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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Executive Summary
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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Executive Summary
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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Executive Summary
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Table Of Contents
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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Introduction
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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Introduction
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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Finding 1
• 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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Finding 2
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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Finding 2
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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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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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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Finding 2
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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Finding 2
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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Finding 3
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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Finding 5
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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Finding 5
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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Finding 6
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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Finding 6
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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Finding 6
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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Management Controls
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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Appendix B
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.
2001-CH-1007 Page 104
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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.
2001-CH-1007 Page 106
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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.
2001-CH-1007 Page 108
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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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Appendix B
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.
2001-CH-1007 Page 118
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Appendix B
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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Appendix B
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.
2001-CH-1007 Page 122
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Appendix B
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
2001-CH-1007 Page 124
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Appendix B
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
2001-CH-1007 Page 126
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Appendix B
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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Appendix B
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
2001-CH-1007 Page 128
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Appendix B
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
2001-CH-1007 Page 130
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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 C
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2001-CH-1007 Page 134
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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
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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)