oversight

Housing Authority of the City of Pittsburgh, Comprehensive Audit of Various Activities, Pittsburgh, Pennsylvania

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-05-03.

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

          AUDIT REPORT




    HOUSING AUTHORITY OF THE CITY OF
              PITTSBURGH
COMPREHENSIVE AUDIT OF VARIOUS ACTIVITIES
       PITTSBURGH, PENNSYLVANIA

                 2001-PH-1005

                 MAY 3, 2001




         OFFICE OF AUDIT, MID-ATLANTIC
         PHILADELPHIA, PENNSYLVANIA


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                                                                    Issue Date
                                                                            May 3, 2001
                                                                    Audit Case Number
                                                                            2001-PH-1005




TO:            James D. Cassidy, Acting Director, Office of Public Housing, Pittsburgh Area
               Office, 3EPH



FROM:          Daniel G. Temme, District Inspector General for Audit, Mid-Atlantic, 3AGA

SUBJECT:       Housing Authority of the City of Pittsburgh
               Comprehensive Audit of Various Activities
               Pittsburgh, Pennsylvania

We completed an audit of selected aspects of the operations of the Housing Authority of the City
of Pittsburgh (Authority).

We found the Authority is not complying with key provisions of its Consolidated Annual
Contributions Contract with HUD. Specifically, the Authority is not properly procuring goods
and services according to Federal procurement requirements, nor is the Authority adequately
accounting for HUD funds it draws down and disburses according to the applicable program
requirements. This report contains three findings and applicable recommendations to improve
the effectiveness of the Authority’s operations.

Within 60 days, please give us, for each recommendation 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 contact Allen Leftwich, Assistant District
Inspector General for Audit, at (215) 656-3401, extension 3485.




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Management Memorandum




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Executive Summary
We completed an audit of various aspects of the operations of the Housing Authority of the City
of Pittsburgh (Authority). The purpose of the audit was to determine if the Authority properly
procured goods and services with HUD funds and made disbursements using HUD funds
according to the applicable program requirements. The audit generally covered the period
January 1, 1998 through December 31, 1999, but was expanded when necessary to include other
periods.

The Authority is not complying with key provisions of its Consolidated Annual Contributions
Contract (ACC) with HUD. Specifically, we found the Authority is not properly procuring goods
and services according to Federal procurement requirements, nor is the Authority adequately
accounting for HUD funds it draws down and disburses according to the applicable program
requirements. These conditions occurred because the Authority’s management does not ensure
staff perform and comply with all applicable provisions of its ACC and applicable statutes and
regulations issued by HUD. As a result of these deficiencies, we identified $8.1 million of
questioned costs ($1,382,874 of ineligible and $6,758,294 unsupported) in our review.
Immediate improvements are needed in the areas of procurement, drawing funds from Line of
Credit Control System (LOCCS), and controls over cash disbursements. These areas are
summarized below and detailed in the Finding section of this report.


                                    We found the Authority is not properly procuring goods
 Procurement
                                    and services according to Federal procurement
 Requirements Were Not
                                    requirements nor its own procurement policy.             We
 Followed
                                    identified procurement deficiencies in all 15 procurement
                                    contracts, valued at $8.4 million, that we reviewed.
                                    Specifically, contract files did not detail the history of
                                    procurements as required; contracts were awarded without
                                    independent cost estimates; and without evidence of
                                    competition; and a number of contracts had change order
                                    modifications with significant cost increases and additional
                                    work items not within the original contract. These
                                    deficiencies occurred because the Authority’s management
                                    does not ensure staff perform and comply with all
                                    applicable provisions of its ACC and applicable statutes
                                    and regulations issued by HUD. Further, we found the
                                    Authority’s procurement policies in place during our review
                                    did not have any procedures regarding the use of change
                                    orders or the award of single source procurements. As a
                                    result, the Authority spent $4.5 million on contracts that,
                                    based on the documentation provided, could not be
                                    supported as eligible (Appendix
                                                            Appendix B). B Also, there are no
                                    assurances that the best available products and services
                                    were obtained at the most advantageous prices for the
                                    contracts we did not select for review.
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Executive Summary



                            The Authority could not adequately support LOCCS draws
 The Authority Could Not    made under its Comprehensive Grant Program (CGP) as
 Support LOCCS Draws        required. We judgmentally selected six LOCCS draws
                            (where vendors or contractors were not identified on the
                            Authority’s LOCCS draws) totaling $13,307,783 and
                            requested the Authority provide us with documentation that
                            fully supported each draw. We generally found the
                            Authority’s book and records were unauditable. The
                            Authority’s financial management system and its personnel
                            were not able to provide adequate documentation that fully
                            supported each draw in a timely manner to permit a
                            complete review of the records. For records that were
                            provided, the Authority could not provide adequate
                            supporting documentation for $3,257,714.

                            The Authority’s Finance Department did not have controls
 The Authority Does Not
                            in place that were effective in controlling cash
 Have Adequate Controls
                            disbursements. We found a number of disbursements were
 Over Cash Disbursements
                            not processed consistent with normal business practice.
                            Specifically, the Authority:

                            •   Could not account for all checks;
                            •   Did not properly record disbursements in its books of
                                account;
                            •   Wrote a significant number of manual checks; and
                            •   Could not provide adequate documentation to support
                                disbursements.

                            These deficiencies occurred because the Authority did not
                            develop and implement a comprehensive policies and
                            procedures manual for the Finance Department as was
                            repeatedly recommended by the Authority’s Independent
                            Public Accountant (IPA). As a result of the internal control
                            weaknesses, the Authority is placing HUD funds at an
                            unnecessary risk, as there is no assurance funds have been
                            used as intended, including $381,807 of unsupported
                            expenditures we found and detailed in Finding 3 of this
                            report.

                            During the course of the audit, the Authority took a number
                            of actions designed to improve its operations. For example,
                            the Authority adopted new procurement policies and has
                            initiated procedures to improve its financial administration.


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                                                                 Executive Summary


                         However, as detailed in the Finding section of this report,
                         those actions will only be effective if they are followed.


 Recommendations         We recommended the Authority repay, from non-Federal
                         funds, the ineligible and unsupported costs cited unless the
                         Authority provides documentation that can resolve some of
                         the deficiencies. We also made recommendations designed
                         to improve Authority operations. These include developing
                         and implementing: (1) a contracting administration system
                         to ensure the Authority can detail the significant history of
                         its procurements, and its procurement rationale as required
                         by Federal purchasing regulations; (2) controls to ensure it
                         maintains source documentation for funds drawn through
                         LOCCS; and (3) a comprehensive procedures manual for
                         the Finance Department.

                         On March 20, 2001, we provided the Authority with a copy
                         of the draft report and requested the Authority provide us
                         with written comments by April 4, 2001. However, based
                         on a request by the Authority’s legal representative, we
                         extended the date to April 18, 2001. We also discussed the
                         draft findings with Authority personnel throughout the
                         audit and at an exit conference at the Authority on April 25,
                         2001.

                                                       Appendix D),
                         In its written response (Appendix         D the Authority
 Auditee Comments
                         generally acknowledged the procurement and financial
                         administration deficiencies that are cited in the report.
                         However, the Authority stated the report presentation was
                         unfair as it contained some factual errors and did not
                         recognize significant improvements that the Authority has
                         recently implemented or is in the process of implementing.
                         Additionally, the Authority commented that many of the
                         deficiencies cited in the report have been or are being
                         addressed by initiatives already put in motion by the
                         Authority and; therefore, the report recommendations are
                         unwarranted including the recommendation to repay $8
                         million from non-Federal funds. The Authority also stated
                         it was not satisfied with the tone of the report nor the four-
                         week time period it was given to provide the OIG with
                         written comments.

                         We are troubled the Authority has directed so much time
 Evaluation of Auditee   and resources in trying to discredit or deflect the
 Comments
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Executive Summary


                          substantive issues addressed in the report. For example,
                          rather than directly responding to the key issues addressed
                          in the report, the Authority elected to hire a prominent legal
                          firm outside the Pittsburgh area to respond to the draft audit
                          report. Further, at the exit conference, contrary to the tone
                          of its written response (Appendix Appendix D), D    Authority
                          representatives stated there was general agreement with the
                          OIG report and the deficiencies cited. However, the
                          Authority’s legal representatives expressed concern over
                          how the report would be perceived by the media and public.
                          In regard to the length of time committed to the audit,
                          which was often highlighted in the Authority’s written
                          response, it should be noted the length of the audit was
                          clearly a function of the Authority not being able to provide
                          records to permit a timely and effective audit as required by
                          the ACC.

                          We do not agree with the Authority’s assertion that the
                          recommendations in the report are unwarranted. As
                          evidenced by the findings in this report, the Authority has
                          significant procedural deficiencies that need to be fully
                          addressed and resolved. Although we acknowledge that the
                          Authority has made some progress in developing and
                          implementing new procedures to correct the identified
                          deficiencies, we have no assurance that they will follow
                          through on completing this process. HUD program staff
                          will need to monitor the Authority’s progress to ensure the
                          new procedures are fully implemented. Also, regarding the
                          $8 million of ineligible and unsupported costs we cite in the
                          report, the Authority has not yet provided us with adequate
                          documentation to resolve the issues.




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           Table of Contents
           Management Memorandum                                       i
MGMT MEMO

       Executive Summary
 EXE SUM                                                               iii


  INTRO Introduction                                                   1


        Findings
           1 The Authority Did Not Follow Its Own Procurement
  FIND 1     Policy Or Federal Purchasing Requirements                 5

             2 The Authority Did Not Properly Support LOCCS
  FIND 2
               Draws Under Its Comprehensive Grant Program            19


  FIND 3     3 The Authority Needs To Improve Its Controls Over
               Cash Disbursements                                     31



MGMT CON
       Management Controls                                            39



 FOL-UPFollow Up On Prior Audits                                      41

           Appendices
  APP A A Schedule of Questioned Costs                                43
        B Summary of Ineligible and Unsupported Costs For
  APP B
          Finding 1                                                   45
  APP C C Summary of Procurement Contracts Reviewed                   47
  APP D D Auditee Comments                                            63
  APP E E Distribution                                                93




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Table of Contents



Abbreviations

       ACC          Annual Contributions Contract
       CFR          Code of Federal Regulations
       CFO          Chief Financial Officer
       CGP          Comprehensive Grant Program
       HACP         Housing Authority of the City of Pittsburgh
       HOPE VI      Revitalization of Severely Distressed Public Housing
       HUD          U.S. Department of Housing and Urban Development
       LOCCS        Line of Credit Control System
       OIG          Office of Inspector General
       PHDEP        Public Housing Drug Elimination Program
       PHMAP        Public Housing Management Assessment Program
       PIH          Public and Indian Housing
       RFP          Request for Proposal




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Introduction
The Pittsburgh City Council created the Housing Authority of the City of Pittsburgh on August
26, 1937 to provide a better quality of living in low-rent housing for its residents. The Authority
is governed by a six member Board of Directors who are appointed by the Mayor. The present
Board Chairman is Dr. Morton Coleman. During the audit the Authority’s Executive Director
was Stanley A. Lowe. The Authority’s Administrative Offices are located at 200 Ross Street,
Pittsburgh, PA 15219.

The Authority administers public housing pursuant to its ACC with HUD. Financial assistance
from HUD to the Authority for 1997 through 1999 include:

                                                                              Total
   Program             1997               1998               1999           1997-1999
Operating         $28,310,874        $30,003,601        $24,135,078       $ 82,449,553
Subsidy
HOPE VI                              $ 3,432,000                          $ 3,432,000
PHDEP             $ 2,346,760        $ 1,958,320        $ 1,780,198       $ 6,085,278
CGP               $21,825,922        $22,893,497        $25,778,198       $ 70,497,617
TOP                                  $ 140,000                            $    140,000
Section 8         $12,152,907        $10,754,417        $ 7,002,854       $ 29,910,178
Certificates
Section 8         $ 4,408,015        $ 3,452,507        $12,527,828       $ 20,388,350
Vouchers
Section 8         $ 1,905,960        $     912,535      $   621,544       $   3,440,039
Mod-Rehab
Totals            $70,950,438        $73,546,877        $71,845,700       $216,343,015

The following information was provided by the Authority for its low-rent housing program on
the Statement of Operating Receipts and Expenditures (HUD-52599).

         Operating                            Total HUD
Fiscal   Receipts          Total              Contributions   Unexpended       Operating
Year     Exclusive Of      Operating          (Net Prior Year Balance/         Reserve
         HUD               Expenditures       Adjustments)    (Deficit)
         Contributions
1997     $19,116,200       $42,753,905        $28,310,874     $ 4,673,168      $13,160,032
1998     $14,488,410       $46,047,547        $29,915,491     $(1,643,646)     $11,516,386
1999     $13,513,979       $41,211,747        $24,135,078     $(3,562,689)     $ 7,953,697

As illustrated above, the Authority’s Operating Reserve has decreased significantly over the last
two years.

A recently completed audit of the Authority’s Drug Elimination Program (Report No: 00-PH-
201-1001) disclosed the Authority was having problems following the LOCCS automated

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Introduction


disbursements requirements. In particular, the Authority was not paying for costs as incurred. In
some cases the Authority was drawing funds prior to incurring the cost and in other cases they
were drawing funds months after costs had been incurred and paid for with funds from other
programs. Because the same internal controls implemented by the Authority for the Drug
Elimination Program funding also apply to funds received from HUD for other programs, this
audit was developed to address disbursements made for costs incurred in those other HUD
programs.


                                     Our primary audit objective was to determine whether the
 Audit Objectives                    Authority properly procured goods and services with HUD
                                     provided funds and drew down and disbursed HUD funds
                                     according to applicable program requirements. Another
                                     objective was to obtain information on overall Authority
                                     operations to determine how well the Authority was
                                     accomplishing the core objective of providing decent, safe
                                     and sanitary housing to its residents. This objective was to
                                     be accomplished by reviewing the Authority’s Public
                                     Housing Management Assessment Program (PHMAP)
                                     score.

                                     The objectives were revised during the audit as a result of
                                     several factors. Shifting priorities based on the results of
                                     work done in some areas (Procurement and LOCCS draws)
                                     caused us to not complete work in other areas (PHMAP).
                                     Also, reassessing staff priorities and assignments, and the
                                     time it took for the Authority to provide requested
                                     documentation caused other more minor shifts in audit
                                     objectives. This is pointed out in the Findings section of
                                     the report where applicable.

                                     To accomplish completed objectives, we reviewed books
                                     and records considered necessary under the circumstances;
                                     reviewed applicable regulations, policies, and other
                                     directives; interviewed staff from both HUD and the
                                     Authority; reviewed construction work completed; and
                                     reviewed the audit reports prepared by the Authority’s
                                     Independent Auditors. We reviewed, using judgmental
                                     samples, a total of 15 contracts totaling $8,447,503 and
                                     disbursements from various programs.

                                     The audit generally covered the period January 1, 1998
                                     through December 31, 1999, but was expanded when
                                     necessary to include other periods. The audit work was
                                     conducted between December 1999 and December 2000.

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                                              Introduction


      We conducted the audit in accordance with generally
      accepted government auditing standards.




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                                                                                       Finding 1


       The Authority Did Not Follow Its Own
     Procurement Policy Or Federal Purchasing
                   Requirements
The Authority’s procurement practices did not comply with Federal purchasing requirements nor
its own procurement policy. We identified procurement deficiencies in all 15 procurement
contracts, valued at $8.4 million, that we reviewed. Specifically, contract files did not detail the
history of procurements as required; contracts were awarded without independent cost estimates;
and without evidence of competition; and a number of contracts had change order modifications
with significant cost increases and additional work items not within the original contract. These
deficiencies occurred because the Authority’s management does not ensure staff perform and
comply with all applicable provisions of its ACC and applicable statutes and regulations issued
by HUD. Further, we found the Authority’s procurement policies in place during our review did
not have any procedures regarding the use of change orders or the award of single source
procurements. As a result, the Authority spent $4.5 million on contracts that, based on the
documentation provided, could not be supported as eligible (Appendix
                                                                 AppendixB).
                                                                           B Also, there are no
assurances that the Authority obtained the best available products and services at the most
advantageous prices for the contracts we did not select in our review.


                                      Federal procurement regulations must meet purchasing and
 Criteria
                                      contracting standards contained in 24 CFR 85.36. To aid in
                                      the procurement process the Authority adopted its own
                                      procurement policies.

                                      Federal procurement regulations require the Authority to:

                                      •     Have and use its own procurement policies which
                                            reflect applicable State and local laws and regulations,
                                            provided the standards also conform to applicable
                                            Federal laws and standards [24 CFR 85.36(b)(1)];

                                      •     Maintain records sufficient to detail the significant
                                            history of procurement. These records must include the
                                            rationale for the method of procurement, selection of
                                            contract type, contractor selection or rejection, and the
                                            basis for the contract price [24 CFR 85.36(b)(9)];

                                      •     Conduct all procurement transactions in a manner
                                            providing full and open competition [24 CFR
                                            85.36(c)(1)]; and


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Finding 1


                 •   Perform a cost or price analysis in connection with
                     every procurement action including contract
                     modifications. The method and degree of analysis is
                     dependent on the facts surrounding the particular
                     procurement situation, but as a starting point, grantees
                     must make independent cost estimates before receiving
                     bids or proposals [24 CFR 85.36(f)(1)].

                 The Authority’s procurement policies in effect during our
 Background
                 audit period covered the purchase of materials/supplies and
                 professional services.     The procedures detailed the
                 requirements that were to be followed. As expected, as the
                 value of the procurement increased, the procurement
                 requirements became more stringent. The Authority’s
                 procurement policy requires the Authority to:

                 •   Determine requirements of the procurement,
                 •   Identify the funding source and whether item is in the
                     budget,
                 •   Prepare specifications,
                 •   Solicit for quote, bid, or Request For Proposal (RFP),
                 •   Secure an independent cost estimate,
                 •   Ensure an estimated cost is within budget,
                 •   Compare quote, bid or RFP to cost estimate, and if
                     acceptable,
                 •   Issue Notice to Proceed and/or create purchase order
                     and purchase item.

                 We judgmentally selected a sample of 20 contracts for
                 review to determine if the Authority procured goods and
                 services according to procurement requirements. Using
                 computer assisted audit tools and techniques we obtained
                 and analyzed the Authority’s automated contract register to
                 facilitate our selection process. Specifically, we selected a
                 representative sample of small and large awards for both
                 material and supplies and professional services. We also
                 selected several contracts that appeared to have excessive
                 change orders. We subsequently excluded five of these
                 contracts as they were funded through the HOPE VI
                 Program, which was excluded from this review.

                 For the remaining 15 contracts we compared the
                 documentation provided with each procurement selected for
                 review with the applicable procurement policy.


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                                                                          Finding 1



          Authority
Sample   Management                         Contract        Change         Total
Number    Number      Work Performed        Amount          Orders        Amount
                      Concrete
  1         3874      replacement          $291,200       $1,251,007     $1,542,207
  2         3406      Financial               44,800         161,300        206,100
                      statement
  3         4092      Site improvements     328,592                 0       328,592
  4         4090      Gas line relocation     70,870                0        70,870
                      Landscaping/
  5         4160      construction          632,150             3,070       635,220
                      Replacement of
  6         4153      furnaces              829,000          133,908        962,908
  7         4342      Site improvements 1,589,000            (69,457)     1,519,543
                      Hydronic boiler
   8        4113      replacement           494,000           13,580        507,580
   9        2541      Legal services           9,999         432,375        442,374
  10        2516      Resident training        9,999          20,001         30,000
                      Emergency site
  11        3485      work                     9,975          23,984         33,959
  12        2551      Legal services          40,000         723,454        763,454
  13        3928      Concrete repair         24,825               0         24,825
                      Concrete
  14        3875      replacement            178,190         189,050        367,240
                      Site hazard
  15        3506      reduction              553,000         459,631      1,012,631
                      Total               $5,105,600      $3,341,903     $8,447,503


                          We found the Authority’s contract administration did not
                          provide assurance that Federal purchasing requirements nor
                          its own procurement policies were followed (Appendix
                                                                       AppendixC).C
                          Specifically, the Authority did not provide us
                          documentation indicating it detailed the history of its
                          procurements, which is a fundamental requirement of all
                          procurement systems. Additionally the Authority:

                              •      Awarded contracts without evidencing it performed
                                     independent cost estimates;
                              •      Awarded contracts without evidence of competition;
                              •      Improperly executed contract modifications; and
                              •      Did not follow other applicable procurement
                                     procedures.

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Finding 1



                                 These deficiencies are detailed below.

                                 The Authority did not perform the required cost or price
 Required Cost Estimates         analysis for 10 of 15 contracts selected for review. Title 24
 Were Not Performed              CFR 85.36(f)(1) requires the Authority to perform a cost or
                                 price analysis in connection with every procurement action,
                                 including contract modifications. Without the required cost
                                 estimates, the Authority has no assurance it obtained the
                                 best available services at the most advantageous prices for
                                 its procurements. Initially, all 15 procurements selected for
                                 review did not have cost or price analysis documented in
                                 the procurement files.         After repeated requests the
                                 Authority was eventually able to provide cost analysis for
                                 five of the selected procurements. It should be noted these
                                 cost estimates, which are required to be maintained in
                                 Authority files, were not provided until six months after our
                                 initial request. Authority officials indicated they provided
                                 us with all available procurement documentation and could
                                 not explain why cost estimates were not included, as many
                                 of the responsible employees no longer worked at the
                                 Authority.

                                 We found there was no evidence of competition for 5 of 15
 Procurements Without            procurement actions valued at $1,294,612. As discussed
 Evidence Of Competition         above, and detailed in Appendix C, none of these five
                                 procurement actions had cost estimates prepared prior to
                                 the procurement of the goods and services. Specifically,
                                 we found the Authority did not receive the required number
                                 of quotes (Management #’s 2516, 2541, 2551, and 3485)
                                 and did not solicit bids as required (Management #3928).
                                 Several examples of these procurements follow and are
                                 detailed in Appendix C.




                                 Authority Management #’s 2516, 2541, and 2551 – Legal
                                 Services

                                 Until 1998 the Authority routinely awarded legal service
                                 contracts primarily to one law firm, by establishing a
                                 contract for $9,999, just below the Authority’s $10,000
                                 procurement threshold, without regard to the anticipated
                                 costs for the services. The Authority did not prepare

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                                                      Finding 1


      independent cost estimates and added costs to the awards
      through non-competitive modifications. For example,
      among the contracts listed above were two legal services
      contracts (#’s 2541 and 2516) awarded at $9,999 each. The
      contracts were selected for review because they were
      initially executed for an amount under $10,000 and/or they
      had large change orders. We also determined the Authority
      followed this same non-competitive practice for a $40,000
      award (#2551) selected for review. The three contracts
      selected, all awarded to the same law firm follow:

       Management        Original                       Revised
        Number             Price         Changes          Price
          2541           $ 9,999        $432,375       $442,374
          2516           $ 9,999        $ 20,001       $ 30,000
          2551           $40,000        $723,454       $763,454

      The Authority did not develop an independent cost estimate
      for these services. The Authority’s interim legal counsel,
      who is employed by the law firm that received the awards
      above, agreed legal services were not procured properly in
      the past. The Authority’s interim legal counsel stated the
      Authority was erroneously instructed that no purchasing
      requirement applied for awards under $10,000 and
      professional services over $10,000 only required three phone
      quotations. The interim legal counsel stated that the
      Authority took prompt action on this matter when it was
      brought to their attention during the delivery of 1996
      financial statement audit in the first quarter of 1998.
      Specifically, he indicated the Authority procured its contract
      for legal services competitively.       Although, Authority
      representatives agreed it was procuring legal services
      improperly in 1998, and it took prompt action, the Authority
      did not enter into its competitive legal services award until
      the first quarter of 1999. Ironically, the law firm that
      received the improper awards was awarded an $8,500 award
      in January 1997 specifically for work relating to the
      Authority’s procurement policies.

      Due to the significant procurement issues we identified
      above for this legal firm, we analyzed the Authority’s
      contract register from 1997 through 1999 for this firm to
      more accurately determine the magnitude of the problem.
      As the table and graph below illustrate, we found the
      Authority made 81 awards valued at more than $3.7 million

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Finding 1


                                            to the firm with $2.4 million being the result of change
                                            orders made to the initial contracts.


                                      Award              No.    of   Cumulative    Change         Revised
                                      Amount             Awards      Amount as     Orders         Award
                                                                     Awarded                      Amounts
                                      $0 - $10,000          66       $ 612,776     $ 801,708      $1,414,484
                                      $ 10,000 -            12         440,000      1,469,277      1,909,277
                                      $50,000
                                      Over                   3         240,000         160,000      400,000
                                      $50,000
                                      Total                 81       $1,292,776    $2,430,985     $3,723,761




                $4,000,000

                $3,000,000

                $2,000,000                                                                  Revised Amount
                $1,000,000                                                             Change Orders
                                                                                   Award Amount
                       $0
                             $0 - $10,000    $10,000 -     Over       Total
                                              $50,000     $50,000




                                            As we illustrate below, 10 of the 15 contracts that were
 Contract Modifications                     originally awarded at $2,460,163 had $3,408,290 in change
 Were Improperly                            orders that increased the value of the contracts to
 Executed                                   $5,868,453 (138 percent).




   Authority                                               Contract           Change        Total
   Management     Work Performed                           Amount             Orders        Amount
   Number
      3874        Concrete replacement                       $ 291,200 $1,251,007           $1,542,207
      3406        Financial statement                           44,800    161,300              206,100
      4153        Replacement of furnaces                      829,000    133,908              962,908
      4113        Hydronic boiler replacement                  494,000     13,580              507,580
      2541        Legal services                                 9,999    432,375              442,374


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2516   Resident training                   9,999     20,001            30,000
3485   Emergency site work                 9,975     23,984            33,959
2551   Legal services                     40,000    723,454           763,454
3875   Concrete replacement              178,190    189,050           367,240
3506   Site hazard reduction             553,000    459,631         1,012,631
                   Total              $2,460,163 $3,408,290        $5,868,453

                       The Authority’s procurement policies did not provide any
                       procedures regarding the use of change orders. Contrary to
                       HUD guidelines we noted change orders were issued to
                       increase the number of items purchased or for work clearly
                       not within the original contract scope.

                       HUD Handbook 7460.8 Paragraph 6-10 C. provides
                       specific guidance on the use of change orders. The
                       changes’ clause prescribes the specific circumstances in
                       which a change order may be issued. Changes such as
                       increasing the number of items being purchased or other
                       types of new work are not considered within the scope of
                       the contract or within the authority of the changes’ clause.

                       Appendix C provides a summary of the Authority’s
                       procurement actions for the awards noted above. The
                       following are more egregious examples of the Authority’s
                       improper use of change orders.

                       Authority Management #3874 - Concrete Replacement

                        The contract as awarded was valued at $291,200 for
                       concrete replacement. The Authority subsequently awarded
                       72 change orders valued at $1,251,007. We asked
                       Authority officials to explain how these change orders
                       could be eligible. The Authority initially provided a legal
                       opinion, dated January 2000 after the award and all change
                       orders were completed, that opined because it entered into a
                       fixed price contract with the lowest responsible bidder, and
                       the contract specified unit prices; the Authority could award
                       additional work based on the unit pricing submitted with
                       the bid proposal. More recently in response to media
                       inquiries and City Council hearings, the Authority’s former
                       Executive Director has acknowledged procurement
                       regulations were not followed, indicating it was a mistake
                       to award so many change orders. However, the former
                       Executive Director said the Authority still received value
                       for the work that was done.

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                         We disagree with the Authority’s original position that the
                         change orders were allowable and also with the former
                         Executive Director’s recent statement that the Authority
                         received value for the work that was completed.
                         Specifically, as noted above, HUD guidelines preclude the
                         use of change orders for quantity increases and for work
                         items not within the scope of the contract. Further, a
                         detailed analysis of all 72 change orders determined
                         $305,785 of the $1,251,007 in change order work was for
                         items not included in the unit pricing schedules and,
                         therefore, not covered in the Authority’s legal opinion.
                         Additionally, since the legal determination was not made
                         until after the completion of the work, it is unclear how the
                         Authority would have justified its position without the
                         opinion.

                         We also determined that the Authority significantly
                         overpaid for the remaining change order work valued at
                         $945,222. Although the change order work was for items
                         within unit pricing provided by the contractor, the
                         contractor’s unit prices were significantly higher than unit
                         pricing provided by competing bidders. Specifically, our
                         analysis showed the four responsive contractors would have
                         performed the work items for as much as $426,083 less
                         than the selected contractor as illustrated below:




                                            COMPETING CONTRACTORS
                  Description   Contractor 1     Contractor 2   Contractor 3   Contractor 4
                Change           $885,311         $574,237       $519,139       $788,965
                orders
                supported by
                unit pricing
                Amount           $ 59,911         $370,985       $426,083        $156,257
                Authority
                Could Have
                Saved 1/

                          1/ Amount Authority Paid ($945,222) less Competing Contractor Price




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      Authority Management #3506 - Site Hazard Reductions

      The contract as awarded was valued at $553,000 for site
      hazard reductions. The Authority subsequently awarded
      change orders totaling another $459,631 to increase the total
      value of the contract to $1,012,631 (83 percent increase).
      Based on the Authority’s own cost estimates for the site
      work, the contractor was significantly overpaid for grading
      and seeding change orders. Specifically, work items in the
      original contract indicated the contractor was paid to grade
      and seed a 40,000 square foot area. Additionally, the
      contractor was awarded change orders to grade and seed
      another 54,000 square feet at a cost of $3.00 per square foot.
      As illustrated below, the Authority’s own cost estimates
      valued the work at no more than $1.85 per square foot,
      indicating the Authority overpaid $62,100 for these work
      items.


                     Description               Change Order
          Per Physical Estimates               $3.00/ sq. ft.
          Per Authority Cost Estimate          $1.85/sq. ft.
          Difference                           $1.15 /sq. ft.
          Seeding Area                         54,000 sq. ft.
          Total Overpaid                       $62,100

      We asked Authority personnel to provide us with the
      contractor’s unit pricing for the contract award. The
      Authority’s Modernization and Development Supervisor
      indicated the contractor was not required to provide unit
      pricing data for the contract. However, according to the
      Authority’s policies the schedule was required. Further, the
      Authority’s own cost estimates, which were eventually
      provided, indicate the work was significantly overpriced and
      that the Authority did not consider its own estimates.

      Authority Management #3406 - Financial Statement Audit

      On July 13, 1998, the Authority entered into a professional
      services contract with an independent accounting firm. The
      scope of services in the contract as well as the scope of
      services in the RFP that was initially prepared to solicit for
      the work was specifically for the audit of the financial
      statements. The RFP was for a financial statement audit for
      the fiscal year ending December 31, 1997 with an option to

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                     audit the financial statements for the year ending December
                     31, 1998. The contract to audit the 1997 financial
                     statements was awarded for $44,800.

                     Without competition, the Authority awarded the
                     independent accountant an additional $131,867 of work
                     items under the financial statement contract that was not
                     part of preparing the financial statements. The scope of the
                     additional work consisted of financial consulting work
                     related to its HUD programs. The Authority also did not
                     perform any independent cost estimates relating to the
                     additional work items and paid the independent accountant
                     based on unit pricing provided with the RFP for the
                     financial audit award.

                     The Authority did not document any of its decisions
                     regarding the contract modifications. When asked for an
                     explanation, Authority officials and representatives provided
                     a variety of reasons why the award was made. According to
                     the Authority’s interim legal counsel, management made the
                     decision that the accounting firm was the “ideal party to
                     assist the Authority since the contractor would be most
                     familiar with their system because they were involved with
                     auditing the financial records”. The Authority also stated
                     that the process of expanding the scope of work and
                     performance of the additional work by the contractor would
                     be efficient and less expensive. According to the current
                     Chief Financial Officer (CFO), who was not employed at the
                     Authority when the addendums were executed, the Authority
                     believed that the work was eligible because due to staff
                     turnover, particularly in the Finance Department, it was
                     considered an emergency and, therefore, eligible.

                     We believe the above awards illustrate the problems in the
                     Authority’s    contract    administration.         Executive
                     management approved the additional work without any
                     determination of what the work would cost and whether
                     procurement regulations were followed. Its procurement
                     decisions and rationale were not evident prior to the award.

                     In addition, although it was not part of the judgmental
                     sample of 15 procurement actions selected for review, we
                     analyzed the Authority’s contract register and noted 86
                     awards for $5.1 million had increased $8.9 million to a total
                     of $14 million.

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                           The Authority generally did not follow its own procurement
Other Procurement Issues   procedures for many of the other required elements of
                           procurement. The Authority’s procurement policies clearly
                           identify the procedures that are to be followed when
                           making its purchasing decisions based on the type of
                           contract and the anticipated costs. However, as we pointed
                           out throughout this finding, the Authority generally did not
                           evaluate the anticipated cost and, therefore, could not
                           determine the appropriate procurement procedure to follow.
                           Also, the Authority disregarded its own policies and
                           procedures in the areas of: required number of quotations;
                           timely notice to proceed; issuing a notice of intent to award
                           to all bidders; provide evidence of solicitation and approval
                           of minority and women business enterprises; evidence of
                           Board of Director’s review and approval; and evidencing
                           identification of the funding source.           The specific
                           procurement deficiencies are listed in Appendix C for each
                           contract we selected and reviewed. As the results in
                           Appendix C clearly show, many of the procurement steps
                           required by the procurement policy were simply not
                           completed by the Authority, and as such, the Authority
                           cannot provide assurance that it obtained the best available
                           services at the most advantageous prices.

                           At the time of our review, the Authority’s written
                           procurement policies generally complied with Federal
                           purchasing requirements.

                           The Authority’s Director of Grant and Contract
                           Compliance believes the Authority’s recently adopted
                           procurement procedures will correct many of the issues
                           cited in this finding. We agree the Authority’s revised
                           procedures are a move in the right direction. However, it
                           should be noted the revised procurement procedures will
                           only be effective to the extent they are followed. The
                           procurement deficiencies described throughout this finding
                           were primarily due to the Authority’s failure to follow its
                           policies, and not because these policies weren’t adequate.

                                             *    *   *    *   *   *

                           In summary, the Authority’s procurement practices did not
                           comply with Federal purchasing requirements nor its own
                           procurement policy. Specifically, contract files did not

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                           detail the history of procurements as required. We also
                           found contracts were awarded without independent cost
                           estimates, and without evidence of competition. Because
                           Authority officials did not ensure staff performed and
                           complied with all applicable provisions of its ACC and
                           applicable statutes and regulations issued by HUD, the
                           Authority spent $4.5 million on contracts that, based on the
                           documentation provided, could not be supported as eligible.
                           Also, there is no assurance the Authority obtained the best
                           available products and services at the most advantageous
                           prices for the contracts we did not select for review.

                           The Authority acknowledged it had fundamental deficiencies
 Auditee Comments
                           in its procurement of goods and services. Specifically, the
                           Authority agreed that it either did not perform or misplaced
                           independent cost estimates and it procured legal services
                           improperly. Although, the Authority acknowledged there
                           were some deficiencies in certain contracting activity, they
                           disagreed with many of the cited deficiencies and stated the
                           problems were not as severe as depicted in the draft report.
                           For example, the Authority stated the OIG incorrectly
                           considered a purchase for summer youth programs as a
                           procurement instead of a sub grant to a non-profit as
                           intended. Additionally, the Authority stated that it was
                           evaluated on certain procurement policies that were not in
                           effect at the time of our review and that certain contract
                           modifications cited in the report were allowable since they
                           were based on unit pricing established in competitive
                           negotiations.     The Authority also provided additional
                           documentation to address some procurement deficiencies
                           noted in Appendix C. Finally, the Authority stated the report
                           did not fairly recognize corrective actions the Authority has
                           implemented to include the adoption of new procurement
                           policies.


                           We do not agree the Authority’s procurement deficiencies
 OIG Evaluation of         were unfairly depicted in the report. Specifically, the
 Auditee Comments          Authority did not: (1) perform independent cost estimates;
                           (2) properly award change orders; and (3) document the
                           history of its procurements.       These are fundamental
                           purchasing requirements established in Federal procurement
                           regulations, which the Authority agrees to comply with
                           according to the terms and conditions of its ACC with HUD.


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                  It should also be noted that the OIG’s basis for calculating
                  unsupported costs was the Authority’s failure to perform
                  independent cost estimates, which are not at issue. Further,
                  contract modifications outside the scope of an award or for
                  quantity increases are clearly ineligible pursuant to Federal
                  regulations.     Regarding the applicability of certain
                  procurement policies, we evaluated the Authority’s
                  procurements pursuant to policies provided by the Authority,
                  which they have indicated were effective for all contracts
                  reviewed during our audit.

                  It should also be noted, where appropriate, we have cited
                  areas of improvement to include the Authority’s competitive
                  procurement of legal services and its recently developed
                  procurement policies. We have also made revisions to the
                  draft report to account for additional documentation provided
                  with the Authority’s written response. Additionally, based
                  on the Authority’s written response and discussions with
                  HUD program officials and OIG Counsel, we have modified
                  the report and no longer consider the summer youth program
                  award as a procurement. As a result, it was removed from
                  the listing of contracts reviewed and the finding.




Recommendations   We recommend you:

                  1A.       Require the Authority to repay HUD, from non-
                            Federal funds, $1,382,874 and $3,118,773 of
                            ineligible and unsupported costs, respectively,
                            unless the Authority can provide additional
                            documentation to resolve the cited deficiencies.

                  1B.       Require the Authority to develop and implement a
                            contracting administration system to ensure the
                            Authority can detail the significant history of its
                            procurements and procurement rationale as required
                            by Federal purchasing regulations. At a minimum,
                            this system should provide for the creation of a file
                            checklist to be maintained in the procurement file
                            that identifies the procurement type, and the
                            required procurement procedures that need to be


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                           followed. The checklist should be completed and
                           identify the responsible party.

                     1C.   Ensure, through appropriate monitoring, the
                           Authority adheres to its established procurement
                           policy.




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  The Authority Did Not Properly Support
LOCCS Draws Under Its Comprehensive Grant
                 Program
The Authority could not support LOCCS draws made under its CGP as required. We
judgmentally selected six LOCCS draws totaling $13,307,783 and requested the Authority to
provide documentation to fully support each of the draws as was required by the regulations.
However, we generally found the Authority’s books and records were unauditable, as the
Authority’s financial management system and its personnel were not able to provide
documentation that fully supported each draw, and in a timely manner to permit full review of
the records. For records that were provided, the Authority could not provide adequate supporting
documentation for $3,257,714 as follows:

   •   Authority drew down $872,772 which included contractor retention that was not paid;
   •   Authority drew down $599,000, representing funds improperly allocated to the CGP; and
   •   Authority could not provide adequate source documentation for $1,882,942. (Amount
       includes $97,000 from the $599,000 that was also not supported with adequate source
       documentation.)

The Authority’s new CFO acknowledged the Authority did not maintain its books and records
satisfactorily in the past. However, the CFO suggested it was unfair to draw conclusions
regarding the adequacy of supporting documentation provided for specific LOCCS draws without
reviewing all of the Authority’s draw downs. The CFO stated that the LOCCS draws cited
created a special problem because the draws included many “transferred transactions” among
multiple CGP journal entries. Further, the CFO believed the documentation that was
subsequently compiled by her staff adequately supported the draws reviewed. As we detail in
the finding below, the CFO’s position that individual draws cannot be reviewed is incorrect as
the Authority is required to maintain accounting records and source documentation to support
any individual draw. Further, documentation subsequently compiled and provided by the
Authority did not adequately support the disbursements that were selected for review. Due to the
Authority’s lack of financial accountability over its LOCCS draws, there is no assurance $3.2
million of HUD funds were used appropriately and/or in accordance with HUD Regulations and
requirements.


                                    The ACC between the Authority and HUD part A Section
 Criteria                           15(A) states the Authority must maintain complete and
                                    accurate books of account to permit timely and effective
                                    audit.

                                    Federal regulations for grantee financial management
                                    systems require: accounting records that adequately identify

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                     the source and application of funds; effective internal
                     controls and accountability over funds; source
                     documentation that supports accounting records to include
                     cancelled checks, paid bills, payrolls, time and attendance
                     records, contract and award documents, etc. {24 CFR
                     85.20(b)}.

                     LOCCS is a computerized cash management and
 Background          disbursement system for public housing agencies developed
                     to assist HUD’s Office of Finance and Accounting in
                     planning, accounting, and evaluating HUD disbursements
                     within specific program areas including the CGP. There is
                     no minimum draw down requirement in LOCCS. An
                     authority shall draw down the amount of funds necessary to
                     meet its immediate cash needs -- no more, no less. LOCCS
                     is HUD’s primary vehicle for achieving cash management
                     savings through the use of electronic wire transfer of
                     payments to grant recipients of HUD program funds.

                     The original scope of our review was to determine if the
                     sampled draws were made for eligible expenditures and
                     paid timely. However, because we were unable to timely
                     obtain supporting documentation, the scope was changed to
                     determine if the documentation provided by the Authority
                     was sufficient to permit a review of the records. For
                     example, if the Authority provided payroll documentation,
                     did the documentation include pay period, employee name,
                     amounts for gross pay, taxes, insurance, etc. and other
                     information that would enable the amounts to be audited?
                     If the documentation was for invoices paid, was there a
                     sufficient amount of documentation to enable an individual
                     invoice to be identified so it could be potentially selected
                     for review? Amounts that were not supported by source
                     documentation as described were considered unauditable.

                     Since the LOCCS disbursement system is designed to
                     provide an Authority with program funds quickly to
                     facilitate its cash needs, journal entries should be minimal,
                     and the Authority should be able to specifically identify the
                     source and application of its program draws. This is
                     detailed in the section on costs incurred that were not
                     supported by adequate source documentation.




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                         On June 9, 2000 we provided the Authority a request for
                         documentation.     The following LOCCS draws were
                         judgmentally selected for review:

                                       CGP Year                          Unauditable
                                  Date / Draw No.           Amount        Amount
                          1   01/02/98 1994 / 101        $ 2,567,646
                          2   01/02/98 1995 / 69         $ 2,569,016
                          3   11/16/98 1996 / 74         $ 3,827,156       $2,007,505
                          4   03/03/99 1996 / 93         $ 2,091,849       $ 436,135
                          5   05/24/99 1997 / 38         $ 1,434,785
                          6   11/29/99 1998 / 34         $ 817,331         $ 814,074
                                            Totals       $13,307,783       $3,257,714

                         The Authority provided support for draw numbers 1, 2, 5,
                         and 6 in less than two months. The support for draws 1 and
                         2 amounted to only providing criteria that explained why
                         those amounts did not have to be supported by source
                         documentation. Specifically, the Omnibus Consolidated
                         Rescissions and Appropriations Act of 1996 permitted the
                         Authority to transfer up to 10 percent of its modernization
                         funds in any fiscal year for any authorized operating
                         subsidy purpose. Draws 1 and 2 above were draws for that
                         reason and, as a result, did not have to be supported further.
                         The Authority was also able to provide documentation to
                         support draw 5 that consisted of mostly payroll.

                         The Authority did not provide any documentation for draws
                         3 and 4 until October 17, 2000, months after it was initially
                         requested. Further, when the information was finally
                         provided, it was not adequate. Much of the documentation
                         provided by the Authority for draw 6 above was also not
                         acceptable as the Authority erroneously drew down funds
                         for contractor retention that was not paid to the contractors.
                         As explained in the sections that follow, source
                         documentation was either not provided or the entries did
                         not support draw amounts.

                         Contrary to Federal regulations, the Authority drew funds
The Authority Drew
                         for contractor retention even though the funds were not
Down Contractor
                         paid to the contractors. Because the Authority’s practice
Retention That Was Not
                         was to draw funds based on expenses posted to general
Paid
                         ledger accounts, without ensuring there was an actual cash
                         outlay associated with the expense, the Authority
                         erroneously drew funds from LOCCS that were not paid to

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                     the contractor. Authority personnel indicated that when
                     they became aware of the error, they offset the amounts
                     drawn in error with future expenditures. However, HUD
                     guidelines clearly state that funds drawn over the
                     immediate needs of the Authority should be promptly
                     returned. Further, the Authority was unable to provide
                     clear documentation evidencing how and when the offset
                     against future expenses occurred. As a result, $872,772 of
                     HUD funds were used for unknown reasons and maintained
                     by the Authority for an unknown period of time before they
                     were disbursed.

                     According to 24 CFR 85.21(g)(3): “A Federal agency shall
                     not make payment to grantees for amounts that are withheld
                     by grantees or subgrantees from payment to contractors to
                     assure satisfactory completion of work. Payments shall be
                     made by the Federal agency when the grantees or
                     subgrantees actually disburse the withheld funds to the
                     contractors or to escrow accounts established to assure
                     satisfactory completion of work.”

                     According to the LOCCS CGP request voucher, the
                     preparer certifies that the funds requested are not in excess
                     of immediate disbursement needs for the program and any
                     funds provided that become more than necessary will be
                     promptly returned.

                     HUD PIH Notice 96-90, Section 4, Paragraph 4-2.B.
                     Expenditures states the housing authority shall requisition
                     funds only when payment is due and after inspection and
                     acceptance of the work, and shall distribute the funds
                     within three working days of receipt of the funds.

                     The Authority provided documentation indicating funds
                     were drawn for retainage for two of the six LOCCS draws
                     we reviewed. When asked why funds were drawn for
                     expenditures that were not paid, the Authority’s Manager of
                     Accounting Operations explained the amounts were
                     erroneously drawn from LOCCS. These draws took place
                     on March 3, 1999 and November 29, 1999, indicating the
                     problem went undetected for many months. Further, when
                     supporting documentation was eventually provided for our
                     review in October 2000, we would have expected the
                     documentation to note the error and document the
                     resolution.

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      The Authority drew down funds based on a reconciliation
      of its general ledger accounts, without carefully analyzing
      the detailed general ledger activity. The Authority termed
      this practice “Analysis of money draw downs”. These were
      LOCCS draws that were not made for a specific
      disbursement (invoice, contract, etc.) The draws were
      made to cover a specific period of time for selected general
      ledger account numbers and in many instances covered
      amounts after the invoice or contract was posted to the
      general ledger. The result of executing LOCCS draws this
      way was the draw was generally made so that the Authority
      could be reimbursed for expenses it had already paid.

      In preparing the schedule for the reconciliation draws, the
      preparer was supposed to list the value of the general ledger
      account expended net of retention. In other words, the
      amount of the account on the draw analysis was to reflect
      the amount paid to the contractor after the retainage amount
      was withheld. When a former Authority accountant
      prepared the “Analysis of money draw downs” they put into
      the column titled “Expended net of retention” the amount
      of the periodic estimates before retention was deducted. As
      a result of this error, the Authority drew down $872,772
      more than what was paid to the various contractors.

      The Manager of Accounting Operations stated that at year-
      end, the Authority offset all funds drawn in error and,
      therefore, had not drawn down more funds than was
      necessary. The CFO reiterated the Authority’s claims that
      it made subsequent adjustments to LOCCS draws that
      negated the effect of the excessive funds that were drawn,
      and acknowledged that although the Authority violated the
      three day rule (not disbursing funds within three working
      days of receipt) it did nothing else improper.

      We disagree with the CFO’s statement that the Authority
      handled the transactions properly. Clearly, the Authority
      did not return funds to HUD as required. Also, the problem
      illustrated above is one example of the problems that
      occurred because of the Authority’s practice of preparing its
      LOCCS draws based on general ledger activity without
      implementing a review process or maintaining sufficient
      documentation. There were several breakdowns in the
      process used by the Authority to draw funds from LOCCS.

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                              First, a lack of controls permitted the Authority to request
                              funds for an amount more than was needed without being
                              detected. Second, once the funds were drawn, it went
                              unnoticed that they were not disbursed for the purpose for
                              which they were drawn. Even though the Authority has
                              indicated it has offset the funds drawn in error, it has not
                              provided adequate documentation showing what expenses
                              were ultimately paid with the funds. Finally, while the
                              Authority acknowledges the three day rule was violated, it
                              did not notify HUD of the violation, nor did it quantify the
                              effect of improperly possessing HUD funds for as long as
                              eight months.

                              The Authority did not properly allocate costs to its CGP.
 The Authority Improperly
                              The costs were allocated based on a predetermined budget
 Allocated Funds to CGP
                              amount, and the allocation percentages were subsequently
                              adjusted to match the budgeted amount. Further, based on
                              our review of the allocated costs it appeared they were
                              routine operating costs and, therefore, not eligible CGP
                              expenses. Authority personnel indicated they could not
                              explain the eligibility of the individual transactions. As a
                              result, the Authority cannot provide any assurance
                              $599,000 of costs charged to the CGP are eligible.

                              According to 24 CFR 85.20(a): “A State must expand and
                              account for grant funds in accordance with State laws and
                              procedures for expending and accounting for its own funds.
                              Fiscal control and accounting procedures of the State, as
                              well as its subgrantees and cost-type contractors, must be
                              sufficient to- …(2) Permit the tracing of funds to a level of
                              expenditures adequate to establish that such funds have not
                              been used in violation of the restrictions and prohibitions of
                              applicable statutes.”

                              As illustrated below, the Authority provided us a
                              spreadsheet showing how the costs were supposed to be
                              charged to CGP.

                                       Department Amount % to CGP                Amount
                                                     of Cost                    Allocated
                                       Engineer     $530,000 70%                $371,000
                                       Pest control $ 35,000 60%                $ 21,000
                                       Lands        $230,000 90%                $207,000
                                       Total                                    $599,000


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                          However, documentation provided for our review indicated
                          the costs charged were not related to the budget shown
                          above. The only similarity was the $599,000 charged to
                          CGP. Specifically, the Authority arbitrarily allocated 53
                          percent of 5,722 transactions as well as other miscellaneous
                          entries totaling $1,136,535 in its Miscellaneous Materials
                          General Ledger Account Balance at August 31, 1998
                          without regard to the eligibility of the specific transactions
                          posted to the account. Further, the $599,000 was charged
                          to a CGP account that is principally for staff costs.

                          We were told personnel responsible for the above
                          calculations are no longer employed by the Authority, so
                          the rationale for the actions could not be determined. As a
                          result, in order for the $599,000 to be considered eligible,
                          the Authority will have to show that all of the costs charged
                          were eligible for account #1408 management improvements
                          activities as reported in its annual statement to HUD and
                          were each 53 percent chargeable to the CGP.

                          The Authority did not provide adequate documentation to
Source Documentation      support $1,882,942 funds drawn from LOCCS. As noted
Not Adequate To Support   above, the Authority did not provide any documentation
LOCCS Draws               pertaining to LOCCS draws numbers 3 and 4 until October
                          17, 2000 more than four months after our initial request.
                          The Authority believed information provided in October
                          adequately supported costs claimed. However, source
                          documentation was either not provided or the information
                          provided was not auditable.

                          We also found the Authority did not maintain adequate
                          documentation to identify what specific expenditures were
                          reimbursed through LOCCS as required.                 The
                          documentation was not adequate because it did not identify
                          which costs were being claimed, and did not provide source
                          documentation adequate to determine what invoice,
                          contract, etc. made up the journal entry(s) provided.

                          Even though Authority personnel certified funds requested
                          through LOCCS were correct, Authority personnel could
                          not provide us with documentation to fully support the
                          expenditures. For the most part, documentation provided
                          was only accounting records (i.e. general ledger activity,
                          journal entries), not the required source documentation
                          (cancelled checks, paid bills). Also, the documentation that

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                     was provided did not match draw down amounts as the
                     documentation exceeded amounts drawn and did not
                     identify what portion of the support was associated with the
                     costs claimed. Specifically, funds drawn through LOCCS
                     were generally only supported by aggregate changes to
                     general ledger accounts, and did not include detailed
                     transactions and required supporting documentation.

                     We identified these same problems in a recently completed
                     audit of the Authority’s Drug Elimination Program (Report
                     No: 00-PH-201-1001). We discussed the concerns we had
                     with the Authority’s method of drawing funds through
                     LOCCS based on general ledger activity without
                     maintaining any specific identification of the source
                     documentation associated with the expenditure. We were
                     told this practice would stop and all future draws would be
                     properly supported. However, one of the LOCCS draws
                     reviewed was prepared after this assurance, yet as noted
                     above the practice continues.

                     For example, one LOCCS draw included costs posted to a
                     CGP account totaling $56,132. However, the entry is
                     nothing more than the net debit associated with three
                     different Authority general ledger accounts. In order to
                     evaluate the eligibility of that amount a total of $2,184,079
                     in debits and $2,127,947 in credits covering 76 different
                     entries would have to be analyzed. Further, many of those
                     76 different entries include support that breaks out into
                     additional layers of multiple entries. The result is the entire
                     $56,132 is questioned since the Authority is unable to
                     provide documentation evidencing the specific costs
                     charged.

                     Because the Authority did not provide source
                     documentation for $1,882,942 of the costs claimed for the
                     sampled LOCCS draws, we were unable to conclude if the
                     funds were used for authorized purposes. We provided the
                     Authority with detailed schedules of questioned costs.

                     The Authority’s CFO stated that many of the deficiencies
                     cited in this finding were the result of looking at a sample
                     of a few draws. She indicated the LOCCS draws cited
                     created a special problem because the draws included many
                     “transferred transactions” among multiple CGP journal
                     entries.

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                                                                 Finding 2



                   The Authority’s position that individual draws cannot be
                   reviewed is incorrect. Because a LOCCS draw is made for
                   a particular cash outlay, and the Authority is required to
                   maintain adequate internal controls, accounting records,
                   and source documentation, a LOCCS draw should stand on
                   its own; and the Authority should be able to provide the
                   source documentation to support any individual draw.

                                     *   *   *   *    *   *

                   In summary, the Authority drew funds through LOCCS for
                   expenditures that could not be supported as eligible. For
                   the six sampled LOCCS draws that totaled $13,307,783,
                   where the draws were made without a specific vendor or
                   contractor identified, the Authority received $872,772 for
                   funds drawn for retainage that was not paid, improperly
                   allocated $599,000 to the CGP, and did not provide
                   documentation sufficient to facilitate an audit of an
                   additional $1,882,942. The CFO’s belief that in order to
                   conduct an audit, all LOCCS draws as opposed to a sample
                   of LOCCS draws must be selected for review is incorrect.
                   The Authority is required to provide documentation to
                   support the LOCCS draw and evidence compliance with the
                   Federal requirements that require the Authority to maintain
                   records which adequately identify the source and
                   application of funds provided for financially assisted
                   activities; assure funds are used solely for authorized
                   purposes; and support accounting records with source
                   documentation.


                   The Authority acknowledged it drew funds for contract
Auditee Comments   retention not paid and mistakenly allocated LOCCS draws
                   meant for operating subsidy to the Comprehensive Grant
                   Program. Additionally, the Authority acknowledged it could
                   not provide source documentation to account for its LOCCS
                   draws as required. The Authority stated these deficiencies
                   were attributed to: (1) financial system conversions; (2)
                   employee departures; (3) draws selected for review that
                   contained many transferred transactions through journal
                   entries; and (4) the Authority’s former practice of drawing
                   funds based on general ledger activity. The Authority,
                   however, felt the OIG’s conclusions were unwarranted and


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                           premature given the documentation that was provided with
                           the Authority’s written response.

                           The Authority has also indicated it has stopped the practice
                           of drawing funds based on general ledger activity and has
                           implemented a system established by the Chief Financial
                           Officer that details the source documentation related to the
                           draw.


                           We do not agree with the Authority’s position that the OIG’s
 OIG Evaluation of         conclusions regarding the draws selected for review are in
 Auditee Comments          any way premature or unwarranted. The Authority is
                           required to maintain its books and records to permit a timely
                           and effective audit. Clearly, that was not the case. Further,
                           the OIG has continued to review and evaluate documentation
                           provided by the Authority. In fact, the Authority was given
                           another opportunity to provide the OIG with documentation
                           sufficient to trace to supporting documentation. This
                           additional documentation was still not adequate to address
                           the deficiencies cited. While, we are encouraged by the
                           Authority’s development and implementation of a system to
                           ensure LOCCS draws are properly supported, we cannot
                           conclude whether or not the improvements are effective and
                           are being followed as they were implemented after draws we
                           selected for review. These improvements should be evident
                           during routine program monitoring and future audit efforts.



 Recommendations           We recommend you require the Authority to:

                           2A.    Repay from non-Federal funds $872,772 unless it
                                  can provide supporting documentation that shows
                                  how the contractor retention drawn in error was
                                  offset against other program expenses. Supporting
                                  documentation should include: a schedule listing
                                  when the Authority actually spent the $872,772;
                                  what specific invoices or contracts were paid with
                                  the funds; and what the Authority did when it
                                  ultimately paid the contractors for the retainage that
                                  had been previously drawn.

                           2B.    Repay from non-Federal funds $599,000 and
                                  $1,882,942 of miscellaneous materials expenses
                                  allocated to CGP, and amounts determined to be

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             unauditable, respectively, unless it can provide
             records to support eligibility.

      We recommend you:

      2C.    Verify the Authority has stopped the practice of
             drawing funds from LOCCS based on general
             ledger activity, and ensure the Authority’s recently
             developed systems are adequate and that the
             Authority maintains source documentation for funds
             drawn through LOCCS.




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                                                                                   Finding 3



   The Authority Needs To Improve Its Controls
           Over Cash Disbursements
The Authority’s Finance Department did not have adequate controls over cash disbursements.
The Authority did not develop and implement a comprehensive policies and procedures manual
for the Finance Department as repeatedly recommended by its Independent Public Accountants.
We found a number of disbursements were not processed consistent with normal business
practice. Specifically, the Authority:

   •   Could not account for all checks;
   •   Did not properly record disbursements in its books of account;
   •   Wrote a significant number of manual checks; and
   •   Could not provide adequate documentation to support disbursements.

Because of the internal control weaknesses listed above, the Authority is placing HUD funds at
an unnecessary risk, as there is no assurance funds have been used as intended, including
$381,807 of expenditures detailed in this finding.



                                    Internal controls are a major part of managing any
 Background
                                    organization. An internal control system is made up of
                                    plans, methods, policies and procedures to meet an
                                    organization’s mission, goals, and objectives.         The
                                    organization’s internal control system requirements change
                                    over time because business conditions change. The
                                    business environment changes because of changes in laws
                                    and regulations, societal concerns, technology, managerial
                                    philosophies, and leadership.

                                    Prudent business practices prescribe policies and
                                    procedures should be communicated in writing. The
                                    documentation aspect is critical because oral
                                    communication of policies and procedures is unreliable;
                                    spoken words can be changed too easily, forgotten or never
                                    even heard. Further, it is important for organizations to
                                    have consolidated policies and procedures organized
                                    systematically. Fragmented or decentralized policies and
                                    procedures hinder the employees using them and do not
                                    ensure for their consistent application. Frequent turnover in
                                    any organization affects negatively the internal control
                                    environment and makes continual training even more

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                               essential. A healthy internal control environment that
                               includes sound policies and procedures, an effective
                               training program and good supervision, can minimize the
                               negative effects such turnover can cause.

                               Using computer assisted audit tools and techniques we
                               determined 412 checks were not accounted for on Authority
                               disbursement registers for 1998 and 1999. We followed up
                               with Authority personnel to determine if they had adequate
                               controls to safeguard checks and whether they could
                               provide an explanation for the missing checks. We found
                               the Authority did not have adequate controls, and 61 of the
                               412 checks were not properly accounted for as illustrated
                               below:

                                  •   Authority manual records indicated 43 checks were
                                      voided; however, the Authority could not produce
                                      the voided checks;
                                  •   Authority could not provide any explanation for the
                                      disposition of four checks; and
                                  •   Fourteen checks dated during the audit period and
                                      negotiated were not recorded on Authority books
                                      and records provided for our review.

                               Because the Authority does not have adequate controls or
                               safeguards over its bank checks, and also did not routinely
                               reconcile its bank accounts, HUD funds are at risk since
                               there is no assurance funds have been used as intended.

                               The Authority wrote a $19,200 check payable to cash, but
 The Authority Did Not
                               recorded it in the general ledger as payable to Housing Auth
 Properly Record
                               City of Pgh. A former Authority Procurement Officer
 Disbursements
                               negotiated the check. We were told the check was made
                               payable to cash to pay for entertainment at an Authority
                               funded drug prevention program, and the reason it was
                               recorded differently was the Authority’s system would not
                               allow a check to be entered as payable to cash. A review of
                               four vendor contracts for which the cash payment was made
                               did not specify a cash payment was required, in fact, the
                               terms of three of the contracts clearly indicated that
                               payment could be made by certified check, bank draft, or
                               money order. Because the Authority has not established
                               policies and procedures that need to be followed, Authority
                               personnel circumvented built in system controls and,


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                                                                          Finding 3


                            therefore, increased the risk that HUD funds could be used
                            improperly.

                            In our review of disbursements, we also found two other
                            checks were not properly recorded as illustrated below:

                Check
                Number    Amount         Description
                113324    $ 7,703        This check was not posted to the general
                                         ledger. Therefore, the expense was not
                                         recognized on Authority books of account.
                103625    $ 5,880        The Authority purchased $6,000 worth of
                                         certificates for this $5,880.     The $120
                                         discount was not recorded on the Authority’s
                                         books.


                            Check number 113324 was issued as a replacement for
                            another check that had an incorrect payee. The check was a
                            manual check processed outside the normal check run and
                            the information was to have been processed with the next
                            weekly run. That did not happen and the check was not
                            posted to the general ledger. As a result, cash has been
                            overstated and expenses understated.

                            Check number 103625 was used to purchase certificates
                            from a local grocery chain. Certificates were purchased at
                            discount and once sold at face value would realize a profit
                            for the Authority. The Authority did not record the
                            discount realized on the purchase that would be transferred
                            as income once the certificates were resold. Also, the
                            Authority offset the cash expenditure by reducing other
                            income. Until the certificates were resold, the cost
                            represents an expense to the Authority. As a result, the
                            Authority understated both income and expenses.

                            The Authority wrote a large number of manual checks.
Disbursements Were Not
                            During our audit period the Authority wrote an average of
Processed Through The
                            34 manual checks each month. Because manual checks do
Authority’s Normal Bill
                            not get processed through the Authority’s normal bill
Paying Process
                            paying process there is an increased likelihood that
                            disbursements will not be processed properly.         For
                            example, we noted manual checks were prepared to pay a
                            provider for Authority employee health benefits. Although
                            the payment was due on July 29, 1999, the vendor was not

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                               paid until October 1, 1999, thereby placing employee health
                               benefits coverage in jeopardy.

                               Additional examples of concerns raised as a result of
                               issuing manual checks include the following:

                               Check number 102929 was a manual check written on
                               December 18, 1997 to a HOPE VI limited partnership for
                               $556,834.93. Under the Authority’s normal bill paying
                               process, accounts payable checks at the Authority were
                               generally signed by a signature stamp bearing the names of
                               the former Executive Director and Director of Finance.
                               The Authority’s former Executive Director and Deputy
                               Director signed this manually prepared check. We noted
                               there was no mailing address on the check raising the
                               question how the recipient received the check. Also, the
                               check was not executed until February 4, 1998 or 47 days
                               after it was prepared. Since manual checks are generally
                               necessary to expedite the payment process, it is unclear why
                               a manual check was necessary in this circumstance.

                               Check number 103886 was a manual check written on
                               January 15, 1998 to a program recipient for $13,300.89. In
                               reviewing other checks for this program recipient, we noted
                               all other checks, except the manual check noted above,
                               were endorsed with a deposit stamp and deposited into the
                               same bank account. The manual check in question was
                               endorsed by an individual and processed by another bank.

                               During our review of the Authority’s disbursement process,
 The Authority Did Not         we noted concerns with the adequacy of supporting
 Adequately Support            documentation for the following payments:
 Disbursements




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                                                                    Finding 3


Check
Number    Amount            Description
109072    $ 27,385          The Authority was not able to provide
                            documentation identifying the funding
                            source for this payment. However, based on
                            the documentation obtained, it appears this
                            disbursement was funded through the CGP
                            for consulting and cost of the initial
                            inventory for a store in one of the
                            Authority’s communities, and according to
                            program requirements may not be CGP
                            eligible.
108860    $225,000          This check settled an Authority legal matter.
                            Documentation was not provided to detail
                            the legal matter. Additionally, HUD’s Mid-
                            Atlantic Office of General Counsel was not
                            made aware of the litigation as required by
                            HUD guidelines.
120431    $128,465          This disbursement to install digital cable
                            wiring in several communities was not
                            made timely. Further, HUD’s Pittsburgh
                            Office of Public Housing indicated work
                            was not done according to Authority budget
                            submissions.
115685    $ 10,898          This disbursement was to reimburse the
                            Authority’s former Executive Director for
                            miscellaneous expenditures in February
                            1999.       According to documentation
                            provided by the Authority, some of the
                            reimbursements were for expenses incurred
                            during 1998, more than a year earlier.
                            Additionally, $957 of the reimbursements
                            may not have been appropriate and included
                            miscellaneous entertainment, and an
                            Authority police towing charge.

                     Authority personnel indicated the Authority no longer
                     employs many of the employees responsible for the
                     deficiencies noted throughout this finding. Specifically, the
                     Finance Department has had at least five different
                     individuals head the Department since July 1997.

                     We acknowledge the Authority has had frequent turnover in
                     the Finance Department. However, frequent turnover is not
                     an acceptable reason for the Authority’s inability to develop

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                        and implement policies and procedures as recommended in
                        each of the last three financial statement audits done by the
                        Authority’s Independent Auditor. Clearly, sound policies
                        and procedures that need to be followed are an important
                        constant in an environment where employee turnover is so
                        prevalent.

                                          *    *   *    *   *    *

                        In summary, the Authority needs to significantly improve
                        its internal controls over the disbursement process. Initially
                        the Authority needs to develop and implement policies and
                        procedures over its disbursement process and maintain
                        adequate documentation to support decisions made. We
                        believe these policies and procedures are essential in light
                        of the Authority’s frequent turnover. Without effective
                        controls and procedures, the Authority will not be able to
                        adequately function; and errors and omissions identified
                        throughout this finding are likely to continue.


   Auditee Comments     The Authority agreed that it had prior deficiencies with
                        controls over disbursements. However, the Authority
                        stated many of the deficiencies cited by the OIG have or are
                        being addressed by corrective actions to include: (1) no
                        longer writing checks payable to cash; (2) limiting the
                        issuance of manual checks to emergency situations which
                        must be approved by the CFO; and (3) regular
                        reconciliation of accounts. Additionally, the Authority has
                        indicated it is in the process of developing a Policy and
                        Procedures Manual for the Finance Department.

                        The Authority took great exception to questionable expense
                        reimbursement requests by the former Executive Director.
                        During the exit conference, the former Executive Director
                        reiterated he has always scrutinized his expense requests to
                        ensure they are proper. The former Executive Director
                        stated he does not even use an Authority credit card to
                        mitigate any possibility of impropriety. The Authority
                        stated the former Executive Director was not given the
                        opportunity to address the OIG’s concerns. Further, the
                        Authority stated that according to its internal records, the
                        $957 of questionable expenditures was previously
                        identified by the Finance Department and it recommended
                        that the costs be transferred to a non-Federal fund account.

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                    Regarding the remaining questioned costs, the Authority
                    has stated it will provide further documentation to justify
                    eligibility.



OIG Evaluation of   We are encouraged by the Authority’s commitment to
Auditee Comments    improve its financial controls over cash disbursements.
                    However, the Authority has made the same commitment to
                    implement proposed corrective actions in its response to
                    annual financial statement findings.        Regarding the
                    questionable expenditures incurred by the former Executive
                    Director, we assured the Authority we would make
                    necessary report adjustments as long as they provided
                    documentation consistent with their response. However,
                    this documentation was not provided.



Recommendations     We recommend the Authority:

                    3A.    Develop and implement a procedures manual for the
                           Finance Department to address internal control
                           issues generally and the numerous issues cited in
                           this finding including: stop the practice of writing
                           checks payable to cash; restrict the process of
                           writing     manual     checks;   and     identifying
                           circumstances acceptable to generate manual
                           checks.

                    3B.    Produce the checks that have been noted as void or
                           provide an explanation for each check as to why
                           they could not be found. Produce the four checks
                           which could not be found and that have not been
                           noted as voided. Include in the procedures manual
                           what should be done with/to a voided check.

                    3C.    Provide documentation to support the eligibility of
                           the $381,807 of expenses paid with the following
                           check numbers: 109072, 108860, 120431, and
                           115685. Documentation for check number 108860
                           is to be approved by the Regional Counsel Mid-
                           Atlantic. In addition, identify all other litigation
                           that was not properly approved and submit to
                           Regional Counsel Mid-Atlantic for approval.

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                       Repay, from non-Federal funds, those amounts not
                       properly supported.

                 3D.   Provide documentation to assure that the accounting
                       entries involving check number 113324 were made.
                       Specifically, include in the procedures manual steps
                       to increase the assurance all checks written are
                       posted to accounting records.         Also, provide
                       documentation to show that the accounting entries
                       for check number 103625 have all been made.




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Management Controls
In planning and performing our audit of the Authority, we considered the management controls to
determine our auditing procedures and not to provide assurance on management control. The
Authority’s management is responsible for establishing effective management controls.
Management control is the process effected by the Authority’s Board, managers, and other
personnel, designed to provide reasonable assurance for achieving objectives for program
operations, validity and reliability of data, compliance with applicable laws and regulations, and
safeguarding resources.


                                     We determined that management controls over Cash
 Management Controls
                                     Disbursements, LOCCS draws, and Procurement were
 Assessed
                                     relevant to our audit objectives. For each of those activities,
                                     we assessed the risk, control environment, control activities,
                                     and internal monitoring and reporting functions. We made
                                     our assessment and gained our understanding through a
                                     testing of transactions in each of the activities.

                                     It is a significant weakness if management controls do not
 Significant Weaknesses
                                     provide reasonable assurance that resource use is consistent
 Found
                                     with laws, regulations, and policies; that resources are
                                     safeguarded against waste, loss, misuse; and that reliable data
                                     is obtained, maintained, and fairly disclosed in reports.

                                     Our audit disclosed significant weaknesses with Procurement
                                     (Finding 1), LOCCS draws (Finding 2), and Cash
                                     Disbursements (Finding 3).




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Follow Up On Prior Audits
The HUD Office of Inspector General (OIG) previously audited the Authority’s Drug
Elimination Program. The audit report (Number 00-PH-201-1001) was issued October 20, 1999.
The full report can be viewed from our website at http://www.hud.gov/oig/states/pa.html. The
report had one finding with many of the same concerns expressed in this report. The
recommendations are still open.


There are no other open recommendations from prior audits done at the Authority.




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                                                                            Appendix A


Schedule of Questioned Costs

             Finding Number           Ineligible 1/        Unsupported 2/
                    1                  $1,382,874           $3,118,773
                    2                                       $3,257,714
                    3                                       $ 381,807
                  Total               $1,382,874            $6,758,294


1/   Ineligible amounts are not allowed by law, contract, HUD or local agency policies or
     regulations.

2/   Unsupported amounts are not clearly eligible or ineligible, but warrant being contested
     (i.e. lack of satisfactory documentation to support the eligibility of the costs).




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                                                                                     Appendix B


     Summary of Ineligible and Unsupported Costs
                   For Finding 1
      Management    Contract          Changes           Total       Ineligible 1/   Unsupported 2/
       Number       Amount
        3485          $    9,975      $    23,984   $   33,959                       $    33,959
        3928              24,825                        24,825                            24,825
        3506             553,000         459,631     1,012,631                           459,631
        3874             291,200       1,251,007     1,542,207        $1,251,007         291,200
        3875             178,190         189,050       367,240                           367,240
        4090              70,870                        70,870                            70,870
        4160             632,150           3,070       635,220                           635,220
        2516               9,999          20,001        30,000                            30,000
        2541               9,999         432,375       442,374                           442,374
        2551              40,000         723,454       763,454                           763,454
        3406              44,800         161,300       206,100           131,867
        Total         $1,865,008      $3,263,872    $5,128,880        $1,382,874     $3,118,773


1/      Ineligible amounts are not allowed by law, contract, HUD or local agency policies or
        regulations. Contrary to Federal purchasing regulations, Management Numbers 3406 and
        3874 included contract modifications to increase quantity and for work items outside the
        scope of the original contract.

2/      Unsupported amounts are not clearly eligible or ineligible but warrant being contested
        (i.e. lack of satisfactory documentation to support the eligibility of the costs). As detailed
        in Appendix C that follows, the Authority did not provide documentation to support the
        history of the above contract awards.




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                                                                                      Appendix C


      Summary of Procurement Contracts Reviewed

                                                           Number of
                                                          Procurement    Number of   Number of
 Contract       Contract                                     Steps         Steps     Steps not
 Number          Amount     Change Order          Total   Evaluated 1/    Followed   Followed        Notes

Materials and Supplies Purchases from $4,000 to $10,000
   3485           $9,975         $23,984       $33,959        15            0           15         See pg. 48

Materials and Supplies Purchases from $10,000 to $49,999
   3928          $24, 825                      $24,825        23            7           16         See pg. 49

Materials and Supplies Purchases over $50,000 and greater
   3506        $ 553,000        $459,631     $1,012,631       24            13          11         See pg. 50
   3874           291,200      1,251,007      1,542,207       24             9          15         See pg. 51
   3875           178,190        189,050        367,240       24            13          11         See pg. 52
   4090            70,870                        70,870       24            13          11         See pg. 53
   4092           328,592                       328,592       24            17           7         See pg. 54
   4113           494,000          13,580       507,580       24            18           6         See pg. 55
   4153           829,000         133,908       962,908       24            16           8         See pg. 56
   4160           632,150           3,070       635,220       24            13          11         See pg. 57
   4342         1,589,000        (69,457)     1,519,543       24            16          8          See pg. 58

Professional Services Purchases from $4,000 to $10,000
   2516           $9,999         $20,001       $30,000        12            2           10         See pg. 59
   2541            9,999         432,375       442,374        12            2           10         See pg. 60

Professional Services Purchases from $10,000 to $49,999
   2551          $40,000        $723,454      $763,454        15            2           13         See pg. 61
   3406           44,800         161,300       206,100        15            7            8         See pg. 62

   Total       $5,105,600      $3,341,903    $8,447,503



      1/ All applicable procurement steps evaluated. The number of procurement steps required
         depended on the type and amount of purchase.




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Appendix C




           Emergency Site Work
           Management Number 3485

           Contract amount                           $ 9,975
           Change order                               23,984
           Revised contract amount                   $33,959


  Standard Procurement Procedures For Housing Authority                 Procurement Steps
  Of Pittsburgh                                                             Followed
                                                                          Yes        No
      1.  Determine requirements.                                                    X
      2.  Identify funding source/review for budget.                                 X
      3.  Prepare specifications.                                                    X
      4.  Secure independent cost estimate.                                          X
      5.  Ensure estimated cost is within budget/funding source                      X
          amount.
      6. Enter requisition into computer system.                                     X
      7. Approve requisition.                                                        X
      8. Review other government contracts for item availability.                    X
      9. If item is available under another government contract, go
          to #15, if not go to #10 below.                                            X
      10. Obtain telephone, fax or written quotes from at least three
          vendors for requested item.                                                X
      11. Document quotes that were received – item purchased,
          company name, contact person, date, time and amount of
          quote.                                                                     X
      12. Compare lowest quote to cost estimate.                                     X
      13. If lowest quote is comparable to cost estimate, go to #15.                 X
      14. If lowest quote is not comparable to cost estimate,
          go to #10 above.                                                           X
      15. Create purchase order and purchase item(s).                                X

      Totals                                                                         15




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                                                                                Appendix C



        Concrete Work
        Management Number 3928

        Contract amount                                   $24,825
        Change order
        Revised contract amount                            $24,825

Standard Procurement Procedures For Housing Authority                Procurement steps
Of Pittsburgh                                                            Followed
                                                                       Yes        No
   1. Determine requirements.                                                      X
   2. Identify funding source/review for budget.                        X
   3. Prepare specifications.                                           X
   4. Secure independent cost estimate.                                            X
   5. Ensure estimated cost is within budget/funding source                        X
        amount.
   6. Enter requisition into computer system.                                      X
   7. Approve requisition.                                                         X
   8. Review other government contracts for item availability.                     X
   9. If item is available under another government contract,
        go to #23, if not go to #10.                                               X
   10. Advertise and issue solicitation.                                           X
   11. Hold pre-bid conference, if needed.                                         X
   12. Receive bids.                                                   X
   13. Conduct bid opening.                                                        X
   14. Review bids for responsiveness.                                             X
   15. Compare lowest quote to cost estimate.                                      X
   16. If low quote is comparable to cost estimate, go to #18.                     X
   17. If low quote is not comparable to cost estimate, return to                  X
       #10.
   18. Select lowest quote as successful bidder.                       X
   19. Confirm successful bidder.                                      X
   20. Issue Notice of Intent to Award to all bidders.                             X
   21. Prepare contract.                                               X
   22. Execute contract.                                               X
   23. Create purchase order and purchase item(s).                                  X
   Totals                                                               7          16



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Appendix C



             Site Hazard Reduction
             Management Number 3506

             Contract amount                           $ 553,000
             Change order                                 459,631
             Revised contract amount                   $1,012,631

   Standard Procurement Procedures For Housing Authority                 Procurement Steps
   Of Pittsburgh                                                              Followed
                                                                          Yes         No
               1. Determine requirements.                                  X
               2. Identify funding source/review for budget.               X
               3. Prepare specifications.                                  X
               4. Secure independent cost estimate.                        X
               5. Ensure estimated cost is within budget/funding
                   source amount.                                                    X
               6. Obtain HACP Board of Director’s approval.               X
               7. Enter requisition into computer system.                            X
               8. Approve requisition.                                               X
               9. Review other government contracts for item
                   availability.                                                     X
               10. If item is available under another government
                   contract, go to #24, if not go #11.                               X
               11. Advertise and issue solicitation.                                 X
               12. Hold pre-bid conference, if needed.                    X
               13. Receive bids.                                          X
               14. Conduct bid opening.                                   X
               15. Review bids for responsiveness.                        X
               16. Compare lowest quote to cost estimate.                            X
               17. If low quote is comparable to cost estimate, go to
                   #19.                                                              X
               18. If low quote is not comparable to cost estimate,                  X
                   return to #11.
               19. Select lowest quote as successful bidder.              X
               20. Confirm successful bidder.                             X
               21. Issue Notice of Intent to Award to all bidders.                   X
               22. Prepare contract.                                      X
               23. Execute contract                                       X
               24. Create purchase order and purchase item(s).                       X

               Totals                                                     13         11


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                                                                                      Appendix C



            Concrete Replacement Work
            Management Number 3874

            Contract amount                           $ 291,200
            Change order                               1,251,007
            Revised contract amount                   $1,542,207


Standard Procurement Procedures For Housing Authority Of                     Procurement Steps
Pittsburgh                                                                       Followed
                                                                             Yes        No
   1.    Determine requirements.                                              X
   2.    Identify funding source/review for budget.                                     X
   3.    Prepare specifications.                                              X
   4.    Secure independent cost estimate.                                              X
   5.    Ensure estimated cost is within budget/funding source amount.                  X
   6.    Obtain HACP Board of Director’s approval.                                      X
   7.    Enter requisition into computer system.                                        X
   8.    Approve requisition.                                                           X
   9.    Review other government contracts for item availability.                       X
   10.   If item is available under another government contract,
         go to #24, if not go #11.                                                        X
   11.   Advertise and issue solicitation.                                     X
   12.   Hold pre-bid conference, if needed.                                   X
   13.   Receive bids.                                                         X
   14.   Conduct bid opening.                                                  X
   15.   Review bids for responsiveness.                                                  X
   16.   Compare lowest quote to cost estimate.                                           X
   17.   If low quote is comparable to cost estimate, go to #19.                          X
   18.   If low quote is not comparable to cost estimate, return to #11.                  X
   19.   Select lowest quote as successful bidder.                                        X
   20.   Confirm successful bidder.                                            X
   21.   Issue Notice of Intent to Award to all bidders.                                  X
   22.   Prepare contract.                                                     X
   23.   Execute contract.                                                     X
   24.   Create purchase order and purchase item(s).                                      X

   Totals                                                                      9          15


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Appendix C


            Concrete Replacement and Repair Work
            Management Number 3875

            Contract amount                          $178,190
            Change order                              189,050
            Revised contract amount                  $367,240

Standard Procurement Procedures For Housing Authority Of                  Procurement Steps
Pittsburgh                                                                    Followed
                                                                          Yes         No
   1. Determine requirements.                                              X
   2. Identify funding source/review for budget.                           X
   3. Prepare specifications.                                              X
   4. Secure independent cost estimate.                                                X
   5. Ensure estimated cost is within budget/funding source                            X
       amount.
   6. Obtain HACP Board of Director’s approval.                             X
   7. Enter requisition into computer system.                                          X
   8. Approve requisition.                                                             X
   9. Review other government contracts for item availability.                         X
   10. If item is available under another government contract,
       go to #24, if not go to #11.                                                    X
   11. Advertise and issue solicitation.                                    X
   12. Hold pre-bid conference, if needed.                                  X
   13. Receive bids.                                                        X
   14. Conduct bid opening.                                                 X
   15. Review bids for responsiveness.                                      X
   16. Compare lowest quote to cost estimate.                                          X
   17. If low quote is comparable to cost estimate, go to #19.                         X
   18. If low quote is not comparable to cost estimate, return to                      X
       #11.
   19. Select lowest quote as successful bidder.                            X
   20. Confirm successful bidder.                                           X
   21. Issue Notice of Intent to Award to all bidders.                                 X
   22. Prepare contract.                                                    X
   23. Execute contract.                                                    X
   24. Create purchase order and purchase item(s).                                     X

   Totals                                                                  13         11


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             Management Number 4090

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                                                                                  Appendix C



            Contract amount                        $70,870
            Change order
            Revised contract amount                $70,870

Standard Procurement Procedures For Housing Authority Of                 Procurement Steps
Pittsburgh                                                                    Followed
                                                                           Yes        No
   1.    Determine requirements.                                            X
   2.    Identify funding source/review for budget.                         X
   3.    Prepare specifications.                                            X
   4.    Secure independent cost estimate.                                             X
   5.    Ensure estimated cost is within budget/funding source amount.                 X
   6.    Obtain HACP Board of Director’s approval.                          X
   7.    Enter requisition into computer system.                                       X
   8.    Approve requisition.                                                          X
   9.    Review other government contracts for item availability.                      X
   10.   If item is available under another government contract,
         go to #24, if not go #11.                                                     X
   11.   Advertise and issue solicitation.                                  X
   12.   Hold pre-bid conference, if needed.                                X
   13.   Receive bids.                                                      X
   14.   Conduct bid opening.                                               X
   15.   Review bids for responsiveness.                                    X
   16.   Compare lowest quote to cost estimate.                                        X
   17.   If low quote is comparable to cost estimate, go to #19.                       X
   18.   If low quote is not comparable to cost estimate, return to #11.               X
   19.   Select lowest quote as successful bidder.                          X
   20.   Confirm successful bidder.                                         X
   21.   Issue Notice of Intent to Award to all bidders.                               X
   22.   Prepare contract.                                                  X
   23.   Execute contract.                                                  X
   24.   Create purchase order and purchase item(s).                                   X

   Totals                                                                 13          11




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Appendix C



             Site Improvements and Playground Installation
             Management Number 4092

             Contract amount                          $328,592
             Change order
             Revised contract amount                  $328,592

Standard Procurement Procedures For Housing Authority Of                   Procurement Steps
Pittsburgh                                                                      Followed
                                                                            Yes        No
   1.    Determine requirements.                                             X
   2.    Identify funding source/review for budget.                          X
   3.    Prepare specifications.                                             X
   4.    Secure independent cost estimate.                                   X
   5.    Ensure estimated cost is within budget/funding source amount.       X
   6.    Obtain HACP Board of Director’s approval.                           X
   7.    Enter requisition into computer system.                                        X
   8.    Approve requisition.                                                           X
   9.    Review other government contracts for item availability.                       X
   10.   If item is available under another government contract,
         go to #24, if not go to #11.                                                  X
   11.   Advertise and issue solicitation.                                   X
   12.   Hold pre-bid conference, if needed.                                 X
   13.   Receive bids.                                                       X
   14.   Conduct bid opening.                                                X
   15.   Review bids for responsiveness.                                     X
   16.   Compare lowest quote to cost estimate.                              X
   17.   If low quote is comparable to cost estimate, go to #19.             X
   18.   If low quote is not comparable to cost estimate, return to #11.               X
   19.   Select lowest quote as successful bidder.                           X
   20.   Confirm successful bidder.                                          X
   21.   Issue Notice of Intent to Award to all bidders.                               X
   22.   Prepare contract.                                                   X
   23.   Execute contract.                                                   X
   24.   Create purchase order and purchase item(s).                                   X

   Total                                                                     17        7




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            Hydronic Boiler Replacement
            Management Number 4113

            Contract amount                         $494,000
            Change order                              13,580
            Revised contract amount                 $507,580

Standard Procurement Procedures For Housing Authority Of                 Procurement Steps
Pittsburgh                                                                   Followed
                                                                           Yes       No
   1.    Determine requirements.                                            X
   2.    Identify funding source/review for budget.                         X
   3.    Prepare specifications.                                            X
   4.    Secure independent cost estimate.                                  X
   5.    Ensure estimated cost is within budget/funding source amount.      X
   6.    Obtain HACP Board of Director’s approval.                          X
   7.    Enter requisition into computer system.                                     X
   8.    Approve requisition.                                                        X
   9.    Review other government contracts for item availability.                    X
   10.   If item is available under another government contract,
         go to #24, if not go to #11.                                                X
   11.   Advertise and issue solicitation.                                  X
   12.   Hold pre-bid conference, if needed.                                X
   13.   Receive bids.                                                      X
   14.   Conduct bid opening.                                               X
   15.   Review bids for responsiveness.                                    X
   16.   Compare lowest quote to cost estimate.                             X
   17.   If low quote is comparable to cost estimate, go to #19.            X
   18.   If low quote is not comparable to cost estimate, return to #11.    X
   19.   Select lowest quote as successful bidder.                          X
   20.   Confirm successful bidder.                                         X
   21.   Issue Notice of Intent to Award to all bidders.                             X
   22.   Prepare contract.                                                  X
   23.   Execute contract.                                                  X
   24.   Create purchase order and purchase item(s).                                 X

   Totals                                                                  18          6




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Appendix C



            Replacement of Furnace
            Management Number 4153

            Contract amount                                 $829,000
            Change order                                     133,908
            Revised contract amount                         $962,908

Standard Procurement Procedures For Housing Authority Of                       Procurement Steps
Pittsburgh                                                                          Followed
                                                                                Yes        No
   1.    Determine requirements.                                                 X
   2.    Identify funding source/review for budget.                                         X
   3.    Prepare specifications.                                                 X
   4.    Secure independent cost estimate.                                       X
   5.    Ensure estimated cost is within budget/funding source amount.           X
   6.    Obtain HACP Board of Director’s approval.                               X
   7.    Enter requisition into computer system.                                            X
   8.    Approve requisition.                                                               X
   9.    Review other government contracts for item availability.                           X
   10.   If item is available under another government contract,                            X
         go to #24, if not go to #11.
   11.   Advertise and issue solicitation.                                       X
   12.   Hold pre-bid conference, if needed.                                     X
   13.   Receive bids.                                                           X
   14.   Conduct bid opening.                                                    X
   15.   Review bids for responsiveness.                                         X
   16.   Compare lowest quote to cost estimate.                                  X
   17.   If low quote is comparable to cost estimate, go to #19.                 X
   18.   If low quote is not comparable to cost estimate, return to #11.                   X
   19.   Select lowest quote as successful bidder.                               X
   20.   Confirm successful bidder.                                              X
   21.   Issue Notice of Intent to Award to all bidders.                                   X
   22.   Prepare contract.                                                       X
   23.   Execute contract.                                                       X
   24.   Create purchase order and purchase item(s).                                       X

   Totals                                                                        16        8




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            General Landscaping
            Management Number 4160

            Contract amount                           $632,150
            Change order                                 3,070
            Revised contract amount                   $635,220

Standard Procurement Procedures For Housing Authority Of                 Procurement Steps
Pittsburgh                                                                   Followed
                                                                            Yes      No
   1. Determine requirements.                                                X
   2. Identify funding source/review for budget.                             X
   3. Prepare specifications.                                                X
   4. Secure independent cost estimate.                                               X
   5. Ensure estimated cost is within budget/funding source                           X
       amount.
   6. Obtain HACP Board of Director’s approval.                             X
   7. Enter requisition into computer system.                                          X
   8. Approve requisition.                                                             X
   9. Review other government contracts for item availability.                         X
   10. If item is available under another government contract,                         X
       go to #24, if no go to #11.
   11. Advertise and issue solicitation.                                    X
   12. Hold pre-bid conference, if needed.                                  X
   13. Receive bids.                                                        X
   14. Conduct bid opening.                                                 X
   15. Review bids for responsiveness.                                      X
   16. Compare lowest quote to cost estimate.                                          X
   17. If low quote is comparable to cost estimate, go to #19.                         X
   18. If low quote is not comparable to cost estimate, return to #11.                 X
   19. Select lowest quote as successful bidder.                            X
   20. Confirm successful bidder.                                           X
   21. Issue Notice of Intent to Award to all bidders.                                 X
   22. Prepare contract.                                                    X
   23. Execute contract.                                                    X
   24. Create purchase order and purchase item(s).                                     X

   Totals                                                                   13         11


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            Site Improvements
            Management Number 4342

            Contract amount                             $1,589,000
            Change order                                   (69,457)
            Revised contract amount                     $1,519,543

Standard Procurement Procedures For Housing Authority Of                   Procurement Steps
Pittsburgh                                                                     Followed
                                                                            Yes      No
   1.    Determine requirements.                                              X
   2.    Identify funding source/review for budget.                           X
   3.    Prepare specifications.                                              X
   4.    Secure independent cost estimate.                                    X
   5.    Ensure estimated cost is within budget/funding source amount.        X
   6.    Obtain HACP Board of Director’s approval.                            X
   7.    Enter requisition into computer system.                                      X
   8.    Approve requisition.                                                         X
   9.    Review other government contracts for item availability.                     X
   10.   If item is available under another government contract,                      X
         go to #24, if not go to #11.
   11.   Advertise and issue solicitation.                                            X
   12.   Hold pre-bid conference, if needed.                                   X
   13.   Receive bids.                                                         X
   14.   Conduct bid opening.                                                  X
   15.   Review bids for responsiveness.                                       X
   16.   Compare lowest quote to cost estimate.                                X
   17.   If low quote is comparable to cost estimate, go to #19.               X
   18.   If low quote is not comparable to cost estimate, return to #11.              X
   19.   Select lowest quote as successful bidder.                             X
   20.   Confirm successful bidder.                                            X
   21.   Issue Notice of Intent to Award to all bidders.                              X
   22.   Prepare contract.                                                     X
   23.   Execute contract.                                                     X
   24.   Create purchase order and purchase item(s).                                  X

   Totals                                                                     16      8




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            Legal Service and Advice on Construction
            Project/Resident Training
            Management Number 2516

            Contract amount                          $ 9,999
            Change order                              20,001
            Revised contract amount                  $30,000

Standard Procurement Procedures For Housing Authority Of              Procurement Steps
Pittsburgh                                                                 Followed
                                                                        Yes       No
   1.    Determine requirements.                                                   X
   2.    Identify funding source/review for budget.                                X
   3.    Prepare specifications.                                                   X
   4.    Secure independent cost estimate.                                         X
   5.    Ensure estimate cost is within budget/funding source.                     X
   6.    Obtain quote from at least one vendor for requested service.              X
   7.    Compare quote to cost estimate.                                           X
   8.    If quote is comparable to cost estimate, go to #10 below.                 X
   9.    If quote is not comparable to cost estimate, go to #6 above.              X
   10.   Prepare contract.                                               X
   11.   Execute contract.                                               X
   12.   Issue notice to proceed.                                                  X

   Totals                                                               2          10




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             Legal Advices and Services
             Management Number 2541

            Contract amount                         $   9,999
            Change order                              432,375
            Revised contract amount                 $ 442,374

Standard Procurement Procedures For Housing Authority Of                Procurement Steps
Pittsburgh                                                                  Followed
                                                                          Yes      No
   1.    Determine requirements.                                                   X
   2.    Identify funding source/review for budget.                                X
   3.    Prepare specifications.                                                   X
   4.    Secure independent cost estimate.                                         X
   5.    Ensure estimate cost is within budget/funding source.                     X
   6.    Obtain quote from at least one vendor.                                    X
   7.    Compare successful quote to cost estimate.                                X
   8.    If quote is comparable to cost estimate, go to
         #10 below.                                                                  X
   9.    If quote is not comparable to cost estimate, go to #6 above.                X
   10.   Prepare contract.                                                  X
   11.   Execute contract.                                                  X
   12.   Issue notice to proceed.                                                    X

   Totals                                                                    2       10




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            Legal advices and services
            Management Number 2551

            Contract amount                            $ 40,000
            Change order                                723,454
            Revised contract amount                    $763,454

Standard Procurement Procedures For Housing Authority Of                   Procurement Steps
Pittsburgh                                                                     Followed
                                                                             Yes      No
   1.    Determine requirements.                                                          X
   2.    Identify funding source/review for budget.                                       X
   3.    Prepare specifications.                                                          X
   4.    Secure independent cost estimate.                                                X
   5.    Ensure estimated cost is within budget/funding source.                           X
   6.    Obtain telephone, fax or written quotes from at least three
         vendors for requested services.                                                  X
   7.    Document quotes that were received – item being quoted,
         company name, contact person, date, time and amount of quote.                    X
   8.    Compare successful vendor’s quote to cost estimate.                              X
   9.    If successful vendor’s quote is comparable to cost estimate, go
         to #11 below.                                                                    X
   10.   If successful vendor’s quote is not comparable to cost
         estimate, go to #6 above.                                                        X
   11.   Obtain City of Pittsburgh MBE/WBE Committee approval.                            X
   12.   Issue Notice of Intent to Award to all bidders.                                  X
   13.   Prepare contract.                                                     X
   14.   Execute contract.                                                     X
   15.   Issue notice to proceed.                                                         X

   Totals                                                                      2         13




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Appendix C



            Financial Audit for 1997 and 1998
            Management Number 3406

            Contract amount                                 $ 44,800
            Change order                                     161,300
            Revised contract amount                         $206,100

Standard Procurement Procedures For Housing Authority Of                  Procurement Steps
Pittsburgh                                                                      Followed
                                                                            Yes          No
   1.     Determine requirements.                                             X
   2.     Identify funding source/review for budget.                          X
   3.     Prepare specifications.                                             X
   4.     Secure independent cost estimate.                                              X
   5.     Ensure estimated cost is within budget/funding source.                         X
   6.     Obtain telephone, fax or written quotes from at least three         X
          vendors for requested services.
   7.     Document quotes that were received – item being quoted,             X
          company name, contact person, date, time and amount of
          quote.
   8.    Compare successful vendor’s quote to cost estimate.                             X
   9.    If successful vendor's quote is comparable to cost estimate,                    X
         go to #11 below.
   9.     If successful vendor’s quote is not comparable to cost                         X
          estimate, go to #6 above.
   10.   Obtain City of Pittsburgh MBE/WBE Committee                                     X
         approval.
   11.   Issue Notice of Intent to Award all bidders.                                    X
   12.   Prepare contract.                                                    X
   13.   Execute contract.                                                    X
   14.   Issue notice to proceed.                                                        X

   Totals                                                                     7          8




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Auditee Comments




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                                                                             Appendix E


Distribution
Acting Executive Director, Housing Authority of the City of Pittsburgh, 200 Ross Street,
        Pittsburgh, PA 15219
Chairman, Housing Authority of the City of Pittsburgh, 200 Ross Street, Pittsburgh, PA 15219
Secretary’s Representative, Mid-Atlantic, 3AS
Pittsburgh Area Coordinator, 3ES
Acting Director, Office of Public Housing, Pittsburgh Area Office, 3EPH
Public Affairs Officer, Mid-Atlantic, 3AS
Audit Liaison Officer, 3AFI
Audit Liaison Officer, Office of Public and Indian Housing, PF (Room 5156)
Departmental Audit Liaison Officer, FM (Room 2206)
Special Agent in Charge, 3AGI
DIGA’s
Assistant Deputy Secretary for Field Policy and Management, SDF (Room 7108)
Deputy Chief Financial Officer for Finance, FF (Room 2202)
Director, Office of Budget, FO (Room 3270)
Acquisitions Librarian Library, AS (Room 8141)
Principal Staff
The Honorable Fred Thompson, Chairman, Committee on Governmental Affairs, 340 Dirksen
        Senate Office Building, US Senate, Washington, DC 20510
The Honorable Joseph Lieberman, Ranking Member, Committee on Governmental Affairs, 706
        Hart Senate Office Building, US Senate, Washington, DC 20515
Ms. Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O’Neil House
        Office Building, Washington, DC 20515
Director, Housing and Community Development Issue Area, US GAO, 441 G Street, N.W.,
        Room 2474, Washington, DC 20548, Attn: Stanley Czerwinski
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
        Building, House of Representatives, Washington, DC 20515
The Honorable Henry Waxman, Ranking Member, Committee on Government Reform, 2204
        Rayburn Building, House of Representatives, Washington, DC 20515
Mr. Steve Redburn, Chief, Housing Branch, Office of Management & Budget, 725 17th Street,
        N.W., Room 9226, New Executive Office Building, Washington, DC 20503
Ms. Carolyn G. Bowden, General Accounting Office, Deputy Director for Planning and
        Reporting/Operations, GAO FraudNET, P.O. Box 1736, Washington, DC 20013
Ms. Anabell Kinney, City Controller’s Office, City-County Building, 414 Grant Street,
        Pittsburgh, PA 15219




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