oversight

Jefferson Parish Housing Authority Limited Procurement Review Jefferson Parish, Louisiana

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-09-25.

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

                                                     U.S. Department of Housing and Urban Development
                                                     Southwest District Office of Inspector General
                                                     819 Taylor Street, Room 13A09
                                                     Fort Worth, Texas 76102

                                                     (817) 978-9309 FAX (817) 978-9316
                                                      http://www.hud.gov/oig/oigindex.html



September 25, 2001                                   2001-FW-1809

MEMORANDUM FOR:               Chet Drozdowski
                              Director, Office of Public Housing, 6HPH

               /SIGNED/
FROM:          D. Michael Beard
               District Inspector General for Audit, 6AGA

SUBJECT:       Jefferson Parish Housing Authority
               Limited Procurement Review
               Jefferson Parish, Louisiana


We performed a limited procurement review of the Jefferson Parish Housing Authority
(Authority). As a result of a request for assistance, we reviewed six procurements made by the
Authority between1996 and 2000. The contracts reviewed included: (1) SAT Development; (2)
Paragon Accounting; (3) Robert Wallbillich, CPA; (4) IWG, L.L.C; (5) Louisiana Housing
Development Corporation; and (6) Nova Financial.

Our review objectives were to determine whether the Authority: (1) followed procurement
policies; and (2) received all contracted services.

To accomplish our objectives, we reviewed applicable HUD regulations; Office of Management
and Budget Circular A-87 "Cost Principles for State, Local, and Indian Tribal Governments"
(Circular A-87); the Authority procurement policies. Also, we interviewed contractors,
Authority officials and HUD personnel. Further we reviewed and analyzed Authority files.

For the six contracts reviewed, the Authority violated its procurement policies and federal
requirements. Furthermore, the Authority may not have received a benefit from the contracted
services. The Board Chairman’s (Chairman) involvement in these procurements directly
contributed to the violations. The Authority should ensure it follows its policies and federal
requirements. Specifically, it should solicit proposals, perform cost analysis, obtain Board and
HUD approvals when necessary, and maintain records to detail the procurement history.
Furthermore, the Authority should support the cost or reimburse HUD at least $13,000 for the
unreasonable amount paid to a contractor and $499,058 for three contracts where the Authority
did not receive any apparent benefit. The Authority should also perform a cost analysis for all
six contracts. For those contracts where the Authority paid more than the cost analysis, the
Authority should reimburse its programs for the excess costs.
                                                                                                   2


Due to the Chairman’s actions, HUD should seek administrative sanctions against him.
Furthermore, HUD should consider whether to take similar actions against other Board members
who went along with the Chairman in violating HUD and Authority requirements.

We provided a draft of the report to the Authority’s Executive Director and Chairman on
August 30, 2001. In a September 5, 2001 letter, the Authority’s Executive Director concurred
with the results of the draft memorandum. However, the Authority’s general counsel1 disagreed
with the draft memorandum in a September 10, 2001 letter. Also, the Chairman disagreed with
the draft memorandum in a September 10, 2001 letter. We considered their responses in
developing the final report.

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

If you have any questions, please call me or William Nixon, Assistant District Inspector General
for Audit, at (817) 978-9309.

Attachment




1
    Rodney Bordenave Boykin & Ehret.
                                                                                                   3


                                                                                ATTACHMENT

Background.

The Jefferson Parish Housing Authority (Authority) operates 200 public housing units
throughout Jefferson Parish. Its offices are located at 1718 Betty Street in Marrero, Louisiana.
The Authority is an independent government agency run by a Board of Commissioners (Board),
appointed by the Parish President. The Authority manages the low-income housing program
under the provisions of the consolidated Annual Contributions Contract (ACC). The ACC,
between the Authority and HUD, required the Authority to provide low-income housing to
eligible residents. HUD provided funds for the operation and maintenance of the low-income
program.

The Authority also served as contract administrator for 2,680 Section 8 vouchers. The Authority
received an administrative fee from HUD for administering the vouchers.

The nine Board members oversaw the management and operation of the Authority and
established policies and procedures for the Authority. The Executive Director, who served as the
Board’s secretary and treasurer, managed the day-to-day activities of the Authority. According to
HUD, the role of the Chairman of the Board encompassed the following:

      ·   Preside at all meetings;
      ·   Ensure the Board stays focused on agenda;
      ·   Encourage each member to voice their views; and
      ·   Act as liaison between the Executive Director and the Board.

HUD procurement regulations required the Authority to foster open competition and to ensure
the attainment of quality service. The Authority’s procurement policy required it to follow HUD
requirements and State and Local law.

We received complaints that the Authority improperly procured specific contracts and limited our
review to those contracts. We conducted our fieldwork between February 28, 2001, and
March 6, 2001.

The Board Chairman’s Actions Directly Contributed to the Authority Violating Procurement
Requirements.

The Chairman used his position and support on the Board to: (1) sole-source contracts and (2)
bypass the Authority, the Board, and HUD for approval. The Chairman let contracts to hire a
former Board member and acquaintances.

The Chairman sole sourced contracts in direct contrast to federal regulations by not providing
sufficient justification and obtaining HUD’s approval.2

2
    24 CFR 85.36(d)(4)(iii).
                                                                                                              4


In 1999, the Chairman executed five of the six contracts reviewed, without review by the contract
committee or the full Board. According to the files, the Chairman consistently performed the
duties of a contracting officer. These duties included soliciting proposals, awarding, and
executing contracts. For instance, when the Authority hired IWG, LLC. to perform investment
advisor services, the Chairman solicited three proposals and made the unilateral decision to hire
IWG, LLC.3 The Authority’s procurement policy appointed the Executive Director as the
contracting officer. However, according to the Authority’s Executive Director, the Chairman
believed a Board Resolution provided him the authority to circumvent the procurement policy.4
The Board should not pass resolutions that violate HUD requirements and the Authority’s policy.
HUD should take necessary actions to ensure Board members do not violate procurement
requirements or exceed their authority.

The Authority Sole-Sourced Contracts.

Of the six contracts reviewed, the Authority could not provide evidence of competition for five
contracts. Furthermore, in one instance, it appears the Authority over paid for services by at least
$13,000. The purpose of procurement requirements is to ensure the Authority has fair and open
competition.5 This also requires the Authority to demonstrate that it paid a reasonable price for
goods and services. Violating the procurement requirements, the Chairman used his position in
these two instances to award contracts without competition possibly costing the Authority an
additional $13,000.

Paragon Accounting.

On December 15,1999, the Board passed Resolution No.1226 to hire Paragon Accounting
(Paragon) immediately after the resignation of Authority’s fee accountant Nova Financial. The
Chairman executed the contracts on the same day.6 The Authority’s files did not indicate how it
selected Paragon. According to the owner of Nova Financial, the owner of Paragon approached
him about the job and requested he recommend her. He did not know how she knew about the
job. The owner of Nova Financial did recommend her to the Board at the December 15, 1999
meeting. The Authority files did not indicate that the Board contacted any other company.
Also, the Board minutes and Resolution made no reference to the solicitation of other proposals
or evaluating competitors.

Furthermore, the Chairman provided Authority officials the Paragon contracts days before the
December 15, 1999 meeting for review. However, prior to the attorney reviewing the contract,
the Chairman took the contracts back. According to Authority officials, the Board believed the
Resolution exempted them from having to seek competition. Nonetheless, the Board did not
supply any justification for noncompetitively procuring this contract.7 Furthermore, the
3
    A principal of IWG, LLC. was a former Board member. The Board member received the contract just over 13
    months after leaving the Board. Furthermore, the Board member was reappointed to the Board 5 days after
    terminating his contract with the Authority.
4
    As discussed elsewhere, this also included the Board’s approval of sole-source contracts.
5
    24CFR 85.36 (c)(1).
6
    Paragon received a contract for the public housing units and another contract for Section 8.
7
    24 CFR 85.36(d)(4).
                                                                                                        5


Authority did not “maintain records sufficient to detail the significant history of a procurement.”8
In fact, it did not appear Authority personnel were involved in the solicitation, procurement, or
negotiation of fees or terms of its fee accountant.

The Chairman contended the Board approved this contract due to the necessity of obtaining
“accounting services without delay.” However, this justification lacks merit. First, Nova
Financial assured the Authority that he would stay on until mid February 2000. This would have
allowed the Authority to solicit and evaluate other proposals. Second, the contract executed by
the Chairman contained the following terms: “the term of this contract shall be for a period of
four (4) years from the anniversary date of January 1, 2000 with the Authority having one (1)
option to extend this contract for a period of four (4) years.” By terms of this contract, the
Chairman executed a long-term contract, not a contract to address an immediate need. Also
Authority should have submitted this contract for HUD approval.

Furthermore, the Board Resolution did not provide any support or analysis of the cost of the
contract as required.9 Without a cost analysis, HUD does not know whether the Authority paid a
reasonable price for its accounting services.10

HUD should require the Authority to properly procure its fee accounting services and justify the
cost paid on the contract to date. The Authority should reimburse its program for any amount
determined as unreasonable.

Robert Wallbillich, CPA.

Authority’s files showed it had contracted with Robert Wallbillich, CPA (Wallbillich) as early as
1990. The Chairman, disregarding federal requirements by not soliciting other proposals or
obtaining HUD approval, renewed the $16,000 audit services contract with Wallbillich at the end
of every 3 years until 1998.11 In August 1999, Wallbillich submitted a proposal requesting
$24,000 to perform Generally Accepted Accounting Principles (GAAP) conversion as required
by HUD’s Real Estate Assessment Center. Wallbillich requested this proposal in addition to the
existing contract for $16,000. The Chairman accepted and executed the $24,000 proposal
without competition and without the approval of the Board. The Chairman did not perform the
required cost analysis and the Authority does not know if it paid a reasonable price for these
services. Based upon similar sized housing authorities in Louisiana, it appears the Authority may
have paid at least $13,000 more for auditing services.12




8
   24 CFR 85.36(a)(9).
9
   24 CFR 85.36 (f).
10
   During 2000, the Authority paid Paragon $92,734.
11
   24 CFR 85.36(d)(4)(iii).
12
   Cost of Wallbillich contract $40,000 less the cost of the next highest fee $27,000 equals $13,000.
                                                                                                             6


                  Comparison of Housing Authority’s Auditor Fees

              Housing Authority13                  Number of Units                 Auditor fees14
                                            200 Conventional Units                        $40,000
        Jefferson Parish                    2680 Section 8 Units
                                            835 Conventional Units                           $27,000
        Lake Charles                        1950 Section 8 Units
                                            934 Conventional Units                           $19,980
        Shreveport                          2939 Section 8 Units
                                            572 Conventional Units
        Lafayette                           940 Section 8 Units                               $9,000
                                            1522 Conventional Units
        Monroe                              1450 Section 8 Units                              $7,000

HUD should require the Authority to properly procure its auditing services and justify the excess
cost paid on the contract to date. The Authority should reimburse its program for any amount
determined as excess cost.

Further, the Authority paid Wallbillich $24,000 for the GAAP conversion, but Nova Financial,15
not Wallbillich, performed the conversion. According to Wallbillich, the Chairman decided to
have Nova Financial do the GAAP conversion. Wallbillich paid Nova Financial the $24,000.
The Chairman exceeded his authority in sole-sourcing this contract to Wallbillich and then
requiring Wallbillich to contract with Nova Financial.

Authority Did Not Receive Benefit from Contracts.

Due to poor procurement practices and the involvement of the Board, the Authority may have
paid for services not performed. The poor procurement practices included a lack of competition
and cost analysis. In three instances, it did not appear the Authority received a benefit from the
contracts. HUD should require the Authority to support its expenditures in terms of benefit
received or reimburse its programs.

SAT Development.

In August 1996, the Chairman signed a planning and execution contract with SAT Development
Company, L.L.C. From August 1996 through April 1998, the Authority paid SAT Development
$389,751 to prepare and submit a HOPE VI and tax credit applications. In July 1997, SAT
Development submitted the HOPE VI application package late to HUD Headquarters. As a
result, HUD did not consider the Authority’s application. The Authority appealed HUD’s
decision based upon weather conditions in New Orleans. In denying the Authority’s appeal,

13
     All housing authorities are located in the State of Louisiana.
14
     The amount includes the cost of the GAAP conversion. For Shreveport Housing Authority, the GAAP conversion
     cost $3,000.
15
     Longtime Fee Accountant.
                                                                                                  7


HUD noted the Housing Authority of New Orleans submitted its applications on time; therefore,
the Authority should have also been able to submit its application on time.

In July 1998, the Authority requested SAT Development to resubmit the HOPE VI application.
However, SAT Development never responded to the Authority’s request. In October 1998, the
Authority placed SAT Development in default of its contract. In April 1999, the Chairman
appointed the “SAT Development Refund Committee” to recover monies paid to them. As of
May 18, 2001, the Authority has not recovered any money from SAT Development.

As with other contracts, the Authority did not obtain proposals from other companies nor did it
perform a cost analysis. The purpose of the contract was to submit an application for HOPE VI
and obtain funding. As such, the Authority should not pay SAT Development when it failed to
submit the application on time.

HUD should require the Authority to support the benefit received from the $389,751 it paid to
SAT or reimburse the program for any excess cost.

Louisiana Housing Development Corporation.

In August 1999, the Chairman executed contracts with Louisiana Housing Development
Corporation (LHDC) to expand the Family Self Sufficiency Program and to develop affordable
housing for low-income first-time homebuyers. According to the Executive Director, the
Authority has “yet to see the results of LHDC’s efforts.” Between August 1999 and January
2000, the Authority paid LHDC $89,200.

In three instances, the Chairman approved LHDC’s invoices for payment, a duty usually reserved
for the contracting officer. In at least one instance, the Chairman took delivery of the Authority’s
$12,000 payment to LHDC.16 According to the Executive Director, the Chairman delivered the
payment to the principal of LHDC. Nonetheless, the Chairman should not execute a contract,
approve payments to the contractor, and deliver the payment to the contractor. This represents a
significant control weakness.

If the Authority is not receiving a benefit from this contract, they should terminate it
immediately. Furthermore, the Chairman should not sole-source contracts. Due to the poor
procurement of the contract, the Authority did not know if it received services at a reasonable
cost. Therefore, the Authority should justify the $89,200 spent on the contract or repay its
program.

IWG, LLC.

The Authority contracted with IWG, LLC., operated by a former Board member, to perform
investment advisory services for the Authority. At the Chairman’s direction, IWG, LLC invested
the Authority’s funds in “short term Treasury Bills with a maximum maturity of two (2) years.”

16
     The Chairman also approved this LHDC invoice for payment.
                                                                                                     8


According to HUD’s Public and Indian Housing Director, no other housing authority in
Louisiana has an investment advisor. Furthermore, the need for an investment advisor to invest
in Treasury Bills is questionable. Between January and May 2000, the Authority paid IWG,
LLC. $20,107 under this contract. IWG, LLC. terminated the contract on July 7, 2000. HUD
should determine if the Authority wasted $20,107 in hiring a former Board member to perform
minimal tasks. If so, the Authority should repay its program the $20,107 paid to IWG, LLC.

The Chairman Contracted with Associates.

It appears the Chairman used his position to contract with associates. Board members
complained to the Parish President in a letter dated June 26, 2000. Specifically, Board members
wrote, “the present leadership has favored a very specific set of individuals with contract awards
and all efforts to stop this have fallen by the wayside.” According to the Board members,
“Request for proposals, solicitations or advertisements for best value for the public interest is
nonexistent. We do not believe that this is an oversight but may be a deliberate exclusion to
favor certain individuals.”

Of the six contracts reviewed, the Chairman was directly involved in awarding three contracts to
associates. Specifically:

      ·    IWG, LLC. – The owner of this company is a former Board member of the
           Authority.
      ·    Paragon – The owner of this company was rumored to be a companion of a former
           Board member of the Authority.
      ·    Nova Financial – The owner of this company previously worked with the Chairman.

The Authority did not properly procure these contracts; therefore, it does not know if it received
the services at a fair and reasonable price. The Chairman’s actions and association with the
owners at the very least gives the appearance of a conflict of interest. HUD should ensure the
Chairman recuses himself from procurements and contracts where a real or an appearance of a
conflict of interest exists.


The Board of Commissioners Did Not Review and Approve Four of the Six Contracts We
Examined.

The Authority violated its Procurement Policy when the Chairman executed contracts without
Board approval. As stated previously, the Chairman functioned as the contracting officer, a
position designated to the Executive Director. Of the six contracts reviewed, the Chairman
executed four contracts without the approval of the full Board. The Chairman should not wield
such authority.

The Authority should terminate all contracts that the Chairman executed without the approval of
the Board. Also, the Authority should terminate and re-procure contracts where it did not solicit
competition.
                                                                                               9



The following table summarizes the procurements reviewed and problems noted.

                                   Summary of Procurements

                                                     Contract
                                      Contract       Executed
                           Amount     Awarded         without                   Cost
          Name of           Paid to    without        Board                   Analysis
         Contractor       Contractor Competition     Approval     Favoritism Performed
            SAT            $389,751     Yes            Yes           No          No
        Development
          Paragon           $92,734            Yes      No            Yes           No
        Accounting
           Robert           $40,000            Yes     Yes            No            No
         Wallbillich

        IWG, L.L.C.         $20,107            No      Yes            Yes           No
         Louisiana
          Housing
        Development         $89,200            Yes     Yes            No            No
           Corp.
           Nova             $92,417            Yes      No            Yes           No
         Financial


Audit Comments and Evaluation.

In a September 5, 2001 letter, the Authority’s Executive Director concurred with the results of
the draft memorandum. However, the Authority’s general counsel17 disagreed with the draft
memorandum. The general counsel’s letter stated after reviewing all six contracts “we are of the
opinion that said contracts were in fact awarded in compliance with the existing HAJP
procurement policy.” The general counsel did note that “some of the past resolutions lacked
specificity with regard to the process by which the aforesaid contracts were awarded” and
recommended improvements to the Board. Also, the letter stated the procurement policy “has
been since substantially revised to conform to the current HUD regulations and pertinent
Louisiana law.”

In disagreeing with the draft memorandum, the general counsel cited parts of the procurement
policy and various Louisiana laws that did not prohibit the Authority or Chairman’s actions.
However, the memorandum cited HUD requirements the Authority must follow. The general
counsel did not address the appropriateness of any of the Chairman’s actions. We did not
substantially revise the draft memorandum based upon the general counsel’s letter.

17
     The firm of Rodney Bordenave Boykin & Ehret.
                                                                                                   10



We agree with the general counsel’s recommendation to the Board of creating “a standard board
resolution pertaining to professional service contracts, containing specific information on the
selection process, tasks to be performed, payment terms and length of the contract.” We also
agree the procurement policy should conform to HUD regulations and pertinent Louisiana law
and the Authority and Board should follow the policy.

In a September 10, 2001 letter, the Chairman responded to the draft memorandum. The
Chairman disagreed with the draft memorandum. The Chairman did not believe the Authority
violated its procurement policies. The Chairman contended the Board knew and approved of the
actions and the Chairman relied upon the advice of the Authority’s former counsel. The
Chairman executed the “contracts pursuant to the mandates of the Board of Commissioners,
pursuant to Board Resolutions, the By-Laws, and with advice of counsel.” The Chairman cited
differences between procurement of materials and basic services and the procurement of personal
services. He contended, “generally speaking, personal service contracts do not require
competitive bidding, but do require approval by the Board of Commissioners.” The Chairman
did not believe the Authority should terminate contracts or that HUD should take administrative
actions against him or other Board members. The Chairman and the Executive Director attended
procurement training and the Authority updated its procurement policy.

The Chairman cited Board resolutions and the Authority’s procurement policy to justify the
procurements. However, his response ignores HUD requirements cited in the memorandum.
HUD required the Authority’s procurement procedures to conform to HUD requirements.18
While the method of procurement of materials and basic services might differ with the
procurement of personal services, the Authority still had the obligation to procure the personal
services in a manner “providing full and open competition.”19 The Authority, due to the
Chairman’s actions, failed to do this. As the table shows, the Authority did not solicit
competition for five of the contracts.

The Chairman raised concerns with a comparison of accounting fees of housing authorities.
While the fees paid to Paragon appear high, we deleted the comparison in the final report. The
Authority still needs to justify the amount it paid to Paragon. We modified the draft
memorandum in other areas to clarify the facts and conclusions.


Recommendations:

We recommend HUD require the Authority to:

1A.       Follow its procurement policy. Specifically, Authority personnel should:
        ·     Solicit proposals;
        ·     Perform cost analyses;

18
     24 CFR 85.36 (b).
19
     24 CFR 85.36 (c).
                                                                                                    11


      ·      Obtain Board and HUD approvals when necessary; and
      ·      Maintain records to detail the procurement history.

1B.       Either support the additional costs or reimburse HUD $13,000 for the unreasonable
          amount paid to a contractor.

1C.       Either support the services rendered or reimburse HUD $499,058 for three contracts where
          the Authority did not receive an apparent benefit.

1D.       Perform a cost analysis for all six contracts. For those contracts where the Authority paid
          more than the cost analysis, the Authority should reimburse its programs for the excess
          costs.

1E.       Terminate contracts that the Chairman sole-sourced or executed without the approval of
          the Board.

Further, we recommend HUD:

1F.       Take administrative sanctions against the Chairman for his actions on these contracts and
          to protect the Authority from similar future decisions of the Chairman.

1G. Determine if other Board members’ actions and involvement in these contracts warrant
    administrative sanctions.
                                                                               12


DISTRIBUTION

Jefferson Parish Housing Authority, Louisiana
Principal Staff
Secretary's Representative, 6AS
CFO, 6AF
Director, Accounting, 6AAF
Director, Office of Public Housing, 6HPH (4)
Multifamily Division, 6AHM
Office of General Counsel, 6AC
Fort Worth ALO, 6AF (2)
Public Housing ALO, PF (Room P8202)
Department ALO, FM (Room 2206)
Acquisitions Librarian, Library, AS (Room 8141)

Armando Falcon
Director, Office of Federal Housing Enterprise Oversight
1700 G Street, NW, Room 4011, Washington, D.C. 20515

Sharon Pinkerton
Sr. Advisor, Subcommittee on Criminal Justice, Drug Policy &
Human Resources
B373 Rayburn House Ofc. Bldg., Washington, D.C. 20515

Cindy Fogleman
Subcommittee on General Oversight & Investigations, Room 212
O'Neill House Ofc. Bldg., Washington, D.C. 20515

Stanley Czerwinski
Associate Director, Housing. & Telecommunications Issues
US GAO, 441 G St. NW, Room 2T23, Washington, DC 20548

Steve Redburn
Chief, Housing Branch, OMB
725 17th Street, NW, Room 9226, New Exec. Ofc. Bldg., Washington, D.C. 20503

The Honorable Fred Thompson
Chairman, Committee on Govt Affairs,
340 Dirksen Senate Office Bldg.
U.S. Senate, Washington, D.C. 20510

The Honorable Joseph Lieberman
Ranking Member, Committee on Govt Affairs,
706 Hart Senate Office Bldg.
U.S. Senate, Washington, D.C. 20510
                                                        13


The Honorable Dan Burton
Chairman, Committee on Govt Reform,
2185 Rayburn Building
House of Representatives, Washington, D.C. 20515-6143

Henry A. Waxman
Ranking Member, Committee on Govt Reform,
2204 Rayburn Bldg.
House of Rep., Washington, D.C. 20515-4305

Andrew R. Cochran
Sr. Counsel, Committee on Financial Services
2129 Rayburn, HOB
House of Rep., Washington, D.C. 20510