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 TOC Exit 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. TOC Exit Management Memorandum (THIS PAGE LEFT BLANK INTENTIONALLY) Page ii 2001-PH-1005 Exit 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. Page iii 2001-PH-1005 TOC Exit 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. 2001-PH-1005 Page iv TOC Exit 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 Pagev 2001-PH-1005 TOC Exit 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. 2001-PH-1005 Page vi TOC Exit 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 Page vii 2001-PH-1005 Exit 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 2001-PH-1005 Page viii Exit 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 Page 1 2001-PH-1005 TOC Exit 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. 2001-PH-1005 Page 2 TOC Exit Introduction We conducted the audit in accordance with generally accepted government auditing standards. Page 3 2001-PH-1005 TOC Exit Introduction (THIS PAGE LEFT BLANK INTENTIONALLY) 2001-PH-1005 Page 4 Exit 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 Page 5 2001-PH-1005 TOC Exit 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. 2001-PH-1005 Page 6 TOC Exit 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. Page 7 2001-PH-1005 TOC Exit 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 2001-PH-1005 Page 8 TOC Exit 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 Page 9 2001-PH-1005 TOC Exit 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 2001-PH-1005 Page 10 TOC Exit Finding 1 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. Page 11 2001-PH-1005 TOC Exit Finding 1 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 2001-PH-1005 TOC Page 12 Exit Finding 1 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 Page 13 2001-PH-1005 TOC Exit Finding 1 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. 2001-PH-1005 Page 14 TOC Exit Finding 1 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 Page 15 2001-PH-1005 TOC Exit Finding 1 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. 2001-PH-1005 TOC Page 16 Exit Finding 1 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 Page 17 2001-PH-1005 TOC Exit Finding 1 followed. The checklist should be completed and identify the responsible party. 1C. Ensure, through appropriate monitoring, the Authority adheres to its established procurement policy. 2001-PH-1005 Page 18 TOC Exit Finding 2 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 Page 19 2001-PH-1005 TOC Exit Finding 2 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. 2001-PH-1005 Page 20 TOC Exit Finding 2 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 Page 21 2001-PH-1005 TOC Exit Finding 2 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. 2001-PH-1005 Page 22 TOC Exit Finding 2 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. Page 23 2001-PH-1005 TOC Exit Finding 2 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 2001-PH-1005 Page 24 TOC Exit Finding 2 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 Page 25 2001-PH-1005 TOC Exit Finding 2 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. 2001-PH-1005 Page 26 TOC Exit 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 Page 27 2001-PH-1005 TOC Exit Finding 2 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 2001-PH-1005 Page 28 TOC Exit Finding 2 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. Page 29 2001-PH-1005 TOC Exit Finding 2 (THIS PAGE LEFT BLANK INTENTIONALLY) 2001-PH-1005 Page 30 Exit 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 Page 31 2001-PH-1005 TOC Exit Finding 3 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, 2001-PH-1005 Page 32 TOC Exit 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 TOC Page 33 2001-PH-1005 Exit Finding 3 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 2001-PH-1005 Page 34 TOC Exit 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 Page 35 2001-PH-1005 TOC Exit Finding 3 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. 2001-PH-1005 Page 36 TOC Exit Finding 3 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. Page 37 2001-PH-1005 TOC Exit Finding 3 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. 2001-PH-1005 Page 38 TOC Exit 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). Page 39 2001-PH-1005 TOC Exit Management Controls (THIS PAGE LEFT BLANK INTENTIONALLY) 2001-PH-1005 Page 40 Exit 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. Page 41 2001-PH-1005 TOC Exit Follow Up On Prior Audits (THIS PAGE LEFT BLANK INTENTIONALLY) 2001-PH-1005 Page 42 Exit 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). Page 43 2001-PH-1005 TOC Exit Appendix A (THIS PAGE LEFT BLANK INTENTIONALLY) 2001-PH-1005 Page 44 Exit 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. Page 45 2001-PH-1005 TOC Exit Appendix B (THIS PAGE LEFT BLANK INTENTIONALLY) 2001-PH-1005 Page 46 Exit 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. Page 47 2001-PH-1005 TOC Exit 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 Back to pg. 47 2001-PH-1005 Page 48 TOC Exit 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 Back to pg. 47 Page 49 2001-PH-1005 Exit 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 2001-PH-1005 Back to pg. 47 Page 50 Exit 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 Back to pg. 47 Page 51 2001-PH-1005 Exit 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 Gasline Relocation Back to pg. 47 Management Number 4090 2001-PH-1005 Page 52 Exit 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 Back to pg. 47 Page 53 2001-PH-1005 Exit 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 Back to pg. 47 2001-PH-1005 Page 54 Exit Appendix C 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 Back to pg. 47 Page 55 2001-PH-1005 Exit 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 Back to pg. 47 2001-PH-1005 Page 56 Exit Appendix C 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 Back to pg. 47 Page 57 2001-PH-1005 Exit Appendix C 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 Back to pg. 47 2001-PH-1005 Page 58 Exit Appendix C 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 Back to pg. 47 Page 59 2001-PH-1005 Exit Appendix C 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 Back to pg. 47 2001-PH-1005 Page 60 Exit Appendix C 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 Back to pg. 47 Page 61 2001-PH-1005 Exit 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 Back to pg. 47 2001-PH-1005 Page 62 TOC Exit Appendix D Auditee Comments Page 63 2001-PH-1005 TOC Exit Appendix D 2001-PH-1005 Page 64 Exit Appendix D Page 65 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 66 Exit Appendix D Page 67 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 68 Exit Appendix D Page 69 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 70 Exit Appendix D Page 71 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 72 Exit Appendix D Page 73 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 74 Exit Appendix D Page 75 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 76 Exit Appendix D Page 77 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 78 Exit Appendix D Page 79 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 80 Exit Appendix D Page 81 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 82 Exit Appendix D Page 83 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 84 Exit Appendix D Page 85 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 86 Exit Appendix D Page 87 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 88 Exit Appendix D Page 89 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 90 Exit Appendix D Page 91 2001-PH-1005 Exit Appendix D 2001-PH-1005 Page 92 TOC Exit 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 TOC Page 93 Exit 2001-PH-1005
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)