimited was permitted to exercise
                           considerable control over the Villages at Parkside HOPE VI
                           Project, the Housing Commission’s current administration
                           cannot provide comments or speculate on the decision making
                           process of the Commission’s former administration and its
                           contractor, or provide documentation not originally requested
                           when disbursements were made. Upon close assessment and
                           review of the status of Parkside HOPE VI Project, the Housing
                           Commission’s newly appointed Executive Director terminated
                           the program management contract shortly after his arrival to the
                           Commission in April 1999.

                           A significant amount of documents were located in response to
                           requests for documentation from the on-site OIG staff. It
                           should be noted that in spite of the obstacles facing a new
                           administration to locate and recreate transactions incurred by a
                           previous administration, exhaustive efforts were made to
                           comply with all requests for documents. Further, the Housing

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                           Commission addressed a certified letter to the President of
                           Capital Needs Unlimited. The letter requested that the
                           President search his records and provide the Commission with
                           additional documentation. While the President of Capital
                           Needs Unlimited responded, he did not forward any additional
                           documents.

                           The Housing Commission believes it was successful in locating
                           additional documents regarding disbursements originally alleged
                           to be unsupported or ineligible that should reduce the amount of
                           alleged unsupported payments.            As a result of the
                           Commission’s search, we respectfully request that the alleged
                           amount of unsupported/ineligible payments documented by the
                           OIG be reduced by $2,989,663.

       OIG Evaluation Of   The Housing Commission was required by the HOPE VI Grant
       Auditee Comments    Agreement, HUD’s regulations, Office of Management and
                           Budget Circular A-87, and State of Michigan law to maintain
                           documentation to support the disbursements for the Villages at
                           Parkside HOPE VI Project. While the Commission contracted
                           with Capital Needs Unlimited for the oversight of the Project,
                           the Commission was still required to ensure that disbursements
                           were supported with documentation.

                           Our draft finding originally cited $1,705,117 of HUD funds paid
                           and $1,405,948 invoiced for payment that lacked
                           documentation to support they benefited the Commission’s
                           Parkside HOPE VI Project or were reasonable and necessary
                           expenses. Based upon the documentation provided by the
                           Commission, we adjusted the finding to reflect the Commission
                           paid $999,128 ($1,705,117 less $705,989) in unsupported
                           invoices and approved for payment $1,269,377 ($1,405,948
                           less $136,571) in unsupported invoices. The Commission’s
                           search did not support all of the unsupported payments or
                           invoices approved for payment.              The Commission’s
                           documentation also did not support the ineligible interest
                           payments or interest expenses approved for payment.

                           The Housing Commission: (1) should provide sufficient
                           documentation to support the unsupported payments cited in
                           this finding; (2) reimburse its Villages at Parkside HOPE VI
                           Project for the ineligible, interest payments cited in this finding;
                           and (3) should not use HUD funds to pay the ineligible, interest

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                         expense or the unsupported invoices cited in this finding unless
                         sufficient documentation is obtained.


       Recommendations   We recommend that the Director-Senior Advisor of Public
                         Housing Investments, in conjunction with the Michigan State
                         Office Director of Public Housing Hub, assure that the Detroit
                         Housing Commission:

                         5A.     Provides documentation to support the $999,128 of
                                 unsupported payments cited in this finding.        If
                                 documentation cannot be provided, then the Housing
                                 Commission should reimburse the Villages at Parkside
                                 HOPE VI Project for the amount that cannot be
                                 supported from non-Federal funds.

                         5B.     Does not use HUD funds to pay the $1,269,377 in
                                 unsupported invoices cited in this finding unless
                                 sufficient documentation is obtained.

                         5C.     Reimburses the Villages at Parkside HOPE VI Project
                                 $5,096 from non-Federal funds for the ineligible,
                                 interest expense payments cited in this finding.

                         5D.     Does not use HUD funds to pay the $8,044 in
                                 ineligible, interest expense cited in this finding.

                         5E.     Implements procedures and controls to ensure that
                                 disbursements from HUD funds for the Villages at
                                 Parkside HOPE VI Project meet the HOPE VI
                                 Implementation Grant Agreement, HUD’s regulations,
                                 Office of Management and Budget Circular A-87, and
                                 State of Michigan law.




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          The Commission Paid $2,087,827 In
        Unsupported Costs For The Jeffries Homes
                   HOPE VI Project
  The Detroit Housing Commission did not follow the HOPE VI Grant Agreements, HUD’s regulations,
  Office of Management and Budget Circular A-87, and State of Michigan law regarding the use of funds
  for the Jeffries Homes HOPE VI Project. The Housing Commission lacked documentation to show
  that $2,087,827 of HOPE VI funds paid benefited the Jeffries Homes Project or were reasonable and
  necessary expenses. The Housing Commission’s former and current top management and its Board of
  Commissioners failed to exercise their duties to ensure that controls over payments were sufficient. As
  a result, HUD had no assurance that the Housing Commission paid only reasonable and necessary
  operating costs.


                                         The HOPE VI Implementation Grant Agreement dated August
   HOPE VI Grant                         12, 1994 and the Demolition Grant Agreement dated October
   Agreements                            8, 1996, between HUD and the Detroit Housing Commission,
                                         required the Housing Commission to comply with the cost
                                         principles of Office of Management and Budget Circular A-87,
                                         Cost Principles for State, Local, and Indian Tribal
                                         Governments. The Grant Agreement also required the Housing
                                         Commission to keep records that are sufficient to document the
                                         reasonableness and necessity of expenditures.

                                         24 CFR Part 85.20 requires the Housing Commission to
   HUD’s Regulations                     maintain accounting records that sufficiently identify the
                                         application of funds as well as expenditures. 24 CFR Part
                                         85.22(b) requires that State, local, and Indian tribal
                                         governments follow Office of Management and Budget Circular
                                         A-87. 24 CFR Part 85.3 defines a local government to include
                                         any public housing agency.

                                         Office of Management and Budget Circular A-87, Attachment
   Office Of Management And              A, paragraph C(1)(a), requires that all costs be necessary and
   Budget’s Requirements                 reasonable for proper and efficient performance and
                                         administration of Federal awards. In addition, paragraph
                                         C(1)(j) requires that all costs be documented.

                                         The Housing Facilities Act (Public Act 18), Michigan Compiled
   State Of Michigan Law                 Laws Annotated Section 125.685, requires housing

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                               commissions to maintain and keep proper books of record and
                               account in relation to its properties, business, and affairs.

                               Public Housing Commissioners have a responsibility to HUD to
   Responsibilities Of Board   ensure national housing policies are carried out, and to the
   Of Commissioners And        Commission’s management staff and employees to provide
   Management Staff            sound and manageable directives. The Commissioners are
                               accountable to their locality and best serve it by monitoring
                               operations to be certain that housing programs are carried out in
                               an efficient and economical manner.

                               The responsibility for carrying out the Commissioners' policies
                               and managing the Housing Commission's day-to-day operations
                               rests with the Commission’s principal management staff. In
                               particular, the management staff must maintain the Housing
                               Commission's overall compliance with its policies and
                               procedures and Federal, State, and local laws.

                               We reviewed 100 percent of the Housing Commission’s
   Disbursements/Invoices      disbursements from HOPE VI funds for the Jeffries Homes
   Reviewed And Schedule       Project. We also reviewed $3,281,678 of the $18,341,430
   Provided                    (18 percent) paid from the Commission’s Comprehensive Grant
                               Program funds for the Jeffries Project. The disbursements
                               occurred between May 11, 1995 and April 17, 2000. We
                               reviewed the disbursements to determine whether the costs
                               were reasonable and necessary to the Housing Commission’s
                               Jeffries Home HOPE VI Project. The Commission paid
                               $32,142,303 in HUD funds (HOPE VI and Comprehensive
                               Grant) for the time period reviewed.

                               We determined that the Housing Commission paid unsupported
                               costs from HOPE VI funds for the Jeffries Homes Project. A
                               schedule was prepared showing the payments. We provided
                               the schedule of unsupported costs to HUD’s Director-Senior
                               Advisor of Public Housing Investments, HUD’s Michigan State
                               Office Director of Public Housing Hub, and the Housing
                               Commission’s Executive Director.

                               The Detroit Housing Commission used $2,087,827 in HOPE
   The Commission Lacked       VI funds for the Jeffries Homes HOPE VI Project without
   Documentation To Support    sufficient supporting documentation.
   Payments


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       In order to determine whether the Housing Commission used
       HUD funds for reasonable and necessary expenses, we
       reviewed such items as the Commission’s contractors’ invoices,
       and payment reports from HUD’s Line of Credit Control
       System.

       The $2,087,827 of unsupported payments represents six
       percent of the total HUD funds (HOPE VI and Comprehensive
       Grant) spent as of April 17, 2000. The following table shows
       the amount of unsupported payments per year.

                      Year     Unsupported Payments
                      1995          $ 32,187
                      1996             224,088
                      1997           1,051,721
                      1998             762,796
                      1999              17,035
                      2000                    0
                      Total         $2,087,827


       A Commissioner for the Housing Commission’s Board said the
       Board relied on the former and current principal management
       staff to ensure funds were used correctly. She said the Board
       relied on the Commission’s management staff to maintain
       documentation to support disbursements. The current and
       former Executive Directors, the former Urban Revitalization
       Coordinator, and the former General Manager of Management
       Information Systems/General Manager of Finance were the
       Commission’s principal management staff over the Jeffries
       Homes HOPE VI Project. They were responsible for the
       oversight of the Jeffries Project, and were required to ensure
       that the Commission complied with its policies and procedures
       and Federal, State, and local laws. However, this was not
       done.

       The following table shows the $2,087,827 of unsupported
       expenses that were paid during the former or current Executive
       Directors’ administration of the Jeffries Homes HOPE VI
       Project.




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                                                           Amount Of Unsupported
                               Administration                    Payments
                           Former Director                      $1,307,996
                           Former Interim Director                 762,796
                           Current Director                         17,035



       Auditee Comments   [Excerpts paraphrased from the Housing Commission’s
                          comments on our draft finding follow. Appendix B, pages 126
                          to 130, contains the complete text of the comments for this
                          finding.]

                          The Housing Commission has experienced a transition in its
                          senior management over the past five years, covering the period
                          in question with regard to the finding of unsupported costs. The
                          Commission’s current administration was appointed April 5,
                          1999. With the appointment came operational and financial
                          assessments to determine the state of the Commission and
                          specifically the status of the HOPE VI Program. The
                          assessments described numerous operational and financial
                          management deficiencies causing the Commission’s new
                          administration to take corrective action, including the
                          implementation of new procedures.

                          One of the Housing Commission’s most glaring deficiencies
                          noted were problems related to the lack of an effective
                          administrative and financial infrastructure to support the
                          program operations of the Commission. Equally important was
                          the need to recruit qualified and experienced managers to
                          oversee the Commission’s programs and operations.
                          Recruitment efforts resulted in several newly appointed General
                          Managers, among them a new General Manager of Finance
                          appointed June 19, 2000.

                          With the advent of these and other personnel changes, and the
                          Housing Commission’s implementation of a new computer
                          system designed to support the Commission’s complex
                          transactions, the Commission is beginning to make significant
                          progress to correct the systemic deficiencies discovered 18
                          months ago. In addition, the Commission’s newly established
                          Management Analysis & Planning Division has begun to
                          develop sorely needed policies and procedures, for all divisions,
                          agency-wide. This will ensure that the Commission continues to
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                           strengthen its internal controls and will provide for acceptable
                           financial management practices.

       OIG Evaluation Of   The Housing Commission did not provide any procedures with
       Auditee Comments    its comments; therefore, we are unable to evaluate them. The
                           Commission was cited in prior OIG audit reports (96-CH-201-
                           1809 issued April 30, 1996 and 98-CH-201-1804 issued
                           December 11, 1997) for failing to have sufficient procedures
                           over its vendor payments. The Commission agreed to
                           implement procedures and controls to ensure the timely
                           payment of invoices. As cited in this finding, the Commission
                           failed to implement the procedures and controls over its
                           disbursements for the Jeffries Homes HOPE VI Project. The
                           Commission needs to implements procedures and controls to
                           ensure that disbursements from HUD funds for the Jeffries
                           HOPE VI Project meet the HOPE VI Grant Agreements,
                           HUD’s regulations, Office of Management and Budget Circular
                           A-87, and State of Michigan law.

       Auditee Comments    The Housing Commission reviewed all payment documentation
                           presented to HUD to obtain Grant disbursements during the
                           period in question. The Housing Commission does not agree
                           that the Commission used $2,087,827 in HOPE VI funds for
                           Jeffries Homes HOPE VI Project without sufficient supporting
                           documentation. A significant amount of documents were
                           located in response to requests for documentation from the on-
                           site OIG staff. The documentation spanned a period of five
                           years. In many instances, the OIG on-site staff recognized that
                           documentation was submitted and determined to be insufficient
                           or unsatisfactory. It should be noted that in spite of the
                           obstacles facing the Commission’s new administration to locate
                           and recreate transactions incurred by a previous administration,
                           exhaustive efforts were made to comply with all requests for
                           documents.

                           The Housing Commission’s current administration was not in
                           place during the majority of the period in question and;
                           therefore, had no responsibility for the Program or financial
                           management practices and procedures or for the approval of
                           payments identified in the OIG schedule of unsupported costs.
                           The Housing Commission’s current administration cannot
                           defend or offer any explanation on behalf of the Commission’s


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                           previous administration and its consultants for the alleged
                           deficiencies.

                           The Housing Commission’s current administration believes it
                           was successful in locating additional documentation for
                           $1,006,398 in disbursements originally alleged to be
                           unsupported that should reduce the amount of alleged
                           unsupported payments. The Commission respectfully requests
                           that the amount of alleged unsupported payments be reduced.

       OIG Evaluation Of   The documentation provided with the Housing Commission’s
       Auditee Comments    comments to support $1,006,398 of the $2,087,827 either was
                           not sufficient ($124,505) or included invoices ($881,893) that
                           did not relate to the unsupported payments. The documentation
                           was insufficient because it did not include invoices to support
                           the payment or did not show how the payment related to the
                           Jeffries Homes HOPE VI Project. Therefore, we did not
                           adjust the amount of unsupported payment cited in this finding
                           for Jeffries Homes.

                           The Housing Commission should submit documentation to
                           support the $2,087,827 of unsupported payments or reimburse
                           the Jeffries Homes HOPE VI Project for the amount that
                           cannot be supported from non-Federal funds.


       Recommendations     We recommend that the Director-Senior Advisor of Public
                           Housing Investments, in conjunction with the Michigan State
                           Office Director of Public Housing Hub, assure that the Detroit
                           Housing Commission:

                           6A.     Provides documentation to support the $2,087,827 of
                                   unsupported payments cited in this finding.       If
                                   documentation cannot be provided, then the Housing
                                   Commission should reimburse the Jeffries Homes
                                   HOPE VI Project for the amount that cannot be
                                   supported from non-Federal funds.

                           6B.     Implements procedures and controls to ensure that
                                   disbursements from HUD funds for the Jeffries Homes
                                   HOPE VI Project meet the HOPE VI Grant
                                   Agreements, HUD’s regulations, Office of Management
                                   and Budget Circular A-87, and State of Michigan law.

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  Management Controls
  In planning and performing our audit, we considered the management controls of the Detroit 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.



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

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

                                        •   Program Operations.


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                            The Housing Commission was not operated according to
                            program requirements. Specifically, the Commission used
                            over $15 million in HUD funds (HOPE VI, Development,
                            and Comprehensive Grant Program) to pay for:
                            construction work that was improperly performed or not
                            provided; construction and professional services that were
                            not supported with detailed work specifications; sewer
                            construction work that the City of Detroit should have
                            provided at no cost to the Commission; and unreasonable
                            and unnecessary expenses, or expenses without
                            documentation to support that they benefited the
                            Commission’s Jeffries Home or the Villages at Parkside
                            HOPE VI Projects or were reasonable and necessary
                            expenses (see Findings 1, 2, 3, 4, 5, and 6).

                        •   Compliance with Laws and Regulations.

                            The Housing Commission did not follow HUD’s
                            regulations, Office of Management and Budget Circular A-
                            87, and/or State of Michigan law regarding
                            revitalization/modernization     work,     construction or
                            professional services, and payment of contractor/vendor
                            invoices (see Findings 2, 3, 4, 5, and 6).

                        •   Safeguarding Resources.

                            The Housing Commission improperly: used an estimated
                            $740,790 in HUD funds to pay for construction work that
                            was improperly performed or not provided; paid
                            $11,245,351 and approved for payment an additional
                            $815,105 for change orders without sufficient supporting
                            documentation; used $568,548 in HUD funds to pay for
                            construction expenses for the Frankfort Sewer project that
                            the City should have provided at no cost to the
                            Commission; paid $550,980 and approved for payment an
                            additional $1,230 for excessive construction costs, interest
                            expense, and repair costs to correct contractor damages
                            that were not reasonable and necessary expenses of the
                            Commission; used $999,128 of HUD funds and was
                            invoiced $1,269,377 for expenses without sufficient
                            documentation to show the expenses benefited the
                            Commission’s Parkside HOPE VI Project or were
                            reasonable and necessary expenses; paid $5,096 in interest

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       expense from HUD funds and was invoiced another $8,044
       for interest expense that was not reasonable and necessary
       to the Parkside HOPE VI Project; and used $2,087,827
       for expenses without sufficient supporting documentation to
       show the expenses benefited the Commission’s Jeffries
       Homes Project or were reasonable and necessary expenses
       (see Findings 2, 3, 4, 5, and 6).




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  Follow Up On Prior Audits
  This is the first audit by HUD’s Office of Inspector General specifically of the Detroit Housing
  Commission’s HOPE VI Program. The Office of Inspector General issued an audit memorandum
  (#98-CH-201-1804) on December 11, 1997 updating the Detroit Housing Commission’s progress on
  agreements made with HUD. That report did not include the HOPE VI Program. However, it did
  include issues related to the Housing Commission’s use of modernization funds at the Villages at
  Parkside and Jeffries Homes. The report contained 16 Chapters. The recommendations for the 16
  Chapters are all closed except 13B, 14A, and 15A. Conditions cited in three Chapters are repeated in
  this report:

         Audit Memorandum 98-CH-201-1804                                This Report

         Inspections (Chapter 5).                               The Commission Paid For
                                                                Revitalization Work To The Villages
                                                                At Parkside That Was Improperly
                                                                Performed Or Not Provided (Finding
                                                                2), and The Commission Paid For
                                                                Modernization Work To Jeffries
                                                                Homes That Was Improperly
                                                                Performed Or Not Provided
                                                                (Finding 3).

         Contract Award Procedures (Chapter 8).                 The Housing Commission’s
                                                                Contracting Process Was Not
                                                                Performed In An Efficient, Effective,
                                                                And Economical Manner (Finding 4).

         Untimely Payments to Vendors (Chapter 11).             The Commission Lacked Control
                                                                Over Funds For The Villages At
                                                                Parkside (Finding 5).


  The latest single audit report for the City of Detroit, which includes the Detroit Housing Commission,
  covered the fiscal year ended June 30, 1999. The report contained two findings regarding the Housing
  Commission. None of the findings related to the Commission’s HOPE VI Program.




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                                                                                        Appendix A

  Schedule Of Questioned Costs

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

                  4A                                         $12,060,456
                  4E                         $568,548
                  4F                          552,210
                  5A                                             999,128
                  5B                                           1,269,377
                  5C                              5,096
                  5D                              8,044
                  6A                                           2,087,827
                 Total                     $1,133,898        $16,416,788


  1/   Ineligible costs are costs charged to a HUD-financed or 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 insured program or activity and
       eligibility cannot be determined at the time of audit. The costs are not supported by
       sufficient documentation or there is a need for a legal or administrative determination on the
       eligibility of the cost. 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 B

  Auditee Comments
  April 19, 2001


  Mr. Heath Wolfe
  Assistant District Inspector General for Audit
  U.S. Department of Housing and Urban Development
  Office of Inspector General
  77 West Jackson Blvd. Room 2646
  Chicago, Illinois 60604


  RE: OIG DRAFT FINDING SIX: THE HOUSING COMMISSION’S
                             ADMINISTRATION OF THE HOPE VI PROGRAM
                             WAS VERY POOR

  Dear Mr. Wolfe,

  We are in receipt of Draft Finding Six and welcome the opportunity to respond to the conclusions and
  recommendations presenting herein.

  With regards to Draft Finding Six, the DHC, in an effort to prepare this response within time frame
  required, the DHC conducted only a preliminary review of the five (5) Draft Findings and associated
  documentation identified as supporting of finding. It is important to note your on-site auditor’s fieldwork
  took one year and involved thousands of documents. By way of example, Draft Finding Four’s
  supporting documentation included 18 binders of inspection reports. A comprehensive DHC response
  would require a review of each document represented as supporting documentation for the Draft
  Findings. This is particularly true in consideration of the extraordinary recommendations presented
  herein regarding the management of the HOPE VI program and the imposition of sanctions against
  DHC Executive Directors.

  As set forth in the DHC’s responses to the five Draft Findings, the DHC disagrees with the whole of this
  Draft Audit Report because it lacks due care or balance in its sweeping and misleading generalizations
  regarding the current administration’s ability to manage the HOPE VI process.

  This Draft Finding fails to provide a balanced context regarding the circumstances confronting the
  current administration in April 1999. The DHC’s current administration’s April, 1999 appointment was
  amidst public disclosure over lack of progress and cost overruns at two HOPE VI sites estimated at
  seven million dollars. As you are aware, the DHC’s historical files reveal that over $ 200 millions dollars
  had been awarded to the Agency over a seven year period and that both HOPE VI sites were
  experiencing extraordinary construction delays, contractor disputes and performance issues, cost
  overruns and program administration. Also, prior to April, 1999, the Department of Housing and Urban
  Development (HUD) accelerated its oversight role through the issuance of several corrective action
  orders and suspending the DHC’s ability to requisition federal funds for the sites. It was against this
  backdrop that the current administration began to implement operational enhancements and
  operationalize internal controls necessary for the DHC’s HOPE VI Program.

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  Appendix B

  DRAFT FINDING
  PAGE TWO


  It was also against this backdrop that the current administration sought to liquidate the millions of dollars
  in outstanding contractor claims and overdue invoices arising from the HOPE VI sites.

         This Draft Finding’s failure to clarify that virtually all change orders and contracts deficiencies
         cited resulted from actions or inaction occurred over a seven-year period by prior
         administrations predating the April 1999 appointment of the current administration.

         This Draft Finding’s failure, beyond a cursory mention, to analyze the prior administrations’
         actions or inactions in the management of the many different HOPE VI funded
         contractors/consultants over the period in question and the impact of those actions or inactions
         upon HOPE VI program progress.

  The DHC embraces the ultimate responsibility to resolve long standing issues by program enhancements
  and internal controls and take exception to this Draft Finding’s failure to acknowledge the progress
  made by the DHC’s current administration over the last two years including:

                  1.       The reorganization of the DHC’s development and modernization activities
                           under the Development General Manager in addition to the hiring of
                           experienced housing, construction and finance senior managers.

                  2.       The implementation of policy enhancements in the DHC’s procurement,
                           development, and finance operations. Effective April 1999, procurement actions
                           are coordinated through the DHC’s procurement division at Parkside and
                           Jeffries. Effective September 1999, the Procurement policy was updated to
                           clarify prior HUD approval with change orders.

                  3.       The development of standard operating procedures for the DHC’s
                           procurement, and finance operations. As the draft copy provided to you
                           reflects, the standard operating procedures are specific to the Draft Findings as
                           follows:
                                             Construction Contracts: Administration & Monitoring
                                             Construction Contracts: Progress Payments
                                             Construction Contracts: Time Extensions
                                             Construction Contracts: Construction Logs
                                             Construction Contracts: Warranties
                                             Construction Contracts: Final Inspections
                                             Construction Contracts: Acceptance.

                  4.       The implementation of an extensive training program for DHC’s development
                           and finance staff in the areas of HOPE VI program administration and federal
                           procurement regulations. Currently, the DHC Procurement and Development
                           General Managers have met HUD requirements and are qualified to certify
                           DHC procurement actions



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  DRAFT FINDING
  PAGE THREE

                  5.      The establishment of an internal auditing function with the Management Analysis
                          and Planning Division.

                  6.      The establishment of monthly reporting process to the DHC Board of
                          Commissioners for all development activity including Parkside

  Of note, this Draft Finding reflects only cursory attempts to interview or the conduct of cursory
  interviews of former DHC Executive Directors or principal staff; contractors; City of Detroit officials;
  HUD including the Army Corp of Engineers. These parties are essential to a balanced, comprehensive
  presentation of the historical record. Especially, in light of the extraordinary and ultimate
  recommendations proposed for the DHC’s HOPE VI program. As it is written, the Draft Finding lacks
  any assessment of or comment upon HUD’s oversight responsibilities including the extent to which
  HUD provided technical assistance over the period in question. As you are aware, there has been
  assessments and audits conducted by HUD and the OIG citing HOPE VI related procurement and
  program management issues as far back as 1996. It is the DHC’s position that this Draft Finding should
  have included an assessment of HUD’s actions or inactions in monitoring and assisting the DHC in
  reference to those assessments and audits.

  Given the draft recommendation’s inflammatory nature and its impact upon the DHC community, this
  represent a formal request that this Draft recommendation is held in abeyance until your office has an
  opportunity to fully review the DHC’s responses to all Draft Findings. We also request that Findings
  One through Five be re-released in draft form including the OIG comments to the responses. It is the
  DHC’s contention that once the enclosed responses and supporting documentation are examined
  critically, the recommendation regarding termination and/or contracting out the HOPE VI program will
  be rescinded in favor of a cooperative work out plan with HUD and your office.

  Lastly, it is the DHC’s contention that the current Executive Director has been denied the opportunity to
  fully confront and respond to the underlying allegations and associated sanctions’ recommendation.
  Accordingly, this represents a formal request for an Executive Director-specific memorandum outlining
  alleged violations that your office contends give rise to the administrative sanctions’ recommendation.
  Additionally, the DHC requests an explanation as to basis for which your office has proceeded to
  recommend the same level of administrative sanctions for all Executive Directors without regard to
  proportionality and due process considerations. Until the clarification is provided, the DHC request that
  this Draft recommendation is held in abeyance given its inflammatory nature and its impact upon the
  DHC community. Upon your review of the enclosed and if your office elects not to revise this report,
  the DHC respectfully requests that the responses, in their entirety, are attached and hereby incorporated
  in the Final Report. If you have any questions and concerns, please contact me at (313) 877-8639.

  Respectfully,

    /signed/

  John Nelson, Jr.
  Executive Director


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  Appendix B

  DRAFT FINDING
  PAGE FOUR


  DRAFT FINDING: THE COMMISSION IMPROPERLY ADMINISTERED THE HOPE
                 VI PROGRAM
  DHC RESPONSE

  As set forth in the DHC’s responses to the five Draft Findings, the DHC disagrees with the whole of this
  Draft Audit Report because it lacks due care or balance in its sweeping and misleading generalizations
  regarding the current administration’s ability to manage the HOPE VI program. Also it fails to
  acknowledge that virtually every Draft Findings arose from actions or inactions that occurred over a
  seven-year period by prior administrations predating the April 1999 appointment of the current
  administration.

  Given the extraordinary nature of the recommendations associated this Draft Finding, this DHC has
  requested that the Office of the Inspector General hold the Draft recommendation in abeyance until the
  OIG’s office has had an opportunity to fully review the DHC’s responses to all Draft Findings. We also
  request that Findings One through Five are re-released in draft form including the OIG comments to the
  responses.

  It is the DHC’s contention that once the enclosed responses and supporting documentation are
  examined critically, the recommendation regarding termination and/or contracting out the HOPE VI
  program will be rescinded in favor of a cooperative work out plan with HUD and your office.

  Secondly, regarding, recommendations regarding administrative sanctions against the current and former
  administration, the DHC has requested a detailed and specific iteration for each Executive Director. This
  iteration must set forth with specificity the basis for which your office has proceeded to recommend the
  same level of administrative sanctions for all Executive directors without regard for their due process
  rights and proportionality.




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                                                                                            Appendix B


  DRAFT FINDING

  Page Five



  DRAFT FINDING CHANGE ORDERS FOR SERVICES WERE NOT SUPPORTED
  WITH DETAILED SPECIFICATIONS

  DHC RESPONSE

  Based upon the DHC review, this is factually inaccurate and should be revised to reflect the current
  administration’s record. See Finding Five

  DRAFT FINDING: BETWEEN JUNE, 1998 AND MARCH 2001 THE DHC PAID $568,548
  FOR THE EXPENSES OF THE FRANKFORT SEWER PROJECT THAT THE CITY WAS
  REQUIRED TO PAY

  DHC RESPONSE

  The DHC disagrees with this Draft Finding as set forth in Finding Five. This finding is factually
  inaccurate and should be revised. As your data analysis reflects the subject change orders were
  approved between January, 1998 and January 1999-- prior to the current administration.

  DRAFT FINDING: THE COMMISSION PAID FOR CONSTRUCTION WORK THAT
  WAS IMPROPERLY PERFORMED OR NOT PROVIDED

  DHC RESPONSE

  The DHC disagrees with this Draft Finding and request that it is revised and amended to conform with
  the DHC responses to Finding Three, Four Five.

  DRAFT FINDING: THE COMMISSION USED HUD FUNDS TO PAY
  UNREASONABLE, NECESSARY AND UNSUPPORTED EXPENSES.

  The DHC disagrees with this Draft Finding and request that this Draft Report is revised and amended to
  conform with the DHC responses to Findings One, Two Three, Four Five

  DRAFT FINDING: THE DHC POOR ADMINISTRATION RESULTED IN COST
  OVERRUNS

  DHC RESPONSE

  The DHC disagrees with this Draft Finding for the reasons set forth in this cover memorandum and
  associated Draft Findings 1-5.

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  Appendix B

  DRAFT FINDING
  PAGE SIX


  RECOMMENDATIONS

  A. Declare the Detroit Housing Commission in Default of the HOPE VI Grant Agreements.


  B. Take action to place the administration of the DHC’s HOPE VI Program under a third party,
     acceptable to HUD.

  C. Assigns a HUD employee to monitor full time the DHC’s HOPE VI program and the third party
     contractor approved to administer the program

  D. Take appropriate administrative action against the DHC’s former and current Executive Directors

  DHC RESPONSE

  The DHC disagrees with these recommendations and request revisions in consideration of the enclosed
  responses to the Draft Findings. The DHC recommends in the alternative that HUD, the City of
  Detroit, and the Detroit Housing Commission develop a HOPE VI Operational Work out Plan
  incorporating all recommendations contained in Draft Findings One-Five.




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                                                                                                  Appendix B




  April 19, 2001



  Mr. Heath Wolfe
  Assistant District Inspector General for Audit
  U.S. Department of Housing and Urban Development
  Office of Inspector General
  77 West Jackson Blvd. Room 2646
  Chicago, Illinois 60604

  Re: DHC Response to OIG Draft Audit Finding - Performance of Revitalization
      Work to the Villages at Parkside


  Dear Mr. Wolfe,

  We are in receipt of the above mentioned draft finding and the 16 binders of Army Corp of Engineers
  inspection reports provided as attachment. In an effort to prepare a timely response to this finding, we
  reviewed in limited detail the voluminous Army Corp inspection report, researched the DHC, and The
  Villages records (including past inspection reports), and conducted interviews with residents,
  contractors, and staff directly or indirectly engaged in the implementation of the program in question. It
  is noteworthy to point out that the Auditors spent over 8 months reviewing the Army Corps reports and
  drafting the related finding. It follows that preparation of a comprehensive DHC response would
  require more time than has been granted by the OIG. Following provides DHC’s response to the
  finding.

  Draft Audit Finding – “The Commission paid For Modernization Work to the Villages at
  Parkside That Was Improperly Performed or Not Provided”

  The Detroit Housing Commission disagrees that an estimated $678,969 worth of
  revitalization work was improperly performed or not provided.

  The DHCP, Inc. by and through its development entity, Parkside Development Company (PDC)
  completed the comprehensive revitalization of (2) two of (4) four planned Villages, as well as, necessary
  site planning, remediation costs, and 98% of infrastructure for all (4) four Villages utilizing approximately
  $53,000,00 in HOPE VI, Development, and Comprehensive Grant Program funds. All of the work
  noted was substantially completed effective December 31, 1998. The units were leased up by June 1,
  1999. The OIG finding is based on the July 2000 Army Corps of Engineers (Corps) inspections
  performed more than eighteen months after the buildings were completed and a year after being
  occupied by residents

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  Appendix B


  Page 2, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding -
  Performance of Revitalization Work to The Villages at Parkside


  As a result of the research performed as noted above, the DHC does not dispute the Corp's assessment
  that the development's building exterior and interior, and landscape are in need of repair. The cause
  and cost of several-of the cited deficiencies is however disputed. Many of the repair items cited
  by the Corp were not present when the development was turned over to the owners and general
  operations partner in December 1998 and May 1999. The cost of repairs has been artificially inflated
  by the Corps method of implementing the repairs. Examples of deficiencies cited by the auditors that
  are not construction related and were not present when the site was turned over to management are:


       •   Refrigerators and stoves not working (it is unreasonable to assert that residents have leased the
           units for over a year without working appliances.)
       •   Furnaces and/or Air Condition units not working (again, it is unreasonable to assert that
           residents have leased the units for over a year without heat and air)
       •   Missing or improperly installed smoke detectors, door look fixtures not functioning, screens
           missing and broken, missing door stops, missing light fixtures are all example of repairs
           necessitated as a result of resident wear and tear.


  Additionally, the Corps cost estimates to correct the above noted non-construction as well as other
  legitimate construction related deficiencies is flawed. For each and every repair item cited, the Corp
  factored in labor and gas associated with travel time as if a labor/tradesrman will come out and make
  only one repair per trip. It is prudent to plan for and more realistic to expect that multiple repairs can
  and will be made in one trip. Therefore, to have a carpenter come out to the job site and adjust interior
  closet doors in one unit then return to the office (as is assumed in the Corp estimate) would be a foolish
  waste of tax payers dollars. Instead, for example, a carpenter would come to the job site and adjust all
  interior doors, in the 276 units. The Corps report has well over a thousand pages of repairs cited at
  Parkside. If the report lists 1000 repairs the report also has at least 2000 hours of travel time included
  in the cost. If the average tradesman's wage is $40.00 per hour then the Corps report has nearly
  $80,000.00 or 10% of the projected repair cost associated with travel and gas to the site and then back
  to the office for each item requiring repairs. Based on this promise, further reductions in the Corp
  estimate can be made by eliminating overlapping equipment costs, truck usage.




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                                                                                                Appendix B


  Page 3, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding -
  Performance of Revitalization Work to the Villages at Parkside



  Further, deficiencies in work items cited by the Army Corp and referenced in the OIG finding were not
  in the work scope of the contracts administered by the PDC. Examples of these items are carpet, vinyl
  base, blind, and appliance installation. As well, installation of the underground cabling and terminations
  inside the units for the cable TV systems was contracted and managed by the operations managing
  member to The Villages after the developments was turned over for lease up.

  There are a number of deficiencies in the work completed during the previous DHC administration that
  legitimately should have been corrected during the construction phase and/or could have been corrected
  during the warranty period. In fact, the current DHC administration has already charged and held the
  responsible contractors liable for correction of many of the deficiencies. In example, repairs to the walls
  sited in the Corps report as "fire” but specfied in the contract documents as "draft stopping" have been
  made as required at the direction of current DHC administration. Included, as an attachment to this
  response is a list of construction related deficiencies and associated estimate of repairs. Per this work
  scope and estimate, the cost of corrective work is approximately $250,000 (which represents
  less than 1% of the total development costs) and not the $679,000 (which still represents less than
  1.5% of the TDC) quoted in the finding,

  The OIG report cites as a-deficiency “Poorly performed pre-acceptance and final inspections by
  contractors."

  As is noted in the OIG finding oversight of the project was contracted out to a program management
  (PM) firm. This practice is acceptable to, encouraged by, and oft times required by HUD, the grantor
  of the funds. When a PM is procured, housing authorities are expected to utilize the services as an
  extension of staff and a form of staff augmentation. In fact, in the case of the Jeffries project, former
  HUD grant manager required (in spite of strong objection by current DHC administration) the agency to
  allow the PM the authority to act on its behalf, and engage HUD in oversight discussion without the
  prior approval or presence of DHC to the activity. In the case of Parkside, the chosen program
  manager was highly revered in the public housing industry and was contracted by HUD as an expediter
  to troubled and older HOPE VI grants around the country. The PM was allowed (by both HUD and
  the DHC) to act in the capacity of a PM/CM/Developer without any provision of guarantees or
  assumption of risk. In fact, Parkside was not provided an expediter because of confidence and
  professional trust in the capacity and expertise of the PM under contract. Given the above noted
  standard operating procedures for HLJD and HOPE VI, it is not unreasonable to see why the previous
  DHC administration erroneously allowed the PM control of the project with minimal oversight.




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  Appendix B


  Page 4, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding -
  Performance of Revitalization Work to the Villages at Parkside



  Nevertheless, the operating procedure of the current administration requires regular oversight of the
  HOPE VI activities by a team of experts inclusive of staff internal to the DHC. A construction
  management firm has been contracted to provide technical expertise for all DHC modernization and
  development activities including HOPE VI. The HOPE VI, modernization and development activities
  have been consolidated under one General Manager (GM - Modernization and Development Division
  [Mod/Dev] to provide continuity and economy in operating the programs. Developers are procured to
  provide funding leverage, guarantees, and assume the risk of development. Program managers are
  contracted to provide technical assistance to the internal staff responsible and accountable for day to
  day oversight of the revitalization efforts. Internal mod/dev staff capacity includes professional licensed
  architects, engineers, experienced construction inspectors, degreed construction project coordinators,
  certified property and maintenance managers and licensed real estate agents. The Executive Director
  has direct oversight of the HOPE VI activities and regular monthly reporting is provided to the Board of
  Commissioners. As additional to the aforementioned, the DHC has instituted the following:

    1.    The reorganization of the DHC’s development and modernization activities under the
          Development General Manager in addition to the hiring of experienced housing, construction
          and finance senior managers.

    2.    The implementation of policy enhancements in the DHC’s procurement, development, and
          finance operations. Effective April 1999, procurement actions are coordinated through the
          DHC’s procurement division at Parkside and Jeffries. Effective September 1999, the
          Procurement policy was updated to clarify prior HUD approval with change orders.

    4.   The development of standard operating procedures for the DHC’s procurement, and finance
          operations. As the draft copy provided to you reflects, the standard operating procedures are
          specific to the Draft Findings as follows:

                  Construction Contracts: Administration & Monitoring
                  Construction Contracts: Progress Payments
                  Construction Contracts: Time Extensions
                  Construction Contracts: Construction Logs
                  Construction Contracts: Warranties
                  Construction Contracts: Completion of Work
                  Construction Contracts: Final Inspection
                  Construction Contracts: Acceptance




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  Page 5, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding -
  Performance of Revitalization Work to The Villages at Parkside


  4.      The implementation of an intensive training program for DHC’s development and finance staff in
          the areas of HOPE VI program administration and federal procurement regulations. Currently,
          the DHC Procurement and Development General Managers have met HUD requirements and
          are deemed qualified to certify DHC procurement actions

  5.      The establishment of an internal auditing function with the creation a of Management Analysis
          and Planning ( MAP) Division.

  6.      The establishment of monthly reporting process to the DHC Board of Commissioners for all
          development activity including the Parkside villages.


  The following responses are offered to the recommendations made by the OIG:
  OIG Recommendation:
  A. Ensure that revitalization work cited in this finding is completed correctly using non-federal funds.

  DHC Response:
  A. The DHC agrees that the work cited must be completed. As discussed above, the DHC has either
  repaired or will repair all work items. As noted contractors will be held accountable for appropriate
  deficiencies.

  Upon your review of the responses, the DHC requests that this Draft-Finding Four is revised to
  conform to documentation provided herein. If you chose not to revise this report, the DHC respectfully
  requests that the DHC’s response, in its entirety, is attached and hereby incorporated in the Final
  Report. If you have any questions and concerns, please contact me at (313) 877-8639


  Sincerely,

    /signed/


  John Nelson, Jr.
  Executive Director

  Attachments




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  Appendix B



                                            March 12, 2001




  Mr. Heath Wolfe
  Assistant District Inspector General for Audit
  U.S. Department of Housing and Urban Development
  Office of Inspector General
  77 West Jackson Blvd. Room 2646
  Chicago, Illinois 60604

  Re:    The Detroit Housing Commission’s (DHC) Response to OIG Draft Audit Finding -
         Performance of Modernization Work to Jeffries Homes


  Dear Mr. Wolfe,

  The Detroit Housing Commission (DHC) is in receipt of the subject draft finding and has reviewed the
  Army Corps (Corps) of Engineers inspection reports provided. In an effort to prepare a response to
  the subject finding, the DHC researched applicable records including past inspection reports and
  maintenance logs. Also, informal interviews conducted with affected residents and internal DHC Staff.
  The following sets forth the DHC’s response:

  Draft Audit Finding - “The Commission Paid For Modernization Work to Jeffries Homes That
  Was Improperly Performed Or Not Provided”

  The DHC disagrees with the subject finding that modernization work in the amount of sixty
  two thousand, nine hundred sixty nine dollars ($62,969) was improperly performed or not
  provided.

  The DHC completed the comprehensive rehabilitation of Jeffries Homes Development (Buildings 404
  and 503) located at 3521 John C. Lodge and 1231 Selden, respectively. The referenced rehabilitation
  was funded through the Comprehensive Grant Program in the amount of approximately $4,899,375 and
  completed effective June 1999 and October 1999.

  First, the Corp’s inspection report and resulting cost projections were based upon an inaccurate unit
  count (205 vs. 198) and should be adjusted accordingly.




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                                                                                                Appendix B

  Page 2, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding –
  Performance of Modernization Work to Jeffries Homes




  Further, the Corp’s inspections, dated July 2000, were conducted, in one instance, more than a year
  after the completion of the rehabilitation work and buildings reoccupied.

  The DHC contends that several of the work items cited in the inspection report were consistent with
  normal wear and tear due to re-occupancy and usage of the units; work performed by DHC
  maintenance staff; latent defects not discovered during final inspection and/or not reported during the
  warranty period.

  Provided below are three examples wherein the Corps inspection report inaccurately cited deficiencies
  as evidence of the DHC’s failure to provide adequate oversight with the subject modernization work at
  Jeffries Homes:

  I.      Unit 603   “the kitchen wall was not completely painted in unit 603 at
          1231 Selden”

          The DHC’s review disclosed that the cited work items was due to work in process by DHC
          maintenance staff and not a result of modernization work nor improper modernization oversight.
          The existence of the condition is not in dispute and accordingly, the DHC has undertaken
          necessary repairs. Find at “Attached A” work order report to evidence the repairs already
          made and/or on the list to be made. It is important to also note that the subject repair item was
          not cited by the Army Corps of Engineers in their ongoing oversight of this project (quarterly
          reviews) and conducted the final inspections on behalf of the local HUD office.


  II.     Unit 206: “the paint on the living room ceiling is peeling in unit 206 at 1231 Selden.”


          The Audit finding asserts that the occurrence of improperly performed or not provided
          modernization work resulted because DHC lacked sufficient controls over the inspection
          process. As evidence, the finding cites the Army Corp of Engineers inspection that asserts that
          this deficiency is the same peeling paint identified in the 1999 final inspection performed by the
          DHC construction administrator. The DHC re-inspection report declared that the contractor
          satisfactorily completed the work. Although the Corps found that the same condition existed in
          this unit, it is reasonable and likely that this condition occurred in another area of the ceiling.




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  Appendix B

  Page 3, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding –
  Performance of Modernization Work to Jeffries Homes




  III.    Building 404: “exposed electrical wiring for an exterior security light as not properly
          installed for the building at 3521 John C. Lodge.”


          While the DHC does not dispute the existence of the condition, the draft finding inaccurately
          attributes the work to contractor under the modernization supervision. The DHC maintenance
          staff installed the temporary electrical wiring for lighting necessary for on-site demolition.


  In summary, the DHC has experienced a transition in its senior management over the past five years,
  covering the period in question with regards to the renovations at Jeffries Homes. The current
  administration was appointed April 5, 1999 and commissioned operational and financial assessments as
  to the state of the DHC’s HOPE VI Program. To this end, the DHC have enhanced staff capacity and
  put in place proper controls through Standard Operating Procedures (SOPs) that govern the
  Modernization/Development Division. Find at “Attachment B” the Standard Operating Procedures.

  The following responses are offered to the recommendations made by the OIG:

  OIG Recommendations:
  A. Ensure modernization work cited in this finding is completed correctly using non-federal funds.
  B. Establish sufficient controls over inspections.

  DHC Response:

  The DHC agrees that the work cited must be corrected. However, we strongly disagree that the
  deficiencies are the result of improper modernization oversight. As stated in the text of this response,
  deficiencies found by the Corp are the result of normal resident wear and tear, maintenance repairs, and
  latent defects attributable to the method of construction, which are not structural in nature. As noted the
  Army Corp provided regular quarterly and final inspections on behalf of the local HUD office.




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                                                                                             Appendix B

  Page 4, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding –
  Performance of Modernization Work to Jeffries Homes




  The DHC agree that policies and procedures in effect during the Jeffries Homes rehabilitation work
  could have been strengthened. The DHC disagrees that the controls were so deficient as to warrant
  audit findings

  We do recognize that proper controls are critical to the future success of the DHC’s Hope VI Program
  as well as any and all other Agency programs. Attachment A” to this response provides evidence that
  the DHC has either repaired or is scheduled to repair all noted repairs. Attachment B reflects Standard
  Operating Procedures that have been drafted to provide guidance in program administration and
  monitoring for the Modernization/ Development Division

  If you have any questions, please contact me at 313-877-8639, should you have questions.


  Sincerely,

   /signed/

  John Nelson, Jr., Executive Director
  Detroit Housing Commission

  Attachments




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  Appendix B




  April 19, 2001


  Mr. Heath Wolfe
  Assistant District Inspector General for Audit
  U.S. Department of Housing and Urban Development
  Office of Inspector General
  77 West Jackson Blvd. Room 2646
  Chicago, Illinois 60604


  RE: OIG DRAFT FINDING FIVE: THE HOUSING COMMISSION’S CONTRACTING
                              PROCESS WAS NOT PERFORMED IN AN
                              EFFICIENT, EFFECTIVE AND ECONOMICAL
                              MANNER


  Dear Mr. Wolfe:

  We are in receipt of Draft Finding Five and welcome the opportunity to respond to the conclusions and
  recommendations presenting herein.

  In an effort to prepare this response within the time frame required, the DHC could conduct only a
  preliminary review of documentation cited by this Draft Finding as supportive. It is important to note that
  your on-site auditors and inspectors conducted fieldwork over the course of one (1) year. A
  comprehensive DHC response would also require a review of each document cited in this Draft Finding,
  however time did not allow for that level of review. This is particularly true given the extraordinary
  recommendations presented herein regarding the management of the HOPE VI program and the
  imposition of sanctions against DHC Executive Directors.

  As a general matter, this Draft Finding chronicles the DHC’s HOPE VI program over a seven year
  period, four Executive Directors and confirms the program facts as the current administration, the
  Department of Housing and Urban Development (HUD) and the public knew them as of April, 1999.
  As written, however, this Draft Finding fails to distinguish between actions and inaction attributable to
  the current and prior administrations and is therefore, misleading and unbalanced. This Draft Finding is
  unbalanced and misleading in that it fails to acknowledge the baseline environment confronting the
  current administration nor does it acknowledge the progress made by the DHC’s current administration
  with aggressive HUD oversight over the last two (2) years.




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                                                                                                  Appendix B

  DRAFT FINDING FIVE
  PAGE TWO


  As background, the DHC’s current administration’s April, 1999 appointment was amidst public disclosure
  over lack of progress and cost overruns at two HOPE VI sites estimated at seven million dollars. As you
  are aware, over $ 200 millions dollars had been awarded to the DHC over a seven year period and both
  HOPE VI sites were experiencing extraordinary construction delays, contractor disputes, cost overruns
  and program administration issues. Also, prior to April, 1999, HUD accelerated its oversight role through
  the issuance of several corrective action orders and suspending the DHC’s ability to requisition funds for
  the subject HOPE VI sites. It was against this backdrop that the current administration began to
  implement operational enhancements and operationalize internal controls necessary for the DHC’s HOPE
  VI Program. It was also against this backdrop that the current administration sought to liquidate the
  millions of dollars in outstanding contractor claims and overdue invoices arising from the HOPE VI sites.

  Regarding Draft Finding Five, as written, the DHC is forced to strongly disagree with its conclusions for
  the following reasons:

          This Draft Finding fails to adequately distinguish between actions and inaction attributable to past
          and current DHC administrations is misleading and gives rise to unbalanced characterizations.
          This Draft Finding inaccurately concludes that the current administration approved change orders
          in the amount of 1.6 million or 11% of the 12 million dollars cited. With the documentation
          provided, we request that this Draft Finding be revised to reflect that the DHC approved the
          subject change orders in accordance with the applicable HOPE VI Grant Agreements and its
          procurement policy.

          This Draft Finding fails to clarify that virtually all change orders and contracts deficiencies cited
          resulted from actions or inaction occurred over a seven-year period by prior administrations
          predating the April 1999 appointment of the current administration.

          This Draft Finding fails, beyond a cursory mention, to analyze the prior administrations’
          management of the many different HOPE VI funded contractors/consultants over the period in
          question and the impact of those actions or inactions upon HOPE VI program progress.

The DHC admits that it had the ultimate responsibility for resolving the long standing issues found with the
DHC’s HOPE VI program in 1999. However, the DHC takes exception to this Draft Finding’s failure to
acknowledge the progress made over the last two years including:

                  1.      The reorganization of the DHC’s development and modernization activities under
                          the Development General Manager in addition to the hiring of experienced
                          housing, construction and finance senior managers.

                  2.      The implementation of policy enhancements in the DHC’s procurement,
                          development, and finance operations. Effective April, 1999, procurement actions
                          are coordinated through the DHC’s procurement division at Parkside and Jeffries.
                          Effective September 1999, the Procurement policy was updated to clarify prior
                          HUD approval with change orders.


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  Appendix B

  DRAFT FINDING FIVE
  PAGE THREE



                 3.      The development of standard operating procedures for the DHC’s
                         procurement, and finance operations. As the draft copy provided to you
                         reflects, the standard operating procedures are specific to the Draft Findings as
                         follows:

                                         Construction Contracts: Administration & Monitoring
                                         Construction Contracts: Progress Payments
                                         Construction Contracts: Time Extensions
                                         Construction Contracts: Construction Logs
                                         Construction Contracts: Warranties
                                         Construction Contracts: Completion of Work
                                         Construction Contracts: Final Inspection
                                         Construction Contracts: Acceptance

                 4.      The implementation of an intensive training program for DHC’s development
                         and finance staff in the areas of HOPE VI program administration and federal
                         procurement regulations. Currently, the DHC Procurement and Development
                         General Managers have met HUD requirements and are deemed qualified to
                         certify DHC procurement actions

                 5.      The establishment of an internal auditing function with the creation a of
                         Management Analysis and Planning ( MAP) Division.

                 6.      The establishment of monthly reporting process to the DHC Board of
                         Commissioners for all development activity including the Parkside villages.

  Of note, this Draft Finding reflects only cursory attempts to interview or the conduct of cursory
  interviews of former DHC Executive Directors or principal staff; contractors; City of Detroit officials;
  HUD including the Army Corp of Engineers. These parties are essential to a balanced, comprehensive
  presentation of the historical record. Especially, in light of the extraordinary and ultimate
  recommendations proposed for the DHC’s HOPE VI program. As it is written, the Draft Finding lacks
  any assessment of or comment upon HUD’s oversight responsibilities including the extent to which
  HUD provided technical assistance over the period in question. As you are aware, there has been well
  documented assessments and audits conducted by HUD (Washington & State Office) and the OIG
  citing HOPE VI related procurement and program management issues as far back as 1996. It is the
  DHC’s position that this Draft Finding should have included an assessment of HUD’s actions or
  inactions in monitoring and assisting the DHC in reference to those assessments and audits.




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  DRAFT FINDING
  PAGE FOUR

  Upon your review of the responses, the DHC requests that this Draft-Finding Five is revised to conform
  to documentation provided herein and revised to reflect the current administration’s progress with the
  HOPE VI program. If you chose not to revise this report, the DHC respectfully requests that the
  DHC’s response, in its entirety, is attached and hereby incorporated in the Final Report.

  If you have any questions and concerns, please contact me at (313) 877-8639

  Respectfully,

   /signed/

  John Nelson, Jr.
  Executive Director




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  Appendix B

  DRAFT FINDING
  PAGE FIVE

  DRAFT FINDING: THE COMMISSION LACKED SUFFICIENT DOCUMENTATION TO
  SUPPORT OVER $12 MILLION IN CHANGE ORDERS.

  DHC RESPONSE

  Based upon our review of the record, this Draft finding is factually inaccurate and should be revised to
  reflect the current administration’s factual record. This Draft Finding inaccurately concludes that the
  current administration approved (8) eight change orders in the amount of 1.6 million or 11% of the 12
  million dollars cited. We recommend that it be revised to state that the change orders attributed to the
  current administration were supported by documentation that include applicable Board Resolutions,
  specifications, costs analysis and where, applicable, HUD approval. The supporting documentation is
  enclosed under Attachment One.

  The Draft Finding fails to state that two of the cited change orders represent 70% of the change order
  dollars cited as approved by the current administration. As you were advised, the scope of work for the
  two Jeffries’ change orders was the extension of general conditions for the site after a 1996 construction
  halt.

  In September 1999, the subject change orders were approved by the DHC Board of Commissioners and
  forwarded for HUD’s approval. Please note that under the DHC’s s revised policy, the agency was not
  required to submit the two change orders for HUD’s prior review as they are both below the 25% of base
  contract price. However, the DHC submitted the change orders for HUD’s approval as the enclosed
  October 2, 2000 letter reflects. While taking issue with prior 1996 change orders, HUD approved payment
  to the two contractors. Please note that the DHC did not pay the subject contractors until receipt of this
  approval communication from HUD. See supporting documentation provided under Attachment One

  With regards to the Parkside change orders, the Attachment One documentation discloses that they
  represented outstanding contractor claims, some as long standing as mid-1998. The current
  administration’s resolution of the subject change orders facilitated Parkside’s HOPE VI efforts and, as the
  enclosed documentation reflects, was coordinated with HUD (See May 2, 2000 HUD letter). For your
  reconsideration, The DHC has enclosed supporting documentation for each of the change orders and
  recommends that this Draft Finding be revised.

  RECOMMENDATIONS

  Provide detailed work specifications supporting the work included in the 46 unsupported change orders
  identified in this finding.

  Conducts a review (using HUD staff or contractors) of the work specifications submitted to determine
  whether the work specified was included in the original contract.

  The Housing Commission should reimburse HUD from non-Federal funds for the cost of any change
  orders that duplicate work in the original contract.


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   DRAFT FINDING
   PAGE SIX


  RECOMMENDATIONS – Cont’d

  Conduct a review (using HUD staff or contractors) to ascertain the reasonableness of the change order
  costs based upon the specifications provided. The Housing Commission should reimburse HUD from
  non- Federal funds for any unreasonable costs.

  DHC RESPONSE

  The DHC supports the recommendations presented and have instituted standard operating procedures
  and operational enhancement to improve our ability to manage the procurement and program
  management aspects of the HOPE VI program and will work with HUD to implement any additional
  program enhancements deemed necessary.



  DRAFT    FINDING:  THE    COMMISSION    LACKED                             DETAILED  WORK
  SPECIFICATIONS IDENTIFYING THE CONSTRUCTION                                OR PROFESSIONAL
  SERVICES PROVIDED FOR 46 CHANGE ORDERS.

  DHC RESPONSE:

  The DHC disagrees with this Draft Finding and request that it is revised to reflect that change orders
  approved and paid since April 1999 included detailed work specifications.

  RECOMMENDATION
  Provides detailed work specifications supporting the work included in the 46 unsupported change
  orders identified in this finding.

  DHC RESPONSE

  With the exception as noted above, the DHC is in general agreement with this recommendation and has
  begun the process of reviewing all change orders and related work specifications.




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  Appendix B

    DRAFT FINDING
    PAGE SEVEN


  DRAFT FINDING: UNSUPPORTED CHANGE ORDERS FOR CONSTRUCTION
  SERVICES WERE ALSO APPROVED BY THREE OF THE COMMISSION'S
  ARCHITECTURAL FIRMS.

  DHC RESPONSE

  The DHC disagrees with this Draft Finding in that the change orders executed under the current
  administration include supporting documentation provided in Attachment One. All three (3) A/E firms
  contracts have expired and the DHC has contracted with a new firm. The DHC has continued to
  improve its construction and professional services contracting process and has established standard
  operating procedures and internal controls to monitor performance.

  RECOMMENDATION
  Conduct a review (using HUD staff or contractors) to ascertain the reasonableness of the change order
  costs based upon the specifications provided. The Housing Commission should reimburse HUD from
  non- Federal funds for any unreasonable costs.

  DHC RESPONSE

  The DHC agrees with the intent of the recommendation and will, with HUD, conduct a reasonableness
  review. If appropriate, the DHC will reimburse HUD and seek to recover from responsible firms any
  unreasonable costs.

  DRAFT FINDING: BETWEEN JUNE, 1998 AND MARCH 2001 THE DHC PAID
  $568,548 FOR THE EXPENSES OF THE FRANKFORT SEWER PROJECT THAT THE
  CITY WAS REQUIRED TO PAY

  DHC RESPONSE

  This finding is factually inaccurate and should be revised. As your data analysis reflects, the subject
  change orders were approved between January, 1998 and January 1999-- prior to the current
  administration.

  Regarding the eligibility of the expenses, you have been advised that the City of Detroit transferred the
  applicable easement to Parkside Villages. Thereafter, any improvements made become the
  responsibility of Parkside Villages.

  RECOMMENDATION
  Reimburse its Villages at Parkside HOPE VI Project $550,980 from non- Federal funds for the
  improper payment of excessive construction costs, interest expense, and costs to correct contractor
  damages. Housing Commission should not use HUD funds to pay the $1,230 in excessive construction
  costs cited in this finding.

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    DRAFT FINDING
    PAGE EIGHT




  DHC RESPONSE

  The DHC disagrees with this recommendation and will, with HUD, assess the eligibility of the subject
  funds. If appropriate, the DHC will reimburse HUD and seek to recover the subject funds from the City
  of Detroit.



  DRAFT FINDING: THE COMMISSION IMPROPERLY PAID EXCESSIVE
  CONSTRUCTION COSTS, INTEREST EXPENSES AND REPAIR COSTS FOR
  CONTRACTOR DAMAGES.


  DHC RESPONSE
  The DHC disagrees with the conclusion reached with regards to change orders after April 1999 and
  request that this Draft Finding be revised to reflect documentation provided in Draft Findings One -Five.

  RECOMMENDATION
  The Housing Commission should reimburse HUD from non-Federal funds for the cost of any change
  orders that duplicate work in the original contract.

  DHC RESPONSE

  The DHC disagrees with this recommendation and will, with HUD, conduct a review to determine the
  appropriateness of reimbursement to HUD. If applicable, the DHC will reimburse HUD and seek to
  recover from responsible firms any excessive costs.




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  Appendix B


   DRAFT FINDING
   PAGE NINE



  DRAFT FINDING: THE HOUSING COMMISSION APPROVED CHANGE ORDERS
  WITHOUT HUD APPROVAL

  DHC RESPONSE

  The DHC disagrees with the Draft Finding that the current administration approved two change orders
  without prior HUD approval.

  Payment under both change orders contracts in questions were approved by HUD and in accordance
  with the DHC Procurement policy that provide for HUD’s prior approval for modifications to a contract
  that exceed the greater of either: $100,000 or twenty five (25%) of the original contract … DHC
  Procurement Policy, Section E page 20

  Under this revised policy, the DHC was not required to submit the two change orders for HUD review
  as they are both below the 25% of base contract price provision of DHC’s Procurement policy.
  However, the two change orders were submitted and payment approved by HUD. See supporting
  documentation provided under Attachment One

  RECOMMENDATIONS

  Establishes controls to ensure that HUDS prior approval is obtained on change orders of either
  $100,000 or 25 percent of the original contract amount as required by the Jeffries Homes and the
  Villages at Parkside HOPE VI Grant Agreements and the Commission’s Procurement Policy

  DHC RESPONSE

  The DHC disagrees with this recommendation, in general, and have instituted policy enhancements,
  internal controls and standard operating procedures to ensure the efficiency and effectiveness of the
  procurement process




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  DRAFT FINDING
  PAGE TEN




  DRAFT FINDING: THE COMMISSION LACKED DOCUMENTATION TO SUPPORT ITS
  CONTRACT AWARDS. CONTRACTING PROBLEMS EXISTED BECAUSE THE DHC
  LACKED CONTROLS OVER THE PROGRAM

  DHC RESPONSE

  The DHC requests that this Finding is revised to clearly state that the procurement issues cited occurred
  prior to the current administration and to acknowledge progress made by the current administration as set
  forth above.

  RECOMMENDATIONS
  Establishes controls to ensure that HOPE VI contract awards are conducted in accordance with the
  Grant Agreement(s); HUD's regulations; the Annual Contributions Contract, and/or the Commission's
  Procurement Policy.

  DHC RESPONSE
  The DHC disagrees with this recommendation, in general, and have instituted policy enhancements,
  internal controls and standard operating procedures to ensure the efficiency and effectiveness of the
  procurement process




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  Appendix B




                                              March 12, 2001




  Mr. Heath Wolfe
  Assistant District Inspector General for Audit
  U.S. Department of Housing and Urban Development
  Office of Inspector General
  77 West Jackson Blvd. Room 2646
  Chicago, Illinois 60604


  Re:     DHC Response to OIG Draft Finding - Jeffries Homes HOPE VI Project -
          Unsupported Costs

          Villages of Parkside HOPE VI Project - The Commission Lacked Control Over Funds


  Dear Mr. Wolfe,

  We are in receipt of the above-mentioned draft finding and have reviewed the detail schedule of
  unsupported cost provided. In an effort to prepare this response, the DHC conducted a thorough
  search of its books and records including a review of the primary documentation originally provided to
  your on-site auditors.

  Background
  The DHC has experienced a transition in its senior management over the past five years, covering the
  period in question with regard to your finding of unsupported costs (May 11, 1995 to April 17, 2000).
  The current administration was appointed April 5, 1999. With the advent of this appointment,
  operational and financial assessments were commissioned to determine the state of the agency and
  specifically the status of the HOPE VI program. These assessments described numerous operational
  and financial management deficiencies causing the new administration to take corrective action, including
  the implementation of new procedures. One of the most glaring deficiencies noted were problems
  related to the lack of an effective administrative and financial infrastructure to support the program
  operations of the housing commission. Equally important was the need to recruit qualified and
  experienced managers to oversee the




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  Page 2, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding:
  Jeffries Unsupported Costs & Parkside Lacked Control Over Funds




  commission’s programs and operations. Recruitment efforts have resulted in several newly appointed
  General Managers, among them a new General Manager of Finance, appointed June 19, 2000.

  With the advent of these and other personnel changes and the current implementation of a new
  computer system designed to support the complex transactions of the commission, we are beginning to
  make significant progress and to correct the inherent systemic deficiencies discovered eighteen months
  ago. In addition, our newly established Management Analysis & Planning (MAP) division has begun to
  develop sorely needed policies and procedures, for all divisions, agency-wide. This management
  improvement will ensure that the commission continues to strengthen its internal controls and will provide
  the underpinnings for acceptable financial management practices.


  Draft Audit Finding – “The Commission Lacked Documentation to Support Payments” –
  Jeffries Homes HOPE VI Project

  The DHC reviewed all payment documentation presented to HUD to obtain grant disbursements during
  the period in question. The DHC does not agree that the DHC used $2,087,827 in HOPE VI
  funds for Jeffries Homes HOPE VI project without sufficient supporting documentation for
  each payment cited related to the amount alleged as unsupported. A significant amount of
  documents were located in response to requests for documentation from on-site OIG staff. The
  documentation requested spanned a period of five years. In many instances, as noted in the OIG
  schedule of unsupported costs, the on-site staff recognizes that documentation was submitted and
  determined to be insufficient or unsatisfactory. It should be noted that in spite of the obstacles facing a
  new administration to locate and recreate transactions incurred by a previous administration, exhaustive
  efforts were made to comply with all requests for documents.

  The current administration was not in place during the majority of the period in question and therefore,
  had no responsibility for the program or financial management practices and procedures or for the
  approval of payments identified in the OIG schedule of unsupported costs. We therefore cannot defend
  or offer any explanation on behalf of the previous DHC administration and its consultants for the alleged
  deficiencies.




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            Page 3, Mr. Heath Wolfe
            Response to OIG Draft Audit Finding:
            Jeffries Unsupported Costs & Parkside Lacked Control Over Funds




            Results of the DHC search:

            We believe we have been successful in locating additional documentation regarding disbursements
            originally alleged unsupported that should reduce the amount of alleged unsupported payments.

            The following schedule represents a description of the results of our search and the additional
            documents are attached for your review and consideration:

                                                 Schedule of Additional Documentation

 Date                         Payee                                   Description              Amount                 Notes
5/11/95     DHC labor distribution                          Payroll Expense                      $25,459.48   Located invoices
7/15/95     TTR/Jeffries                                    Travel to HOPE VI Conference          $6,727.53   Located Invoices &
                                                                                                              Other related docs
12/6/96     TTR/Jeffries                                    URD Program Coordinator             $170,648.00   Located invoices; &
                                                                                                              Letter dated 8/19/96 from
                                                                                                              TTR/Jeffries
4/12/97     Commercial Flooring                             Carpet                              $ 4,034.00    Located invoice
6/10/97     Board of Water Commissions                      Service disconnection Fee            $27,829.66   Located invoices
9/16/97     TTR/Jeffries URD Team                           Disallowed expenses                  $60,454.42   Located Invoices
6/6/98      Quality Storage                                 Relocation Expense                    $4,590.00   Located invoices
6/12/98     Diamond Dismantling, Inv. 04, contract          Demolition                          $127,434.70   Located invoices
            #1705
6/12/98     DeMaria Building Co., Inv. 38                   Underground Demolition              $543,357.97   Located invoices
            Contract # 74657
6/12/98     DeMaria Building Co., Inv. 35,                  Steamline Modifications              $35,862.59   Located invoices
            Contract #74657
              Total amount of additional invoices                                            $1,006,398.35



            The DHC does respectfully request that the amount of alleged unsupported payments represented in the
            original schedule provided as an attachment to the draft finding be reduced by the amount represented in
            the above schedule as indicated below:

                     OIG Schedule of alleged unsupported payments                       $2,087,826.59
                     Less: additional documentation                                     $1,006,398.35
                            Remaining Balance                                           $1,081,428.24




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  Page 4, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding:
  Jeffries Unsupported Costs & Parkside Lacked Control Over Funds




  Draft Audit Finding –“The Commission Lacked Control Over the Funds”
  The Villages of Parkside HOPE VI Project


  The current administration reviewed the HOPE VI grant agreement, Program Management contract
  between the DHCP and the CNU and 24 CFR part 85.42 to review the requirements for the
  administration of the grant, record keeping and the program manager’s scope of work. While it is clear
  that the HOPE VI Program Manager, Capital Needs Unlimited (CNU), was permitted to exercise
  considerable control over the project, this administration cannot provide comments or speculate on the
  decision making process of the previous DHC administration and its contractor or provide
  documentation, not originally requested when disbursements were made. Upon close assessment and
  review of the status of Parkside HOPE VI project, the newly appointed Executive Director terminated
  the program management contract shortly after his arrival to the DHC in April 1999.

  A significant amount of documents were located in response to requests for documentation from on-site
  OIG staff. It should be noted that in spite of the obstacles facing a new administration to locate and
  recreate transactions incurred by a previous administration, exhaustive efforts were made to comply
  with all requests for documents. Further, the DHC addressed a certified letter to
  Mr.Tom Nutt Powell of CNU. The letter requested that he search his records and provide the DHC
  with additional documentation on behalf of the audit process. While he responded, he did not forward
  any additional documents toward this effort. The DHC letter and his response are included as
  attachments for your review.


  Results of the DHC search:

  We believe we have been successful in locating additional documents regarding disbursements originally
  alleged unsupported or ineligible that should reduce the amount of alleged unsupported payments. A
  separate detailed schedule is included as an attachment along with the additional documents.

  As a result of our search, we respectfully request that the alleged amount of
  unsupported/ineligible payments documented by the OIG be reduced by $2,989,663.




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  Appendix B


  Page 5, Mr. Heath Wolfe
  Response to OIG Draft Audit Finding:
  Jeffries Unsupported Costs & Parkside Lacked Control Over Funds




  I am available to discuss this response with you or your representatives and may be reached at 313-
  877-8639.

  Sincerely,

   /signed/

  John Nelson, Jr., Executive Director
  City of Detroit Housing Commission




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                                                                          Appendix C

  Inspectors’ Cost Estimates
                              Villages at Parkside
                         Units/Buildings/Landscaping   Cost To Repair Improper
                                   Inspected            Revitalization Work
                        5029 Stringham Court              $2,480
                        12711 Stringham Court              2,400
                        12707 Stringham Court              2,310
                        12823 Rudolph Circle               2,170
                        12713 Stringham Court              2,150
                        12714 Ailey Court                  2,000
                        12647 McCoy Circle                 1,990
                        12202 Stringham Court.             1,960
                        12539 McCoy Circle                 1,900
                        5018 Anderdon                      1,840
                        12640 Woodson Court                1,810
                        12541 McCoy Circle                 1,740
                        12818 Frankfort                    1,730
                        12212 Stringham Court              1,690
                        5065 Stringham Court               1,680
                        12323 Drew Court                   1,640
                        12666 Woodson Court                1,640
                        12644 Woodson Court                1,590
                        12305 Stringham Court              1,580
                        12209 Stringham Court              1,570
                        12413 Matzeliger Court             1,570
                        12624 Gillespie Court              1,570
                        12804 Frankfort                    1,570
                        12815 Rudolph Circle               1,560
                        12252 Frankfort Court              1,550
                        12431 Matzeliger Court             1,510
                        12705 Stringham Court              1,510
                        12377 Drew Court                   1,500
                        5026 Anderdon                      1,460
                        5013 Gray                          1,430
                        12810 Frankfort                    1,420
                        12421 Matzeliger Court             1,400
                        12646 Woodson Court                1,380
                        12760 Ailey Court                  1,340
                        12629 McCoy Circle                 1,300
                        12122 Stringham Court              1,290
                        12130 Frankfort Court              1,260
                        12383 Drew Court                   1,250
                        12385 Drew Court                   1,250
                        12502 Stringham Court              1,250
                        12242 Frankfort Court              1,240
                        12353 Drew Court                   1,230
                        12654 Woodson Court                1,200

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  Appendix C


                 12254 Frankfort Ct        1,190
                 12658 Woodson Court       1,180
                 12356 Drew Court          1,170
                 12419 Matzeliger Court    1,170
                 5030 Anderdon             1,100
                 12210 Stringham Court     1,080
                 12809 Stringham Court     1,080
                 12631 McCoy Circle        1,070
                 12602 Stringham Court     1,030
                 12343 Drew Court          1,020
                 12553 McCoy Circle          980
                 12240 Frankfort Court       970
                 5009 Anderson               970
                 12510 Stringham Court       960
                 12200 Stringham Court       950
                 12757 Rudolph Circle        910
                 12064 Stringham Court       900
                 12318 Banneker Court        900
                 12743 Stringham Court       900
                 12368 Drew Court            800
                 12635 McCoy Circle          680
                 12066 Stringham Court       380
                 12637 McCoy Circle          380
                 Building 206             21,830
                 Building 706             12,450
                 Building 812             10,940
                 Building 310              8,490
                 Building 304              7,420
                 Building 211              7,350
                 Building 804              7,290
                 Building 210              6,210
                 Building 208              5,970
                 Building 303              5,780
                 Building 705              5,610
                 Building 704              5,490
                 Building 801              5,270
                 Building 805              5,080
                 Building 808              4,640
                 Building 308              4,560
                 Building 204              4,540
                 Building 309              4,460
                 Building 207              4,350
                 Building 305              4,310
                 Building 503              4,280
                 Building 306              4,210
                 Building 501              4,200
                 Building 104              4,160


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                                          Appendix C


       Building 807              4,140
       Building 806               4,060
       Building 105               4,020
       Building 307               4,000
       Building 301               3,990
       Building 803               3,680
       Building 813               3,660
       Building 302               3,430
       Building 811               3,360
       Building 802               3,330
       Building 702               3,150
       Building 810               2,400
       Building 814               2,190
       Building 205               2,140
       Building 209               1,930
       Community Building II        980
       Building 701                 970
       Community Building IV        800
       Building 809                 620
       Landscaping               83,840

                  Total        $387,260




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                                                                                    Appendix D

       Distribution
       Acting Secretary's Representative, Midwest (2)
       Senior Community Builder/State Coordinator, Michigan State Office
       Director of Public Housing Hub, Michigan State Office (2)
       Director-Senior Advisor of Public Housing Investments, PI (2)
       Secretary, S (Room 10000)
       Chief of Staff, S (Room 10000)
       Acting Assistant Secretary for Administration, A (Room 10110)
       Deputy Assistant Secretary for Administrative Services, Office of the Executive
               Secretariat, AX (Room 10139)
       Acting Assistant Secretary for Congressional and Intergovernmental Relations, J (Room
               10120
       Director of Departmental Equal Employment Opportunity, U (Room 2112)
       Senior Advisor to the Secretary, Office of Public Affairs, W (Room 10132)
       Deputy Chief of Staff for Policy and Program, S (Room 10226)
       Deputy Chief of Staff for Intergovernmental Affairs, S (Room 10226)
       Deputy Assistant Secretary of Public Affairs, W (Room 10222)
       Special Assistant for Inter-Faith Community Outreach, S (Room 10222)
       Executive Officer for Administrative Operations and Management, S (Room 10220)
       General Counsel, C (Room 10214)
       Deputy General Counsel for Housing, Finance, and Operations, CA (Room 10240)
       Assistant General Counsel, Midwest
       Assistant Secretary for Housing-Federal Housing Commissioner, H (Room 9100)
       General Deputy Assistant Secretary for Housing-Deputy Federal Housing Commissioner, H
               (Room 9100)
       Assistant Secretary for Policy Development and Research, R (Room 8100)
       Assistant Secretary for Community Planning and Development, D (Room 7100)
       Executive Vice President of Government National Mortgage Association, T (Room 6100)
       Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
       Chief Procurement Officer, N (Room 5184)
       Acting Assistant Secretary for Public and Indian Housing, P (Room 4100)
       General Deputy Assistant Secretary for Public and Indian Housing, P (Room 4100)
       Deputy Assistant CFO for Financial Management, FM (Room 2206)
       Acting Deputy Assistant Secretary for Public Housing Investments (Room 4138)
       Deputy Assistant Secretary for Administration and Budget/CFO, PC (Room 4234)
       Audit Liaison Officer for Public and Indian Housing, PF (Room 5156)
       Chief Information Officer, Q (Room 8206)
       Director of Departmental Operations and Coordination, I (Room 2124)
       Acting Chief Financial Officer, F (Room 2202)
       Deputy Chief Financial Officer, F (Room 2202)
       Director of Audit Coordination/Departmental Audit Liaison Officer, FMA (Room 2206)
       Director of Risk Management, FMR (Room 2214)

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       Appendix C


       CFO Audit Liaison Officer, FMA (Room 2206)
       Audit Liaison Officer, 3AFI (2)
       Acting Director of Enforcement Center, V (200 Portals Building)
       Acting Director of Real Estate Assessment Center, X (1280 Maryland Avenue, SW,
               Suite 800)
       Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
       Acting Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
       Acquisitions Librarian, Library, AS (Room 8141)
       Director, Office of Federal Housing Enterprise Oversight, 1700 G Street, NW Room 4011,
               Washington, DC 20552
       Staff Director, Subcommittee on Criminal Justice, Drug Policy & Human
               Resources, B 373 Rayburn House Office Building, Washington DC 20515
       The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340
               Dirksen Senate Office Building, United States Senate, Washington DC 20510
       The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs,
               706 Hart Senate Office Building, United States Senate, Washington DC 20510
       Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
               Building, United States House of Representatives, Washington DC 20515
       Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204 Rayburn
               Building, United States House of Representatives, Washington DC 20515
       Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O'Neil
               House Office Building, Washington DC 20515
       Associated Director of Resources, Community, and Economic Development Division,
           United States General Accounting Office, 441 G Street N.W., Room 2T23, Washington
           DC 20548 (Attention: Stanley Czerwinski)
       Steve Redburn, Chief of Housing Branch, Office of Management and Budget, 725 17th
           Street, N.W., Room 9226, New Executive Office Building, Washington DC 20503
       Executive Director, Detroit Housing Commission (7)
       Chairperson of the Board of Commissioners, Detroit Housing Commission
       Mayor, City of Detroit




       2001-CH-1007                          Page 136



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