oversight

San Francisco Housing Authority, Force Account Modernization Activities, Comprehensive Grant Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2001-03-30.

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

       AUDIT REPORT




SAN FRANCISCO HOUSING AUTHORITY
    SAN FRANCISCO, CALIFORNIA

 FORCE ACCOUNT MODERNIZATION
          ACTIVITIES
 COMPREHENSIVE GRANT PROGRAM



              2001-SF-1001

             March 30, 2001

 OFFICE OF AUDIT, PACIFIC/HAWAII DISTRICT
       SAN FRANCISCO, CALIFORNIA
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                                                                                          Issue Date
                                                                                               March 30, 2001
                                                                                          Audit Case Number
                                                                                                2001-SF-1001




                    TO:          Gloria J. Cousar
                                 Acting General Deputy Assistant Secretary
                                 Office of Public and Indian Housing, P

                                 SIGNED
                    FROM:        Mimi Y. Lee
                                 District Inspector General for Audit, 9AGA

                    SUBJECT: San Francisco Housing Authority
                             Force Account Modernization Activities
                             San Francisco, California


                    We conducted an audit of the San Francisco Housing Authority’s force account modernization
                    activities under the Comprehensive Grant Program. We identified serious problems with the
                    program’s effectiveness and with the related recording and tracking of assets and expenditures.
                    This report contains two findings and applicable recommendations to improve the effectiveness
                    of the program.

                    Within 60 days, please furnish us a status report on the corrective action taken, the proposed
                    corrective action and the date to be completed, or why the action is not considered necessary for
                    each recommendation. Also, please furnish us with copies of any correspondence issued because
                    of the audit.

                    If you or you staff have any questions, please contact Mark Pierce, Assistant District Inspector
                    General for Audit, or myself at (415) 436-8101.




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                    Executive Summary
                    We reviewed selected aspects of the San Francisco Housing Authority’s (SFHA’s) force account
                    modernization activities under the Comprehensive Grant Program (CGP), generally covering the
                    period January 1997 to June 30, 1999. We initiated the audit to address concerns expressed by
                    the Director of Public Housing at the U.S. Department of Housing and Urban Development
                    (HUD) office in San Francisco.

                    The objective of our review was to determine if the SFHA could improve its effectiveness of
                    operations and compliance with federal requirements. Specifically, we determined whether the
                    SFHA force account activities (1) operated effectively within HUD requirements and (2)
                    included proper records for CGP assets and expenditures. We identified serious problems
                    relating to both the force account operations and the record maintenance, requiring HUD’s
                    immediate attention to set the proper tone and perspective for improvements.




                    The Housing Authority Was          The SFHA modernization activities were not cost effective.
                    Not Operating The Force            In addition, insufficient construction records were
                    Account Programs                   maintained to accurately identify and assess all
                    Effectively                        modernization work performed, and there were indications
                                                       of poor workmanship.           Also, the program did not
                                                       sufficiently emphasize high priority modernization, and
                                                       some of the low priority work performed cannot be
                                                       adequately maintained by the SFHA. These problems
                                                       primarily occurred due to inadequate management. As a
                                                       result, the level of potential modernization available under
                                                       the grant funds has been reduced. The SFHA’s neglect of
                                                       high priority work resulted in emergency conditions
                                                       requiring additional HUD funding. Finally, poor record
                                                       maintenance made it impossible for inspectors to fully
                                                       assess all the modernization performed.

                                                       We identified $18,186,844 of possibly excessive force
                                                       account costs on the Clementina, Potrero Annex, and
                                                       Sunnydale developments. However, due to deficient SFHA
                                                       records, all modernization costs could not be estimated
                                                       accurately.   Nevertheless, we were able to establish
                                                       $184,161 of excessive costs at the Clementina housing
                                                       development, where the SFHA recorded costs that
                                                       exceeded HUD Office of the Inspector General (OIG)
                                                       estimates of what it should have cost for a contractor to
                                                       perform the work.



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                    Executive Summary



                    The Housing Authority Was   The SFHA did not adequately record and track its assets
                    Not Maintaining Adequate    and expenditures. The general ledger recording was
                    Records Over Assets and     inadequate to fully assess CGP force account expenditures.
                    Expenditures                Expenditures were charged or moved to incorrect project
                                                accounts making the general ledger unreliable. The SFHA
                                                also did not consistently follow required procedures over
                                                the generation of its purchase orders relating to force
                                                account work. In addition, the inventory system over CGP
                                                purchased equipment was insufficient to accurately track all
                                                items. Finally, the SFHA was charging ineligible payroll to
                                                the CGP grant, while not maintaining adequate
                                                documentation to substantiate additional payroll attributed
                                                to the grants. These problems occurred because the SFHA
                                                did not develop sufficient procedures and controls, or was
                                                not following existing procedures. As a result, there was
                                                inadequate information to assure that all assets were
                                                accounted for and all expenditures were being legitimately
                                                used for CGP activities. In addition, $98,102 of ineligible
                                                and $73,210 of inadequately supported maintenance
                                                expenses were charged to the CGP, with additional
                                                amounts possible in other periods.

                    Auditee Comments            We provided the SFHA with a draft audit report and
                                                obtained its written comments. We also discussed the audit
                                                results with the SFHA’s senior management on March 26,
                                                2001 and received subsequent correspondence on March
                                                28, 2001. Due to the voluminous nature of attachements
                                                included with the response, these additional documents
                                                were not included in this report.        In addition, the
                                                subsequent correspondence was not included in the report,
                                                although its contents were reviewed and considered. These
                                                documents are available upon request.

                                                In general, the SFHA disagreed with the reports
                                                conclusions and recommendations. It believed that issues
                                                raised in the draft report were unfounded and misleading. It
                                                also believed some audit conclusions did not adequately
                                                consider all relevant factors.

                                                We considered the SFHA’s comments and made revisions
                                                to the report when appropriate.        Nevertheless, our
                                                conclusions did not change significantly. The SFHA did
                                                not provide sufficient substantive evidence to warrant
                                                changes to our recommendations.           Each finding

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                    Executive Summary



                                        summarizes the SFHA’s comments and our evaluation.

                    Recommendations     The findings include recommendations to avoid the
                                        continuance of the above problems and to lessen their
                                        effects. The more significant recommendations call for
                                        HUD to require the SFHA to terminate the use of force
                                        account for comprehensive modernization; stop using force
                                        account for non-routine maintenance until the SFHA can
                                        demonstrate that it is cost effective; require new procedures
                                        and controls to be put in place over record maintenance in
                                        the general ledger, inventory, and purchase order system;
                                        and return ineligible and excessive costs of $282,263.




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                    Management Memorandum                                                i


                    Executive Summary                                                  iii


                    Introduction                                                        1


                    Findings

                    1    The In-House Force Account Modernization Programs
                         Were Not Operating Effectively                                 7

                    2    The SFHA Was Not Adequately Recording and Tracking
                         Assets and Expenditures Under the CGP                         57




                    Management Controls                                                81


                    Follow Up On Prior Audit Reports                                   83



                    Appendices
                        A Schedule of Questioned Costs                                 85

                        B Auditee Comments                                             87

                        C Distribution                                                107




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                    Abbreviations

                    ACC            Annual Contributions Contract

                    CCS            Creative Computer Solutions

                    CFR            Code of Federal Regulations

                    CGP            Comprehensive Grant Program

                    CIAP           Comprehensive Improvement Assistance Program

                    HQS            Housing Quality Standards

                    HUD            U.S. Department of Housing and Urban Development

                    LBP            Lead Based Paint

                    LOCCS          Line of Credit Control System

                    MIS            Management Information System

                    MOH            Mayor’s Office of Housing

                    OHA            Oakland Housing Authority

                    OIG            HUD Office of the Inspector General

                    PHMAP          Public Housing Management Assessment Program

                    PO             Purchase Order

                    SFHA           San Francisco Housing Authority

                    SLUG           San Francisco League of Urban Gardeners

                    TARC           HUD Troubled Agency Recovery Center




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                    Introduction
                    The major HUD programs funding the SFHA include Section 8 rental assistance, operating
                    subsidy, modernization, HOPE VI, and drug elimination. Under Section 8, the SFHA subsidizes
                    the cost of low-income families in privately owned housing. Operating subsidies, based on a
                    regulatory formula, are provided to help the SFHA offset operating deficits in the maintenance
                    and operation of the low-income housing it owns. The modernization program pays for capital
                    improvements and related management improvements at the public housing developments.
                    HOPE VI grants provide funds for innovative mixed-income housing to remedy the problem of
                    distressed developments. Drug elimination grants are for addressing drug-related crime and its
                    associated problems in and around public housing developments.



                    The Authority Was Created           The San Francisco board of supervisors established the
                    In 1938                             Housing Authority of the City and County of San
                                                        Francisco, commonly known as the San Francisco Housing
                                                        Authority, in 1938. The city mayor appoints the members
                                                        to the SFHA’s governing body known as the board of
                                                        commissioners.

                                                        In 1940, the SFHA opened the city’s first low-income
                                                        housing development for 188 families. The SFHA has
                                                        grown to include about 40 developments with a total of
                                                        nearly 6,000 housing units. Also, since the 1974 inception
                                                        of the Section 8 program, the number of low-income
                                                        families with subsidized rents at privately owned housing
                                                        has risen to approximately 5,500.

                                                        For the fiscal year ended in 1997, the SFHA expended $128
                                                        million. Its largest programs consisted of Section 8 ($51
                                                        million), low-income housing operations ($33 million),
                                                        modernization ($24 million), HOPE VI new development
                                                        ($16 million), and drug elimination ($2.8 million).

                    HUD Assumed Temporary               The SFHA was much criticized for its perceived lack of
                    Control Of The Authority In         competent leadership, physical decay of its housing, poor
                    March 1996                          performance in collecting rent, and the high level of crime
                                                        existing at its housing developments. As a result, in March
                                                        1996, the city’s newly elected mayor announced the firing
                                                        of the SFHA’s commissioners and executive director. The
                                                        mayor invited HUD to temporarily run the SFHA and
                                                        reorganize it, recruit new management, and establish new
                                                        policies and procedures.


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                                                   As a result, HUD sent a recovery team (consisting of HUD
                                                   officials, consultants, and employees from other housing
                                                   agencies) to assess the SFHA’s operations and develop
                                                   strategies to deal with the problems. This phase was
                                                   concluded in November 1996. HUD contracted to fill
                                                   several key management positions to continue the recovery
                                                   efforts.

                    The City Regained Control In   As part of the recovery effort, the acting HUD Assistant
                    September 1997                 Secretary for Public and Indian Housing functioned as the
                                                   board of commissioners. In July 1997, the mayor appointed
                                                   new board members, and in September 1997, HUD turned
                                                   control over to the newly formed board.

                                                   At the time of our audit, the SFHA’s executive director
                                                   began working at the SFHA in November 1996, on loan
                                                   from the Cuyahoga Metropolitan Housing Authority to
                                                   serve as the acting executive director. The SFHA board of
                                                   commissioners hired him on a permanent basis in
                                                   November 1997.

                    SFHA Modernization Force       The SFHA’s modernization program is funded under the
                    Account Program                CGP. Since fiscal year 1992, HUD has allocated CGP
                                                   funds to the SFHA to fund its modernization efforts and
                                                   other improvements. Prior to the CGP, the SFHA had been
                                                   receiving funds under a similar program, the
                                                   Comprehensive Improvement Assistance Program (CIAP).
                                                   The CIAP and CGP grant programs allow, under certain
                                                   restrictions, housing authorities the option of using their
                                                   own in-house labor “force account” to perform
                                                   modernization work, as opposed to independent
                                                   contractors.

                                                   In 1996, the SFHA was performing modernization using a
                                                   force account program. HUD’s San Francisco Office of
                                                   Public Housing instructed the SFHA to terminate all force
                                                   account activity on May 29, 1996. This decision was
                                                   reached because it was believed the force account program
                                                   was not cost effective, there was mismanagement, and the
                                                   quality of work was questionable. These observations are
                                                   similar to the conclusions presented in this audit report
                                                   covering subsequent modernization activities.




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                                                By May 1997, HUD had allowed the SFHA to reinitiate its
                                                force account program. The program was split into two
                                                parts, the Family Sweep program and the Senior Sweep
                                                Program, performing modernization activities, respectively,
                                                on family and senior developments.

                                                The Sweeps programs performed varying levels of
                                                modernization on 21 senior development and 20 family
                                                developments.

                                                Upon resumption of the force account program in 1997,
                                                there were still CIAP funds available from the 1991 grant
                                                allocations. In addition, there were funds available under
                                                each subsequent year allocation of the CGP grant.
                                                Additional CGP funds were granted for 1997 and 1998.
                                                Between January 1997 and June 15, 1999, the SFHA had
                                                withdrawn approximately $98.6 million from the CIAP and
                                                CGP grants.

                                                The City of San Francisco was not given formal control
                                                over the SFHA until September 1997. Force account
                                                activity had already been reinitiated by the Acting
                                                Executive Director. This included activity at three of the
                                                SFHA’s developments within the scope of our review:
                                                Sunnydale, Potrero Annex, and Clementina. At Sunnydale,
                                                $3,007,507 of the total expenditures related to force
                                                account had already been spent by September 1997. This
                                                represents 17% of the $17,821,923 in total expenditures
                                                and encumbrances identified by the SFHA as of June 21,
                                                1999. However, none of the amounts incurred related to
                                                the disability access work, which was the primary focus of
                                                our review. In addition, at Potrero Annex, the SFHA had
                                                already incurred $65,206 (less than 1%) of the total
                                                $6,225,711 in force account costs. Finally, at Clementina,
                                                the SFHA had already incurred $55,508 (5%) of the total
                                                $1,057,943 in force account costs.




                    Audit Objective And Scope   The audit was initiated as part of our local audit plan based
                                                on input from the Director of Public Housing at HUD’s San
                                                Francisco office. The Director expressed concerns about
                                                sole source and non-competitive contracting, circumvention

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                    Introduction


                                   of waiting list policies, use of Section 8 reserves, and a
                                   request for a large release of CGP money. She also
                                   expressed specific concerns with consulting contracts.

                                   Most areas of concern were reviewed and reported under a
                                   separate audit report. Our audit report number 00-SF-201-
                                   1001 issued in March 2000 covered the Public Housing
                                   Management Assessment Program (PHMAP), operating
                                   subsidy     housing-unit-months-availability,  contracting
                                   procedures, hiring and compensation procedures, and
                                   Section 8 receivables.

                                   For this report, our audit objective was to determine if the
                                   SFHA effectively operated its force account modernization
                                   program in compliance with federal requirements. The
                                   audit generally covered the period of January 1, 1997 to
                                   June 30, 1999.         We performed audit field work
                                   intermittently from June 1999 to October 2000.

                                   The primary methodologies for the audit included:

                                   ✓ Considerations of the SFHA’s management control
                                     structure and the assessments of risk.

                                   ✓ Interviews of various SFHA employees and HUD
                                     officials acquainted with the SFHA.

                                   ✓ Reviews of documentation related to the 1990 to 1998
                                     CIAP and CGP grant programs, including planning
                                     documentation, procedures, and records on work
                                     performed.

                                   ✓ Reviews of force account modernization costs,
                                     including accounts payable, warehouse inventory
                                     draws, and payroll costs.

                                   ✓ On-site inspections of three sampled SFHA
                                     developments, including review of construction
                                     documentation and actual costs, to determine the
                                     reasonableness of the modernization costs. Overall,
                                     these three developments represented 36% of the total
                                     CGP expenditures of $69,270,842 for force account
                                     modernization as identified by the SFHA as of June
                                     1999. These represented the largest and third largest
                                     Family Sweep developments, and the largest Senior

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                       Sweep development. We chose them to maximize audit
                       coverage of expenditures and review the most recently
                       performed modernization.

                    ✓ Comparisons of actual modernization costs to the costs
                      of modernization performed by other entities.

                    ✓ Reviews of inventory maintenance procedures and
                      records, including on-site tests of sample inventory
                      items.

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




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                                                                                                       Finding 1


                      The In-House Force Account Programs Were
                              Not Operating Effectively
                    The SFHA force account programs were not cost effective. In addition, insufficient
                    construction records were maintained to fully identify and assess all modernization work
                    performed, and there was evidence of poor workmanship. Also, the program did not
                    sufficiently emphasize high priority modernization, and some of the low priority work
                    performed cannot be adequately maintained by the SFHA. These problems primarily
                    occurred due to inadequate management. As a result, the level of potential modernization
                    available under the grant funds has been reduced. The SFHA’s neglect of high priority
                    work has resulted in emergency conditions requiring additional HUD funding. Finally,
                    poor record maintenance made it impossible for inspectors to fully assess all the
                    modernization performed.

                    We identified $18,186,844 of possibly excessive force account costs on the Clementina,
                    Potrero Annex, and Sunnydale developments. However, due to deficient SFHA records,
                    not all modernization costs could be estimated accurately. Nevertheless, we were able to
                    establish $184,161 of excessive costs at the Clementina housing development, where the
                    SFHA recorded costs that exceeded HUD OIG estimates of what it should have cost for a
                    contractor to perform the work.



                    Various Criteria Govern          HUD Handbook 7485.3G, The Comprehensive Grant
                    Force Account Activity           Program, states that a housing authority may undertake the
                                                     modernization activities using force account labor, but only
                                                     where specifically approved by HUD. The HUD field
                                                     office shall approve the use of force account labor only
                                                     where it is cost-effective and appropriate to the scope and
                                                     type of physical improvements, and the housing authority
                                                     has the capacity to serve as its own main contractor while
                                                     still providing an adequate level of routine maintenance
                                                     during force account activity.

                                                     CGP improvements and replacements need to ensure the
                                                     long-term physical and social viability of the development
                                                     at a reasonable cost. The guidebook also requires a
                                                     physical needs assessment to be prepared and submitted to
                                                     HUD ranking the priority of required modernization work.

                                                     HUD Handbook 7417.1 Rev-1, Public Housing
                                                     Development, identifies the types of documentation and

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                    Finding 1


                                   records required for contractors during a major
                                   development project. When the interior of a structure is to
                                   be gutted with structural modifications, complete drawings
                                   and details are required, similar to new construction. The
                                   drawings must clearly define the rehabilitation and
                                   replacement.       Construction specifications call for
                                   describing the work to be done by each of the applicable
                                   trades, including a description of the scope of work,
                                   workmanship, materials, and equipment. It shall also
                                   include specific instructions for coordinating with other
                                   trades and descriptions of work not clearly evident from the
                                   drawings. The housing authority shall maintain records of
                                   delays in obtaining labor and materials, precipitation, and
                                   other causes for delays. Finally, the housing authority shall
                                   periodically take photographs to illustrate the progress of
                                   the construction work.

                                   For work performed under contract, the handbook specifies
                                   a warranty period of at least 365 calendar days from the
                                   date specified on the certification of completion, or such
                                   longer period otherwise specified in the contract. The
                                   handbook requires construction contracts to be prepared to
                                   include Form HUD 5370. This form requires the contractor
                                   to provide at least a year warranty ensuring work performed
                                   conforms to contract requirements and is free of any defect
                                   in equipment, materials, or workmanship. The contractor
                                   shall remedy, at the contractor’s expense, any failure to
                                   conform, or any defect.

                                   HUD Handbook 7460.8 Rev-1, Procurement, Section 6-10
                                   Contract Modifications, requires modernization contractors
                                   to maintain detailed documents for change orders,
                                   describing the proposed changes, references to drawing,
                                   prices for the work, time estimates, breakdowns of costs for
                                   material and labor, and any changes to the architectural
                                   drawings.

                                   The SFHA Annual Contributions Contract (ACC) states
                                   that the mission of the housing authority is to operate each
                                   project solely for the purpose of providing decent, safe, and
                                   sanitary, housing for eligible families.

                                   Title 24 of the Code of Federal Regulations (CFR) Section
                                   882.109 defines housing quality standards (HQS) condition
                                   requirements for housing units.

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                                                                                                    Finding 1



                    The Force Account            The SFHA began force account work around February 1997
                    Justification Submitted to   without obtaining HUD’s required advance approval, which
                    HUD Was Inaccurate           was not granted until May 1997. Subsequently, on January
                                                 15, 1998, HUD’s Office of Public Housing required the
                                                 SFHA to supply information to demonstrate the force
                                                 account program was cost-effective or HUD would
                                                 withhold 1997 CGP funds. The SFHA responded to HUD
                                                 on July 28, 1998. We found the SFHA’s response
                                                 inaccurate, with the resulting erroneous conclusion force
                                                 account was cost effective in comparison to contracting.

                                                 The SFHA made three cost comparisons to justify its
                                                 conclusion that force account was cost effective. This
                                                 included comparing its Family Sweep comprehensive
                                                 modernization work at Potrero Annex to similar work
                                                 performed by contractors for the San Francisco City
                                                 Mayor’s Office of Housing (MOH), and comparing the cost
                                                 of Senior Sweep costs for disability access conversion at
                                                 several developments to comprehensive modernization
                                                 performed by contractors for the MOH. Finally, lead based
                                                 paint work performed at a Family Sweep development was
                                                 compared to a contractor’s cost to do the work at the same
                                                 development.

                                                 The letter stated, “The average cost per unit for the Family
                                                 Sweep work completed at Potrero Annex and roofing work
                                                 that is construction is $78,500. By contrast, the average
                                                 cost per unit of substantial rehabilitation projects funded by
                                                 the Mayor’s Office of Housing and done by private
                                                 contractors ranges from $80,878 to $168,537. The most
                                                 comparable family project, 2300 Van Ness which has 2 to 4
                                                 bedroom apartments, costs an average of $168,537 per
                                                 unit.”

                                                 In addition, the letter compared the MOH contractor costs
                                                 to its Senior Sweep costs. The SFHA claimed “total gut
                                                 rehabilitation of studio units funded through the Mayor’s
                                                 Office of Housing costs between $80,878 and $104,621.”
                                                 This cost was compared to the Senior Sweep average per
                                                 unit cost of $41,243 performed on several different
                                                 buildings, not including roofing, waterproofing, and
                                                 elevator modernization.




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                    Finding 1


                                                 The figures SFHA recorded in its general ledger were
                    Force Account Costs Higher   significantly higher than the force account costs reported to
                    Than Reported to HUD         HUD. This included the costs for the Family Sweep
                                                 development Potrero Annex and the Senior Sweep
                                                 modernization

                                                 Our review of the Potrero Annex cost as of June 30, 1999,
                                                 showed the actual average cost per unit was approximately
                                                 $113,841. This amount represented the construction costs
                                                 charged to dwelling structure and site improvement
                                                 accounts in the general ledger for Potrero Annex. The
                                                 actual cost was 145% of the $78,500 reported costs by the
                                                 SFHA to HUD. The SFHA could not demonstrate how it
                                                 calculated the $78,500 reported in the July 1998
                                                 justification letter. The actual cost in the general ledger
                                                 around July 1998 was approximately $3,709,641, or
                                                 $123,655 per unit. In addition, projecting this $35,341
                                                 ($113,841 - $78,500) per unit difference to all 137 Potrero
                                                 Annex units planned for renovation, results in an actual
                                                 modernization cost $4,841,717 higher than reported to
                                                 HUD. For the 57 units actually complete as of June 30,
                                                 1999, the modernization cost was $2,014,437 higher.

                                                 The Senior Sweep modernization costs were also higher
                                                 than reported to HUD. Senior Sweep work included the
                                                 modernization of 90 units in 17 housing developments by
                                                 converting them to 504 disability access. (The SFHA
                                                 designated modernization to make buildings and units
                                                 accessible to the handicapped as “504” work.) The SFHA
                                                 had identified a cost of $41,243 per unit for the Senior
                                                 Sweep units modernized.         However, general ledger
                                                 disability access 504 costs were $48,488 per unit on
                                                 average, not including roofing and other unrelated common
                                                 area work. The costs ranged from $18,913 to $96,233 per
                                                 unit, varying between housing developments. The average
                                                 cost was $7,245 (17.5%) higher per unit than the applicable
                                                 cost shown in the letter. Projected to all 90 units, the
                                                 difference would represent additional costs of $652,050.
                                                 The Senior Sweep work was still in-progress as of June 30,
                                                 1999, so additional costs would still be incurred.




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                                                                                                 Finding 1



                                               MOH per unit construction costs were significantly lower
                    The Mayor’s Office of
                                               than the SFHA reported. This included the costs for 2300
                    Housing Costs Were Lower
                                               Van Ness, Lyric, and Apollo. This occurred because the
                    Than Reported to HUD
                                               SFHA included unrelated costs not applicable to its cost
                                               comparisons.

                                               The SFHA reported $168,537 as the average cost per unit
                                               for 2300 Van Ness. This figure included the purchase of
                                               the property, financing costs, and reserves. These costs
                                               were not comparable to the SFHA modernization work
                                               since the SFHA already owned the property and had no
                                               financial cost. The CGP funded the SFHA force account
                                               work so no borrowing was required. The contract
                                               construction costs for 2300 Van Ness were only
                                               approximately $55,651 average per unit, based on
                                               information provided by the Mayor’s Office of Housing.
                                               The actual MOH construction costs of $55,651 were less
                                               than one-third the MOH costs $168,537 the SFHA reported
                                               to HUD.

                                               Similarly, the actual construction costs of Apollo and Lyric
                                               were $41,782 and $47,837 per unit respectively, versus the
                                               $80,878 to $104,621 reported by the SFHA. The actual
                                               costs were approximately half of the amount reported to
                                               HUD in the justification letter.

                                               We cannot rely on the SFHA’s assessment over the lead
                    Lead Based Paint Costs
                                               based paint (LBP) work because the cost reported by the
                    Could Not Be Confirmed
                                               SFHA for its own work could not be confirmed, and
                                               problems had been previously noted by HUD with the LBP
                                               work in question.

                                               The SFHA compared its costs for LBP hazard abatement to
                                               the costs charged by a contractor to perform the work at the
                                               same development. The SFHA listed its costs to perform
                                               LBP costs at $281,568, or $841 per unit. This was lower
                                               than the contractor cost of $1,709 per unit.

                                               However, the SFHA was not able to demonstrate how it
                                               arrived at its unit cost of $841 per unit, or produce
                                               information to verify these amounts were accurate. The
                                               June 1999 balances in the general ledger did not support the
                                               SFHA’s figures. Further, it is not certain whether the
                                               current general ledger balance represents the true LBP cost

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                                               at the development, or whether costs were distributed to
                                               non-LBP accounts.

                                               In addition, a HUD inspection showed problems with the
                                               quality and controls over some of the SFHA’s force account
                                               LBP work. These issues were reported in a June 13, 1997
                                               letter from HUD. HUD had performed an on-site LBP
                                               review and noted poor quality of LBP work and inaccurate
                                               records at different developments worked on by the force
                                               account, including Potrero Terrace. The SFHA was unable
                                               to provide documentation demonstrating how these issues
                                               were resolved to ensure a sufficient level of quality.

                      No Analysis of Other     The letter submitted to HUD provided no information to
                      Types of Modernization   show whether other types of activities performed by the
                      Activities               force account were cost effective. For example:

                                                  •   The letter provides no evidence the SFHA force
                                                      account was more effective in performing
                                                      landscaping then a contractor. Since the SFHA
                                                      spent several million dollars to perform landscaping
                                                      work, an analysis to determine whether it could do
                                                      quality work at a lower cost should have been
                                                      performed.

                                                  •   The letter also does not analyze any of the non-
                                                      routine maintenance tasks the SFHA was
                                                      performing. The non-routine maintenance work
                                                      generally consisted of various tasks performed on
                                                      unit interiors, such as interior painting, floor tile
                                                      replacement, shower tiles, etc.        A significant
                                                      majority of the funding spent at Clementina and
                                                      Sunnydale consisted of this type of activity.

                     Force Account Costs       We attempted to determine whether the SFHA force
                     Exceeded Cost to Have a   account costs were reasonable by comparing SFHA costs to
                     Contractor Perform the    OIG inspector estimates of what costs should have been for
                     Work                      a contractor to perform the work. In addition, we compared
                                               the actual SFHA costs to actual MOH and OHA
                                               modernization costs, both performed by contractors. In
                                               each case, the SFHA force account costs appeared
                                               excessive.




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                        Force Account Costs Were               We were unable to verify all costs for work performed on
                        Excessive and Questionable             the Family and Senior Sweep developments due to the
                        Based On OIG Inspections               SFHA’s deficient records. The OIG inspectors’ estimates
                                                               of costs to perform the work were generally significantly
                                                               lower than the actual costs incurred by the Sweep
                                                               programs. We were able to compare estimated to actual
                                                               Senior Sweep costs for two activities. Although Senior
                                                               Sweep HQS non-routine maintenance work did not appear
                                                               excessive, common space modernization was. However,
                                                               other comprehensive modernization and non-routine
                                                               maintenance costs could not be determined due to the lack
                                                               of available documentation on modernization work
                                                               performed. As a result, the SFHA modernization costs
                                                               were excessive by $184,1611 and $18,186,844 was
                                                               questionable.

                                                               We attempted to verify whether the SFHA’s force account
                                                               costs to perform modernization work were reasonable. The
                                                               OIG sent its inspectors on-site to three sample
                                                               developments to develop cost estimates for modernization
                                                               work performed. We also requested documentation from
                                                               the SFHA specifically identifying the modernization work
                                                               actually performed on each unit.        However, there was
                                                               inadequate documentation available to adequately assess
                                                               the Family Sweep costs. The Senior Sweep records were
                                                               inadequate for only one of three areas reviewed.

                                                               The Sweeps programs were primarily performing work of
                                                               differing scope on different units and developments. In
                                                               some instances, the Sweeps programs were performing
                                                               comprehensive ‘gut’ modernization on units. This type of
                                                               work generally involved significant construction work that
                                                               included the repair or replacement of all interior items,
                                                               where tenants had to vacate the unit during the
                                                               modernization. We expected the same level of construction
                                                               documentation for this type of work a contractor would
                                                               maintain if contracted by the SFHA. These records should
                                                               detail what work was to be performed and identify changes
                                                               in scope though change orders.




                    1
                     The total excessive amount was $191,132. However, approximately $6,971 of the excessive amount was incurred
                    prior to September 1997, before HUD formally returned control of the SFHA to the City of San Francisco appointed
                    board of commissioners.

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                                   The Sweeps programs were also performing non-routine
                                   maintenance work on unit interiors that was not complete
                                   and mainly involved addressing housing quality standards
                                   violations within the units. The scope of work was not
                                   always consistent between units. Maintenance employees
                                   could ordinarily have performed several of these work
                                   items. These items were also designated in the CIAP
                                   handbook as being non-routine maintenance related, such
                                   as replacing sinks, appliances, plumbing fixtures and
                                   equipment, wall tile, interior painting, space heating
                                   equipment, minor electrical, minor replacement of floors,
                                   etc. In general, tenants did not vacate the units when this
                                   non-routine maintenance was performed. At a minimum,
                                   the SFHA should have recorded which work items were
                                   performed in each unit, and the scope or quantity of the
                                   work, using a work order.

                                   We selected the Sunnydale, Potrero Annex, and Clementina
                                   developments for inspection. The work reviewed at
                                   Sunnydale included comprehensive interior modernization
                                   on disability access units in four buildings and non-routine
                                   maintenance type modernization performed on 28 other
                                   buildings. At Potrero Annex, modernization was done on
                                   nine buildings while another building was in process of
                                   modernization during the inspection. At Clementina, there
                                   were two high-rise buildings with common area work in
                                   progress, 10 units converted for disability access, and 266
                                   units with various non-routine maintenance.

                                   Sunnydale

                                   There were inadequate construction records to properly
                                   assess all the cost of work performed at Sunnydale. The
                                   costs that could be estimated were substantially below the
                                   actual cost in the Sunnydale general ledger accounts. It was
                                   not certain whether this actually demonstrated excessive
                                   Family Sweep costs. As a result, $13,358,264 attributed to
                                   Sunnydale HQS accounts and $801,093 attributed to
                                   Sunnydale (504) accounts are questionable.

                                   The OIG inspectors reviewed the interior work in 12 of the
                                   28 units that received comprehensive modernization when
                                   four buildings were converted to disability access. This
                                   included all 11 units converted to disability access. The
                                   inspectors also reviewed the interior work in 19 of the 248

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                    units that received selective non-routine maintenance
                    modernization.

                    The Family Sweep program maintained no records to
                    identify interior non-routine maintenance work performed
                    on the 28 buildings. The only information available was a
                    generalized listing of work that would be done on an as
                    needed basis. The types of work that may have been
                    performed included floor tile, interior painting, wall tile in
                    bathrooms, new plumbing fixtures, wall heater, hot water
                    heaters, and electrical fixtures. Each unit inspected had
                    different amounts of work performed. Units had tile or
                    paint in different areas. The extent of bathroom work was
                    not certain, and some buildings did not have new heaters
                    installed yet. There were no work orders or other
                    documentation showing work done to each unit. As a
                    result, the OIG inspectors were unable to accurately
                    estimate work performed.

                    Four buildings received comprehensive modernization to
                    convert 11 of the 28 units for disability access. The
                    modernization included a reconfiguration of the building
                    units to make a portion of the units accessible to the
                    disabled. The SFHA included the costs attributed to the
                    non-disability access units within these buildings into the
                    same general ledger HQS accounts as the non-routine
                    maintenance work. The comprehensive modernization
                    costs could not be distinguished or separated from the non-
                    routine maintenance costs. The Family Sweep department
                    had not separately tracked the costs of the two different
                    types of work. The OIG inspectors were unable to assess
                    the costs without inspecting every unit at Sunnydale. Also,
                    due to the lack of records concerning what had been
                    performed, the OIG inspector could not prepare accurate
                    estimates. Since accurate estimates could not be prepared
                    for this modernization and compared to actual costs, the
                    entire $13,222,789 attributed to the HQS accounts as of
                    June 21, 1999, along with $135,475 of June 1999 payroll
                    charged the following month, was questionable.

                    The SFHA did attribute the costs of performing the
                    disability access 504 work on the 11 units into separate
                    general ledger accounts. The average per unit costs in the
                    accounts, as of June 30, 1999, was $99,370. However, the
                    SFHA did not have plans showing how and where new

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                                   plumbing and electrical were placed into the buildings for
                                   the unit conversions. There was no information to show
                                   where and if concrete sawcutting, coring, or grading had
                                   been performed, or how ceilings were filled when staircases
                                   were removed from the building’s design. As a result, the
                                   OIG inspector could not provide accurate cost estimates for
                                   this work either.

                                   The general ledger cost was close to the original SFHA
                                   estimates for the planned disability access work: $94,088
                                   average per unit. However, there were no breakdowns
                                   available to show the basis of this estimate. Also, cost
                                   breakdowns for the Sunnydale ‘mothball’ units did not
                                   include all work items planned for the 504 units.

                                   The costs that the OIG inspector could confirm as
                                   performed, with any degree of certainty based on the
                                   information available, should not have exceeded $291,973,
                                   or $26,543 average per unit (including an adjustment of
                                   25% added to OIG base estimate figures for overhead,
                                   general conditions, and mobilization). However, this
                                   estimate cannot be accurately compared to the actual costs
                                   since all work possibly performed could not be assessed.
                                   As a result, the $801,093 difference between the SFHA
                                   actual costs $1,093,066 and the OIG estimate of $291,973
                                   is questionable.

                                   Potrero Annex

                                   The OIG modernization cost estimates were substantially
                                   below the actual cost in the Potrero Annex general ledger
                                   accounts; however, there were inadequate construction
                                   records to accurately assess all the work performed at
                                   Potrero Annex. As a result, $3,865,018 of the Potrero
                                   Annex cost attributed to the HQS account was
                                   questionable.

                                   At Potrero Annex, the OIG inspected 29 of the 57 units
                                   completed by the force account. Nine buildings had been
                                   completed at the time and one was underway. The OIG
                                   inspectors attempted to estimate costs for all the interior
                                   modernization work performed at the development, based
                                   on review of the SFHA estimates and plans, and an on-site
                                   inspection. However, there was inadequate documentation
                                   available to demonstrate the actual level of drywall

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                    replacement, wood frame replacement, and floor repair.
                    The OIG estimated the confirmable work at $1,344,015, or
                    $22,780 average per unit (adjusted 25% for overhead
                    costs).

                    In addition, the general ledger cost of $5,209,033, or per
                    unit average of $88,289, for HQS work included interior
                    and exterior work performed on the development as of
                    June 29, 1999. The HQS accounts did not include costs for
                    lead based paint abatement, roofing, exterior paint, and
                    some electrical costs allocated to different accounts in the
                    general ledger.

                    The SFHA had prepared initial plan estimates by August
                    1998 for the work at Potrero Annex. The interior costs
                    ranged from $31,045 for one-bedroom units to $83,946 for
                    five bedroom units.       Based on the units actually
                    modernized, the average cost would have been $44,199 per
                    unit. Plans also listed balcony costs of approximately
                    $2,480. These costs were also charged to HQS accounts.
                    However, no description was provided indicating what
                    exactly was going to be done to the balconies. In addition,
                    there were no change orders to identify how the planned
                    HQS work went from $46,680 to the actual $88,289
                    average per unit. It is not certain how the scope of work
                    changed between the initial plans and the actual work
                    performed.

                    The SFHA cannot distinguish the different costs for
                    different work items within the HQS account. The Family
                    Sweep department had not separately tracked these costs.
                    Therefore, the SFHA cannot separate the exterior work
                    costs in the general ledger from interior work, including
                    items such as balcony repairs. It also cannot identify what
                    its costs were to perform one interior work item, such as
                    painting, versus another interior work item, such as
                    plumbing. As a result, the OIG estimate could not confirm
                    the propriety of all costs in the SFHA’s general ledger. The
                    $3,865,018 difference between the Potrero Annex HQS
                    costs $5,209,033 and the OIG estimate $1,344,015 was
                    questionable.




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                                   Clementina

                                   Due to the inadequacy of SFHA records, we also could not
                                   arrive at a conclusive estimate of work performed for the
                                   disability-access units at Clementina. However, we were
                                   able to generate estimates for common space and HQS non-
                                   routine maintenance.        While the non-routine unit
                                   maintenance actual cost did not appear excessive, the
                                   common area work was not cost-effective. As a result,
                                   $184,161 appeared excessive and $162,469 was
                                   questionable.

                                   The OIG inspected 32 of the 266 Clementina units that had
                                   non-routine maintenance, reviewed common area work
                                   identified during the inspection, and inspected all ten
                                   disability access (504) units. The Senior Sweep department
                                   maintained work orders for non-routine maintenance
                                   performed on the Clementina units. As a result, the OIG
                                   was able to prepare estimates. The actual general ledger
                                   costs of $364,240 were comparable to the OIG estimates.

                                   Nevertheless, the actual costs for common space work were
                                   excessive compared to the OIG estimates. The common
                                   space work was still in-progress during the OIG
                                   inspections. The common space work as of the inspection
                                   was estimated at $100,099, including a 20% adjustment for
                                   overhead. This amount was significantly below the
                                   $291,231 in the general ledger. (We removed $73,431
                                   from the actual general ledger balance for comparison
                                   purposes because these costs such as for furniture were not
                                   included in the OIG estimate.) Based on the estimates of
                                   the OIG inspector, it appears that the SFHA overspent
                                   $191,132. Of this amount, $6,971 was incurred by the
                                   SFHA prior to September 1997.

                                   The actual costs for disability access work appeared
                                   excessive compared to the OIG estimates; however, an
                                   accurate comparison could not be made. The OIG estimate,
                                   adjusted 20% for overhead and including another 20%
                                   allowance for appliances and ‘buffet cabinets’, was
                                   $157,527 for the 10 disability access units and public
                                   restrooms converted to disability access. This was far
                                   below the actual cost in the general ledger of $329,040 as
                                   of June 30, 1999.

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                                              Due to the lack of SFHA documentation, the OIG
                                              inspectors could not produce estimates for all work items
                                              charged to the general ledger account. As a result, we
                                              could not confirm additional SFHA costs. The level of
                                              plumbing, electrical, and asbestos work performed in each
                                              unit was not certain due to the lack of documentation
                                              identifying what exactly was performed to complete these
                                              items. In addition, the Senior Sweep staff stated asbestos
                                              had been removed from unspecified flooring areas within
                                              units.    However, we could not identify any hazard
                                              abatement costs in the general ledger detail reports.
                                              Finally, the general ledger included expenses for common
                                              area doorknobs, an item not assessed by the OIG inspectors.
                                              The materials costs were confirmed to invoices as $9,044,
                                              but the associated labor cost was unknown. As a result, the
                                              difference of $162,469 was questionable, representing the
                                              difference between the general ledger costs and the OIG
                                              estimate, less the doorknob material costs.

                    MOH Modernization Costs   As previously mentioned, the SFHA used MOH
                    Were Lower than SFHA      modernization costs to justify its use of force account.
                    Force Account Costs       However, the SFHA misrepresented both the MOH costs
                                              and its own costs. The actual MOH contractor costs were
                                              lower than the force account costs to perform similar work.
                                              The MOH used contractors to perform its modernization.

                                              The actual SFHA Potrero Annex modernization costs were
                                              approximately $113,841 per unit for the 57 units completed
                                              as of June 30, 1999. The MOH performed similar
                                              modernization to a development at 2300 Van Ness. The
                                              MOH contract cost to perform the modernization was
                                              approximately $55,651 average per unit. The average size
                                              of the 2300 Van Ness units modernized, 2.4 bedrooms, was
                                              fairly close to the 2.6 average bedrooms for units completed
                                              by the force account at Potrero Annex. The SFHA force
                                              account was over double the cost of the MOH to perform
                                              similar work.

                                              Similarly, the average cost to modernize a Sunnydale
                                              disability access a 504 unit was $99,370. The average size
                                              of the 11 units modernized was 1.9 bedrooms, smaller than
                                              the average 2300 Van Ness unit. However, the force
                                              account cost were $43,719 per unit higher than the MOH


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                                                2300 Van Ness costs. This difference totals $480,909 for
                                                all 11 units converted.

                    Force Account Costs         The SFHA force account Family Sweep costs also appeared
                    Excessive Compared to       excessive when compared to similar work performed by
                    Oakland Housing Authority   contractors for the Oakland Housing Authority (OHA),
                    Contract Costs              even after locality rate adjustments were considered. We
                                                compared the costs of modernization work performed at
                                                Potrero Annex to comprehensive modernization performed
                                                at two OHA developments, Peralta and Campbell. Based
                                                on this comparison, $2,244,301 of the Potrero Annex
                                                modernization was questionable compared to the total
                                                recorded force account costs of $6,529,825.

                                                We reviewed the costs associated with comprehensive
                                                modernization performed by contractors on OHA
                                                developments, selecting two developments that had work
                                                done similar to that performed by the SFHA at Potrero
                                                Annex: Campbell and Peralta developments.           These
                                                developments were composed of scattered site dwellings
                                                and the work had been performed between 1998 and 2000.
                                                We reviewed records to identify the scope and costs of the
                                                modernization, interviewed key OHA staff, and visited the
                                                development sites.

                                                OHA - Campbell

                                                An independent contractor performed the phase II
                                                comprehensive modernization on 77 Campbell units
                                                between March 1998 and November 1999. The scattered
                                                site development was built in 1936. The comprehensive
                                                modernization work included, but not limited to, gutting
                                                units, installing all new mechanical systems, hazard
                                                abatement, converting and replacing the roofs, converting
                                                units for new entry and laundry areas, landscaping, and
                                                exterior fencing. Units were two to three bedrooms and
                                                averaged 900 square feet.

                                                The average per unit cost was $83,085, including costs
                                                relating to the modernization in addition to the contract and
                                                change orders identified by the OHA. For comparison
                                                purposes, we removed construction costs unrelated to the
                                                work performed at Potrero Annex, such as: fencing,
                                                drainage, landscaping, play areas, and the related overhead
                                                and profit for those items. This dropped per-unit costs

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                    down to approximately $74,677. In addition, removing the
                    costs attributable to the roof conversion and replacement
                    would further reduce the cost down to $69,007 per unit.
                    Roofing costs were eliminated for comparison purposes
                    because contractors performed the SFHA roofing.

                    OHA – Peralta

                    Modernization was performed on 140 units, starting around
                    May 1998. At the time of our review in July 2000, the
                    work was 99.9% completed.               The scattered site
                    development required comprehensive modernization.
                    Work included unit gutting, landscaping, roof conversion,
                    hazard abatement, structural upgrading, unit layout, exterior
                    reconfiguration, exterior wall rebuilding, new utilities,
                    drainage, and new mechanical systems. The units were one
                    to three bedrooms and approximately 600 to 900 square
                    feet. The average size of units at the development was 1.77
                    bedrooms.

                    The average per unit cost was $74,236, including additional
                    costs identified by the OHA in addition to the contract and
                    change orders. We removed costs unrelated to the SFHA
                    modernization, such as: landscaping, drainage, and exterior
                    fencing. This dropped the unit costs down to around
                    $66,033. In addition, removing the costs attributable to the
                    roof conversion and replacement would further reduce the
                    costs to $56,945 per unit.

                    Locality Rate Adjustment

                    We noted that for comparison purposes the San Francisco
                    construction rates are higher than the Oakland rates, despite
                    the two cities’ close proximity. We reviewed local
                    construction cost index information to determine whether a
                    factor should be applied to the OHA modernization to make
                    it more comparable to the SFHA work.

                    The Saylor construction cost index for 1999 listed that the
                    construction rates for Oakland were 5% lower than the San
                    Francisco rates. The Saylor cost index used San Francisco
                    rates as its base for determining costs, and appeared to be a
                    reliable cost index guide. We adjusted the Campbell and
                    Peralta rates by 5% to more accurately compare the OHA


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                                                   costs to the SFHA. Campbell was adjusted to $72,639 and
                                                   Peralta $59,942 average per unit for comparison purposes.

                                                   SFHA – Potrero Annex

                                                   Potrero Annex average per unit cost was $113,841 as of
                                                   June 30, 1999. At this point, 57 units were completed in 9
                                                   buildings and one building was under way. The SFHA
                                                   could not identify the level of completion of the work on
                                                   the in-progress building. Based on our site review, we
                                                   allowed credit for approximately 2 units completed, since
                                                   Family Sweep could not arrive at a figure. We also
                                                   included Potrero Annex cabinet costs of $26,597 the SFHA
                                                   attributed to the wrong project, noted during a disbursement
                                                   review. The average size of the first 57 units completed
                                                   was 2.6 bedrooms. Based on discussions with the Family
                                                   Sweep personnel and review of consultant reports, the
                                                   Potrero Annex units averaged no more than 900 square feet.

                                                   Comprehensive modernization work at Potrero Annex
                                                   included hazard abatement, roof replacement, and interior
                                                   and exterior repairs. A contractor replaced the roof, and the
                                                   general ledger reported this cost. Since the purpose of our
                                                   review was to analyze force account related costs, the
                                                   roofing costs were removed for comparison purposes. The
                                                   resulting average per unit cost would be reduced to
                                                   $110,675.

                                                   Even after the OHA contract costs for modernization were
                      Potrero Annex Costs Higher
                                                   adjusted for the difference in locality rates, they were still
                      Than Campbell
                                                   significantly lower than the SFHA rates. The Peralta costs
                                                   were lower than the Campbell costs because the average
                                                   unit size was smaller. As a result, we will only consider the
                                                   Campbell unit costs in comparison to the Potrero Annex
                                                   costs. After adjusting for these factors, we concluded the
                                                   Potrero Annex cost was approximately 152% of the
                                                   Campbell per unit costs, or higher by $38,036 per unit.

                                                   The SFHA attributed its increased cost to more dry-rot
                                                   work.     However, there were insufficient records to
                                                   document the extent of the dry-rot work. The OHA work
                                                   did include dry-rot repairs. This work was evidenced by
                                                   detailed change orders, which documented additional work,
                                                   the reasons requiring the additional work, and often
                                                   included a photograph to justify the additional work. We

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                                            were not presented with sufficient information to suggest
                                            the SFHA had to correct significantly more dry-rot than the
                                            OHA. As a result, we could not accept the SFHA’s
                                            argument.

                                            The difference between the Potrero Annex costs and the
                                            Campbell costs was 34.37% of the total Potrero Annex
                                            costs. Applying this rate to the total Potrero Annex costs
                                            (less roofing) would result in possible overspending of
                                            $2,244,301.

                    The Family Sweep Did    The Family Sweep progress reports were inadequate in
                    Not Maintain Adequate   contrast to those produced by the Senior Sweep program.
                    Progress Records        The Family Sweep department did not emphasize tracking
                                            its work performed. As a result, that department was
                                            unable to identify the level of completion on work in
                                            progress.

                                            Partially responding to our request, the Family Sweep
                                            department prepared one incomplete progress report from
                                            July 2, 1999. The progress report only listed the three main
                                            sites in-progress. The report did not show the status of
                                            other Family Sweep developments. The report did not list
                                            any information about units in progress, when programs
                                            started, or their duration. The Family Sweep progress
                                            report misreported the number of units complete at Potrero
                                            Annex at 62. On-site inspection and review of the SFHA’s
                                            unit completion report showed that there were only 57 units
                                            actually complete. The Family Sweep department could
                                            not identify the level of completion on the in-progress
                                            Potrero Annex building as of June 1999.

                                            The only other progress report the Family Sweeps
                                            department could provide had been produced on
                                            September 15, 1999 using untimely data from December 4,
                                            1998. According to Family Sweep management, this report
                                            was prepared for HUD. The SFHA was not tracking
                                            progress for its own use to assist with the management of
                                            the program.

                                            The reports did not have the same level of information
                                            available on the Senior Sweep progress report reviewed.
                                            The Senior Sweep report kept track of the number of non-
                                            routine maintenance modernization work orders
                                            outstanding and complete, work dates, status or level of

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                                                     completion of modernization at the different developments,
                                                     and the identification of costs.

                    The SFHA Was Not                 The SFHA did not obtain or perform adequate inspections
                    Adequately Inspecting            of its modernization work. The SFHA was exempt from
                    Work                             obtaining permits and inspections from the City of San
                                                     Francisco. As a result, the SFHA had its own inspectors
                                                     perform all inspections over force account work. The
                                                     primary Family Sweep inspector did not appear fully
                                                     qualified to properly review the extensive modernization
                                                     work.

                    No City Permits and              The SFHA obtained a legal determination from the City of
                    Inspections Required For         San Francisco stating that the SFHA did not have to obtain
                    Force Account Modernization      city permits and inspections for in-house work. This was
                                                     documented in a May 17, 1995 letter between the Deputy
                                                     City Attorney and the Director of the Department of
                                                     Building Inspections. Based on this letter, the SFHA has
                                                     not been obtaining permits and inspections for its force
                                                     account work. HUD was notified of the inapplicability of
                                                     permits in August 1999, as part of a response to a HUD
                                                     TARC (Troubled Agency Recovery Center) review.

                    Family Sweep Inspector Not       Since city inspectors are not required, the SFHA used its
                    Adequately Qualified to Review   own inspectors to review force account work. This
                    All Modernization Work           included all comprehensive modernization work, electrical
                                                     work, unit gutting, plumbing replacement, carpentry,
                                                     flooring, and painting performed by the force account. The
                                                     primary inspector was not independent or qualified to
                                                     oversee the modernization work.

                                                     The SFHA Family Sweep program had only one inspector
                                                     sign-off that units were complete at Potrero Annex and
                                                     Sunnydale. This inspector was under the supervision of the
                                                     Family Sweep managers. We believe this compromised his
                                                     independence in objectively reviewing the work performed,
                                                     which was also the responsibility of the same Family
                                                     Sweep managers.

                                                     We reviewed the personnel file of the Family Sweep
                                                     inspector. The SFHA employed the inspector previously to
                                                     inspect heating systems and boiler repairs. There was no
                                                     information available to show he had sufficient experience
                                                     to ensure all the different modernization crafts were
                                                     conducted to code requirements. In addition, he did not

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                                                       have the same level of expertise as City of San Francisco
                                                       inspectors, who would normally inspect construction in the
                                                       city.

                                                       We obtained information relating to the requirements for
                                                       the City of San Francisco’s inspection positions. The
                                                       plumbing and electrical inspectors for the City of San
                                                       Francisco require completion of an apprenticeship and four
                                                       years of journeyman experience in their field. In addition,
                                                       they must have been responsible for a major construction
                                                       project in the field during one of those years. Building
                                                       inspectors require four years of journeyman level work that
                                                       includes construction and inspection experience, and one
                                                       year in charge of a major building construction project.
                                                       There is no information available to demonstrate that the
                                                       Family Sweep inspector had comparable experience,
                                                       including apprenticeships and journeyman level experience
                                                       in each field, combined with being in charge of a major
                                                       construction project.

                                                       The HUD OIG inspectors reported conditions with
                    Housing Quality Standards          completed units that showed problems with the Family
                    Deficiencies Noted During          Sweep force account workmanship and recording. These
                    Inspections                        problems appeared directly related to the inadequate
                                                       inspections, therefore, the quality of work not reviewed is
                                                       open to question.

                                                       We performed on-site inspections of the Sunnydale and
                                                       Potrero Annex developments between August and October
                                                       1999. The objective of the OIG inspectors was to assess
                                                       the cost of work performed at the development, and not to
                                                       perform a HQS review. However, our inspectors noted
                                                       problems with the force account work. These problems
                                                       showed all needed modernization work was either not done
                                                       or not performed adequately. Since an actual HQS
                                                       inspection was not performed, the OIG inspectors advised
                                                       us that there might be additional conditions or problems not
                                                       identified and recorded during the he review. The
                                                       following schedule lists problems identified during the
                                                       inspection.

                              Development       Unit #      Problem
                              Sunnydale         230         Pocket door inoperable, missing grab bar, unfinished
                                                            window
                              Sunnydale         1502        Excessively peeling paint and damaged sills

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                                   Development     Unit #       Problem
                                   Sunnydale       1620         Bath fans not working
                                   Sunnydale       1752         Improperly installed water heater vent
                                   Sunnydale       1759         Water heater not working adequately (T)
                                   Sunnydale       1806         Exposed wiring, improperly installed water heater
                                   Sunnydale       1807         Improperly installed water heater, space heater vent
                                                                not adequately sealed
                                   Sunnydale       1827         Damaged flooring
                                   Sunnydale       1868         Problems with water heater vent and interior paint
                                   Sunnydale       1555         GFI outlet not grounded, sink leaking, water heater
                                                                strap and sink pipe insulation inadequately installed
                                   Sunnydale       1551-        Excessive pooling of water outside building
                                                   1565
                                   Sunnydale       Building Sidewalk in front of building led to drop-off
                                                   26E
                                   Potrero Annex   1        Windows of occupied unit boarded up, laundry
                                                            facilities not operable
                                   Potrero Annex   5        Laundry facilities not operable
                                   Potrero Annex   9        Improperly installed closet light, laundry facilities
                                                            not operable
                                   Potrero Annex   19       Vent covers missing
                                   Potrero Annex   23       Inadequate exterior door weather stripping, vent
                                                            covers missing
                                   Potrero Annex   35       Laundry facilities not operable
                                   Potrero Annex   53       Vent covers missing
                                   Potrero Annex   57       Vent covers missing, laundry facilities not operable
                                                            (T)
                                   Potrero Annex   59       Vent covers missing
                                   Potrero Annex   61       Vent covers missing
                                   Potrero Annex   85       Leak in ceiling (T), unfinished door missing lockset
                                   Potrero Annex   97       Window boarded on occupied unit
                                   Potrero Annex   853      Ceiling damaged where closet tracks removed
                                   Potrero Annex   855      Ceiling damaged where closet tracks removed (T)
                                   Potrero Annex   879      Staircase floor covering falling apart
                                   Potrero Annex   901      Ceiling leaks (T), and vent covers missing
                                   Potrero Annex   909      Bath wall had water damage, vent covers missing
                                   Potrero Annex   911      Vent covers missing
                                   Potrero Annex   915      Leak in ceiling (T) and vent covers missing

                                                          (T): Based on Tenant complaint, accuracy of issue not confirmed.

                                                          In addition, during an October 1999 inspection of
                                                          Sunnydale building 28F, we observed minor work in


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                                                 progress to make units ready for occupancy. However, the
                                                 final inspection reports had already listed the entire
                                                 building as complete. The inspection reports had been
                                                 signed-off by the Family Sweep inspector on June 15, 1999.
                                                 The following picture gives an example of the uncompleted
                                                 work.




                                                 Photo of 220 Hahn Street bathroom, demonstrating bathroom of
                                                 unit was not complete even though reported as complete on final
                                                 inspection report. Additional work was in progress at the time of
                                                 the inspection.

                                                 In addition, the SFHA still had not placed permanent railing
                                                 outside the building along the disability access ramps, even
                                                 though the unit was occupied.

                                                 Due to the problems noted, there is no assurance other force
                                                 account work was performed adequately. Since an HQS
                                                 review was not conducted, there is no assurance units
                                                 inspected do not have additional problems. Units not
                                                 inspected may have similar problems that could affect the
                                                 health and safety of the residents. In addition, some
                                                 modernization, such as work within walls, can no longer be
                                                 checked to determine if it conformed with local codes.
                                                 However, there was also no information to suggest this
                                                 work did not meet local code requirements.

                    Emphasis On Low-Priority     The SFHA emphasized several lower priority
                    Modernization Delayed Work   modernization work items over more serious items. This
                    On Emergency Situations      resulted in conditions at several SFHA developments
                                                 claimed to have become emergency conditions, requiring
                                                 additional HUD funding to correct the problems within a

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                                                               year. In addition, some of this lower priority work, which
                                                               cost over $2.5 million to perform, was not adequately
                                                               maintained by the SFHA.

                                                               The SFHA submitted a physical needs assessment, HUD
                                                               Form 52832, to HUD on June 10, 1997. This form rated
                                                               the urgency of need of the different types of modernization
                                                               required by the SFHA for the Sunnydale development. The
                                                               SFHA reported conversion of units to disability access as a
                                                               number one priority. Roofing repairs and replacement were
                                                               a number two priority item, estimated to cost $1,800,000 at
                                                               the time. The lowest items on the urgency scale were
                                                               landscaping, irrigation, and office space modification.

                                                               Adequate funding was available to address the high priority
                                                               work items. At the re-initiation of the force account
                                                               program in 1997, the SFHA had accumulated over $69
                                                               million of CIAP and CGP funding from the 1991 CIAP
                                                               grant, and the 1992 to 1997 CGP grants.

                                                               At the time the HUD Form 52832 was prepared, the
                                                               landscaping was actually already under way, despite its low
                                                               priority. The landscaping began in February 19972 under
                                                               the San Francisco League of Urban Gardeners (SLUG),
                                                               before the force account work started in 1997. In August
                                                               1997, the SFHA began charging force account payroll to
                                                               landscaping accounts before lead based paint abatement
                                                               began in October 1997 and exterior painting began in
                                                               December 1997. Payroll was not attributed to disability
                                                               access work until March 1998.

                                                               Between 1997 and June 21, 1999, the SFHA spent
                                                               $2,565,013 on landscaping at Sunnydale. During this
                                                               period, only one roof was replaced at the development out
                                                               of the 92 buildings. The cost ultimately attributed to the
                                                               landscaping exceeded the SFHA’s original estimate of $1.8
                                                               million to replace the roofing. Likewise, at Potrero
                                                               Terrace, the SFHA had spent $1,620,538 of CGP funds for
                                                               landscaping work, instead of replacing roofing.

                                                               The SFHA also did low priority office space work before
                                                               roofing. Newspaper articles reported Sunnydale office/


                    2
                     HUD did not formally turn over formal control of the SFHA to City of San Francisco appointed board of
                    commissioners until September 1997.

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                    community center renovations were performed by March
                    1998.

                    In addition, critical roofing needs were not emphasized at
                    senior developments. At Clementina, the SFHA was
                    performing modernization on units and common area
                    interiors. By June 21, 1999, the SFHA had spent $669,930
                    and encumbered $58,972 on this work. This included
                    interior painting, floor replacement, lighting replacement,
                    etc.    HUD inspections of Woodside Gardens, 2698
                    California Street, and John F. Kennedy Towers showed the
                    SFHA was emphasizing common areas interior work as
                    opposed to roof replacement.

                    Force account management stated it was the Executive
                    Director’s decision to perform the exterior landscaping and
                    other low priority work first. The rationale was to make
                    tenants proud to live at the developments and show the
                    SFHA cared.

                    Emergency Grant

                    While the landscaping was in progress, the SFHA was
                    asking for additional Emergency Grant Funds to perform
                    roofing and waterproofing work. The first request was
                    made in March 1998 and another in September 1998. A
                    final request was made in June 1999. This included
                    Sunnydale, Potrero Terrace, and Clementina. Between the
                    initial requests for additional funds and the final request,
                    over a year later, no significant work was performed using
                    available CGP funding to address the emergency
                    conditions.

                    The Emergency Grant Fund requirements contained in 24
                    CFR 968 designate that funds may not be provided if they
                    are available under the CGP. The emergency work has to
                    present an immediate threat to the health or safety of the
                    residents.

                    Part of the SFHA’s justification for having the roofing and
                    waterproofing performed was the threat to interior
                    rehabilitation performed at the developments. The SFHA
                    stated that since 1996 it had invested $94 million in CGP
                    funding. The objective of the emergency request was to
                    finance emergency infrastructure work and protect its $94

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                                                 million investment in the most critical capital
                                                 improvements while meeting minimum life safety standards
                                                 and thwart unsanitary and unhealthy conditions.

                                                 However, by June 1999, the SFHA had fully drawn down
                                                 the available funding left under the two CIAP grants, and
                                                 the 1992 to 1996 CGP grants. There was approximately
                                                 $3.5 million available in the 1997 and 1998 CGP grant. At
                                                 this point, there were insufficient funds for the emergency
                                                 work.

                                                 HUD subsequently accepted the SFHA’s request, and was
                                                 to provide $22 million of emergency funding, of which
                                                 $14,794,004 was for roofing replacements and $3,031,592
                                                 for other waterproofing.         Overall, roofing and
                                                 waterproofing costs were available to 19 developments: 8
                                                 family and 11 senior developments. These costs included
                                                 $3,043,000 for Sunnydale, $2,500,000 for Potrero Terrace,
                                                 and $1,179,000 to Clementina for roofing and
                                                 waterproofing.

                                                 There is no conflict under the grant requirements to install
                                                 new landscaping and perform other modernization to
                                                 improve the cosmetic appearance of the developments.
                                                 However, it was not prudent to perform cosmetic work
                                                 instead of high priority items considered emergency
                                                 conditions threatening the health and welfare of the tenants.
                                                 There was also no assurance that HUD would provide
                                                 additional funds, and the roofing and waterproofing should
                                                 have been corrected before tenants and interior
                                                 modernization were put at risk. If the SFHA had
                                                 emphasized roofing and waterproofing as opposed to
                                                 landscaping or common area interior modernization using
                                                 its CGP and CIAP funds, the need for emergency grant
                                                 funds may not have been warranted and certainly would
                                                 have been significantly reduced. In addition, tenants would
                                                 not have been put at risk of living in units with inadequate
                                                 roofing and waterproofing.

                                                 The SFHA did not adequately maintain some of the
                     Significant Modernization   modernization work, despite its having been performed in
                     Work Was Not Maintained     preference to emergency work. Newly installed sprinkler
                                                 systems were not used fully, which resulted in the death of
                                                 wide sections of recently planted lawns. These issues
                                                 apparently occurred due to the lack of management

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                    planning over potential problems.         These practices
                    jeopardized up to $4,185,551 of landscaping.

                    Landscaping at Sunnydale and Potrero Terrace included
                    installation of new sprinkler systems and lawns throughout.
                    The OIG inspected Sunnydale landscaping in August 1999.
                    We observed most of the lawns had died. In some areas, it
                    was difficult to discern where the new landscaping had
                    been since it was in such bad condition. Only the areas
                    close to the community center/office building were
                    maintained. The SFHA blamed the poor condition of the
                    lawns on tenant abuse.




                    Dying lawns outside Sunnydale buildings that were not being
                    watered despite the installation of an underground sprinkler
                    system.




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                                   Sunnydale lawns

                                   In addition, a site visit in July 2000 showed most of the
                                   lawns at Potrero Terrance had died. At Sunnydale, the
                                   SFHA had resorted to hoses to water the lawns in several
                                   areas.

                                   Central Service Maintenance confirmed that there was a
                                   tenant abuse problem, with tenants damaging sprinkler
                                   heads. The sprinkler system often lost pressure. As a
                                   result, lawns were watered manually. However, without
                                   sufficient maintenance staff for this purpose, the SFHA
                                   could not maintain much of the landscaping. Staff also
                                   stated the force account workers may have installed the
                                   wrong type of sprinkler system, which was not vandal
                                   resistant.

                                   The SFHA did not sufficiently assess and plan for the
                                   potential difficulty of maintaining the landscaping. The
                                   expensive sprinkler system was not fully used, representing
                                   CGP funds that may have been better spent elsewhere.
                                   Much of the landscaping may be unrecoverable at this point
                                   without replanting. If the SFHA was unable to maintain the
                                   landscaping, then it should not have been installed. If the
                                   purpose of putting in the landscaping was to make the
                                   tenants proud to live at the developments and show the
                                   SFHA cared, then this benefit was temporary.




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                    Family Sweep Management   We believe the principal cause of the noted conditions was
                    Inadequate                that Family Sweep management was not qualified to
                                              operate a comprehensive modernization program,
                                              particularly one with force account. This includes the
                                              General Manager, Assistant General Manager, the
                                              Construction Project Manager, and possibly the Assistant
                                              Construction Project Manager. This apparently occurred
                                              because the SFHA did not emphasize obtaining qualified
                                              management.

                                              General Manager

                                              As described in our March 2000 report, we had earlier
                                              reviewed the SFHA hiring practices. We had found the
                                              General Manager of the Family Sweep program not
                                              qualified to head the force account program. He lacked
                                              sufficient educational background and did not have the
                                              necessary experience.

                                              Due to problems noted with the modernization program,
                                              particularly with the Family Sweep program, we
                                              ascertained the prior construction and management
                                              experience of other key Family Sweep personnel.

                                              Assistant General Manager / Principal Administrative
                                              Planner

                                              The Assistant General Manager of the Family Sweep
                                              program did not appear qualified to run a comprehensive
                                              modernization program. In addition, we do not believe she
                                              was qualified to receive the initial planning position prior to
                                              her Assistant General Manager role. She did not have
                                              experience in construction work, planning, or record
                                              maintenance relating to comprehensive modernization
                                              programs.

                                              The Assistant General Manager previously worked for the
                                              SFHA in a secretarial position as an Office Manager and
                                              then briefly as an accountant for eight months. The
                                              individual then was moved to the newly created Family
                                              Sweep Principal Administrative Planner position in April
                                              1997. This position was eliminated and her title was
                                              changed to the newly created Family Sweep Assistant
                                              General Manager position in April 1999.


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                                   The duties of the Assistant General Manager included:

                                      •   Conducting on-site review of construction activities;

                                      •   Ensuring compliance       with   craft   performance
                                          standards;

                                      •   Monitoring work progress;

                                      •   Ensuring work is completed correctly and in a
                                          timely manner;

                                      •   Exercising functional supervision over construction
                                          foremen, consultants, professional, technical,
                                          administrative, and clerical personnel;

                                      •   Providing supervision and direction to trades and
                                          crafts forepersons;

                                      •   Assigning work activities and projects; evaluating
                                          work performance, and

                                      •   Reviewing personnel training needs.

                                   The individual became Assistant General Manager on
                                   April 12, 1999, before the position description was
                                   finalized on April 19, 1999. As of November 2000, she
                                   still held this position. The Assistant General Manager
                                   position required an associates degree matching her actual
                                   educational background. The position also required four
                                   years of experience in construction, budget development,
                                   administration, and rehabilitation. The individual had no
                                   prior construction experience or experience managing a
                                   modernization program. She also informed us that she
                                   lacked education and training in the construction field. The
                                   only related experience was as a Family Sweep Principal
                                   Planner, a position she did not appear qualified for either.

                                   The Principal Administrative Planner position for the
                                   Family Sweep program required someone with a thorough,
                                   experience-based understanding of the principles associated
                                   with the development and implementation of residential
                                   modernization and reconstruction projects, including the
                                   development and administration of modernization budgets,
                                   local state and federal laws, and techniques for preparing

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                    funding applications.     The position also required a
                    bachelors degree from an accredited college.

                    There was no information available in her personnel file to
                    establish she met the experience requirement. The only
                    college degree listed on the résumé was from Heald
                    Business College. Only Associate degrees are available at
                    the college.

                    Construction Project Manager

                    The Construction Project Manager, primarily in-charge of
                    the on-site modernization work at Potrero Terrace and
                    Annex, also did not meet the qualifications to manage a
                    comprehensive modernization project. Discussions with
                    the Construction Project Manager and review of his
                    personnel file showed he had no prior experience in
                    construction or modernization work.         His education
                    background had been in political science and law. Between
                    1990 and 1996, he was an assistant to the San Francisco
                    mayor. The SFHA initially hired him as the executive
                    assistant in July 1996. The individual stated he did not
                    seek the Construction Project Manager position, but was
                    assigned to the role in August 1997. The individual told us
                    he had no previous construction knowledge, so he
                    attempted to learn as much as he could on the job.

                    Assistant Construction Project Manager

                    Finally, it is not evident the Assistant Construction Project
                    Manager met all qualifications. He was primarily in charge
                    of the extensive Sunnydale modernization.

                    The Assistant Construction Project Manager position
                    required a thorough understanding of modernization
                    construction programs, including advance principles and
                    practices of purchasing, inventory control, equipment
                    management, supervision, personnel management, and
                    budgeting. Applicant should have a bachelors degree with
                    work in architectural design, construction engineering,
                    public administration, or related fields. He should also
                    have two years of responsible experience in public facilities
                    construction, including one year of supervisory experience.




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                                               The individual’s personnel file showed he had an education
                                               in construction inspection and accounting, although a
                                               bachelors degree was not evident. He had primarily
                                               worked as an ironworker, so he did have some experience
                                               in the construction field. He became an inspector for the
                                               SFHA in 1990. The only training reported in his file was
                                               for a two-day course in Uniform Plumbing Code in 1994.
                                               There was no indication he was adequately experienced in
                                               supervising a comprehensive modernization program.

                    SFHA Provided Unreliable   The SFHA obtained its own cost study from its consultant
                    Estimates to Counter OIG   Hanscomb to counter our claim costs were excessive. The
                    Claims                     costs listed on these reports tended to support the SFHA’s
                                               high cost of force account modernization. However, we
                                               noted several problems with the estimates.            When
                                               questionable items are removed, such as estimates for work
                                               performed subsequent to the period reviewed, they no
                                               longer supported the high cost estimates

                                               Per Unit Cost

                                               The Hanscomb estimate for the Family Sweep
                                               developments included all costs to modernize the buildings,
                                               except for roofing work not performed by force account.
                                               Hanscomb’s estimate for Potrero Annex was $113,164 per
                                               unit. This included two buildings in addition to the nine
                                               buildings completed by June 30, 1999. This estimate
                                               amount was somewhat higher than the Potrero Annex
                                               general ledger costs of $110,675 average per unit. Without
                                               further review, the estimate would appear to justify the use
                                               of force account at Potrero Annex, but not Sunnydale.

                                               The estimated Sunnydale per unit cost for the 11 units
                                               converted to disability access was $90,558. This was lower
                                               than unit costs in the general ledger of $99,370, despite the
                                               inclusion of profit and subcontractor cost in the estimate.

                                               The estimate for Clementina Senior Sweep only centered
                                               on the actual interior unit modernization, not including any
                                               common areas of the high-rise buildings or non-routine
                                               maintenance work. The estimated Clementina per unit cost
                                               for the 10 units modernized for disability access was
                                               reported as $36,102. As described earlier, the Clementina
                                               disability access general ledger account lumped the unit
                                               conversion with disability access work performed on

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                                                common areas throughout the development. The common
                                                area work was not assessed by Hanscomb, and the actual
                                                costs for common area work cannot be separated from the
                                                unit cost in the general ledger. As of June 30, 1999, the
                                                total force account related cost attributed to the Clementina
                                                disability access 504 accounts was $329,040, or $32,904
                                                per unit. On its face, the estimate would appear to justify
                                                the use of force account at Clementina.

                                                Discussions with a Hanscomb representative in charge of
                    Consultant Not Provided
                                                the estimate preparation showed the SFHA did not allow
                    Sufficient Information or
                                                sufficient time to put together accurate estimates. The firm
                    Time To Prepare Estimates
                                                did not have an opportunity to visit the Clementina
                                                development, and site visits to Potrero Annex and
                                                Sunnydale were brief. Hanscomb stated it only entered one
                                                unit at each Family Sweep development. Hanscomb also
                                                stated insufficient documentation was provided to
                                                demonstrate all work the SFHA had performed at the
                                                developments. As a result, the consultant had to mainly
                                                rely on the building diagrams, the verbal assertions of the
                                                SFHA, and make assumptions concerning the level of work
                                                performed. According to Hanscomb, the SFHA was given
                                                the benefit of the doubt on any questionable items. Based
                                                on these limitions, we do not believe a complete and
                                                objective assessment of the SFHA modernization costs
                                                could be made.

                                                Due to the limited time available, Hanscomb used year
                    Rates Applied By
                                                2000 prices for Sunnydale and Potrero Annex and ‘de-
                    Consultant Were Not
                                                escalated’ them down to 1998 prices. This de-escalation
                    Consistent
                                                rate was loosely based on documentation showing changes
                                                in construction prices in the area over the last two years.
                                                The year 2000 prices were divided by 1.09 to arrive at the
                                                de-escalated 1998 prices. We believe the use of actual
                                                1998 documented rates, possibly obtained from a
                                                documented rate index, would have been more reliable.

                                                On the other hand, Clementina prices were not de-
                                                escalated. Hanscomb informed us the price rates used were
                                                what was believed to be the actual 1998 rates, with no
                                                additional conversion necessary. Hanscomb determined
                                                each price rate based on documented rates and then
                                                individually adjusted each price based on its memory and
                                                judgment of 1998 market conditions.


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                                                    However, the construction rates applied to the two family
                                                    projects did not consistently match the rates applied to the
                                                    Clementina senior development. In several cases, the
                                                    Clementina rates were the same as the family rates prior to
                                                    de-escalation, indicating that the Clementina rates also
                                                    should have been de-escalated and that the estimate
                                                    provided overstates Clementina costs.

                                                    The following are examples of differences in price rates we
                                                    identified by comparing the senior Clementina estimate to
                                                    the family Potrero Annex and Sunnydale rates after the de-
                                                    escalation rate was applied:

                                   Work Item        Senior Rates   Family Rates     Family       Differences
                                                                    (before de-    Rates (de-    (Senior less
                                                                    escalation)    escalated)    de-escalated
                                                                                                   Family)
                                   Interior Walls     $7 / SF        $7 / SF       $6.24 / SF     $0.76 / SF

                                   Ceramic Wall       $10 / SF       $10 / SF      9.17 / SF      $0.83 / SF
                                   Tile
                                   Cabinets          $200 / LF      $200 / LF      $183.49 /     $16.51 / LF
                                   Install          base & $125    base & $125     LF base &       base &
                                                     / LF wall      / LF wall      $114.68 /     $10.32 / LF
                                                                                    LF wall          wall
                                   Interior Door    $500 Each       $500 Each       $458.72      $41.28 Each
                                                                                     Each
                                   Cabinet Demo      $6.50 / LF      $10 / LF      $9.17 / LF    $(2.67) / LF

                                   Int. Door         $50 Each       $50 Each      $45.87 Each     $4.13 Each
                                   Demo
                                   Interior           $1 / SF       $3.50 / SF     $3.21 / SF    $(2.21) / SF
                                   Painting          ceiling &     ceiling & $1    ceiling &      Ceiling &
                                                       wall          / SF wall     $0.92 / SF     $0.08 / SF
                                                                                      wall           wall




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                    Consultant’s Estimate   Hanscomb included factors in the estimate that would not
                    Included Unreasonable   be reflected in the SFHA general ledger. We eliminated
                    Factors                 these items to the extent practical to make the estimate
                                            comparable to the general ledger amounts. Once the
                                            additional factors were removed, the estimate costs were
                                            below the recorded general ledger costs.

                                            According to a HANCOMB representative, the estimates
                                            included subcontractor profit and overhead of
                                            approximately 10%, along with SFHA profit of 10% for
                                            Family Sweep and 4% for Senior Sweep. These costs
                                            would not be applicable to the SFHA actual costs for force
                                            account modernization.

                                            Hanscomb also included a significant additional factor of
                                            16.5% on top of its estimate as additional costs to hire
                                            residents to perform force account work. Hanscomb’s
                                            percentage was based on the assumption labor represented
                                            70% of the modernization costs. The SFHA required 25%
                                            of its work force to be comprised of residents. Therefore,
                                            Hanscomb computed approximately 25% of 70% would be
                                            17.5% (0.25 x 0.70 = 0.175). Hanscomb adjusted the 17.5%
                                            to 16.5% unexplainably. This 16.5% resident factor was
                                            then added on top of the total modernization costs on the
                                            Clementina, Sunnydale, and Potrero Annex estimates,
                                            significantly increasing the overall cost estimate.
                                            Hanscomb stated it assumed the residents hired would be
                                            100% inefficient from a productivity standpoint. The
                                            consultant could provide no evidence to demonstrate this
                                            was reasonable.

                                            OIG inspectors had never heard of such a rate being
                                            included in a cost estimate. We also believe unskilled
                                            residents should be hired at lower apprentice rates. Only
                                            skilled residents should be hired at journeyman rates, and if
                                            they cannot perform its craft adequately, they should not be
                                            used. In addition, Clementina did not have residents
                                            performing the modernization work, so no resident rates
                                            would be applicable.

                                            The adjusted estimate per unit costs would be significantly
                                            lower if contractor profit, contractor overhead, SFHA
                                            profit, and SFHA resident hiring costs were eliminated
                                            from the modernization costs. The resulting per unit


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                                                      average cost was lower than the general ledger costs
                                                      reported by the SFHA.

                                                      The following schedule shows the overall estimated cost
                                                      would be significantly reduced if the disputed cost factors
                                                      were removed from the estimates. If the subcontractor,
                                                      profit, and resident hiring cost factors were eliminated from
                                                      Hanscomb’s estimates, the Sunnydale per unit cost estimate
                                                      would be reduced from $90,558 to $64,362, Potrero Annex
                                                      would be reduced from $113,164 to $80,429, and
                                                      Clementina would be reduced from $36,102 to $26,857 per
                                                      unit.

                                       Adjusted              Sunnydale      Potrero Annex Clementina
                                       Hanscomb              504 Per Unit Per Unit          Per Unit
                                       Estimate              Total Cost     Total Cost      Total Cost
                                       Original Hanscomb           $90,558         $113,164         $36,102
                                       Total Costs
                                       Total after Remove          $98,708         $123,348             N/A
                                       De-escalation Factor
                                       Remove SFHA                  $ 7,897        $ 9,868           $ 1,337
                                       Profit
                                       Remove Change in             $ 2,694        $ 3,367           $ 304
                                       General Conditions
                                       and Overhead (1)
                                       Remove Change in            $ 352            $ 440            $ 149
                                       Mobilization (1)
                                       Remove Resident             $10,965          $13,702          $ 4,642
                                       Hiring
                                       Remove Sub-                 $ 6,645          $ 8,304          $ 2,813
                                       contractor Profit and
                                       Overhead
                                       Adjusted Total Costs        $70,155          $87,667         $26,857
                                       De-escalated Costs          $64,362          $80,429             N/A

                                                      (1)      Amount represents difference between the original Hanscomb
                                                               figures and the adjusted figures after subcontractor and
                                                               resident hiring costs were removed. Adjusted calculations
                                                               based on rates reported by Hanscomb.

                                                      The Hanscomb report also appears unreliable because there
                         Significant Inaccuracies     were inaccuracies on work performed, including work not
                         Detected on Consultant’s     actually done, questionable work, inaccurate quantities, and
                         Estimates                    assumptions on work performed.



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                    The Clementina estimate included material costs for
                    ‘furring’ the units ($30,994) and raising balconies ($1,887).
                    The furring and balcony raising was not done. According
                    to Hanscomb, the furring assumed drywall and wood
                    framing over the outer concrete wall of each unit. There
                    were no such walls in any units we inspected. The Senior
                    Sweep department and our observations also confirmed
                    balconies were not raised.

                    The cabinet cost Hanscomb attributed to the disability
                    access units did not take into account the fact that the base
                    cabinets, listed as 8 linear feet per unit, were smaller than
                    anticipated: the area beneath the sink was primarily empty
                    space to allow wheelchair access. The representative
                    acknowledged more accurate cost figures could have been
                    provided if actual cabinet configuration and measurements
                    were known.

                    The SFHA had instructed Hanscomb to cost out the
                    replacement of wood balconies at Potrero Annex. As a
                    result, the Hanscomb estimate for Potrero Annex included
                    costs for balcony deck, balustrade, and stair replacement
                    ($451,020 de-escalated to $413,780, not including related
                    overhead). However, our on-site review in September 1999
                    and re-visit in September 2000 showed the deck had not
                    been replaced, and the repair work was indeterminable. In
                    addition, the estimate included the cost to replace balcony
                    deck stairs on building A-3 (de-escalated amount of
                    $2,698). On-site observation showed there were no stairs
                    leading to the deck. A resident living in one of the A-3
                    units stated there never were any stairs. The tenant had
                    requested the SFHA to install them, and he believed the
                    balcony deck had only been repainted.

                    The SFHA also instructed Hanscomb to cost out the
                    replacement of all interior walls at Potrero Annex. As a
                    result, the Potrero Annex estimate included substantial
                    costs to replace all interior walls within each building,
                    including the wooden frames (de-escalated to $273,583).
                    This is not an accurate assessment. In September 1999, we
                    observed interior wall frames repaired only in certain areas
                    and were not fully demolished and replaced. New electrical
                    was already being run through the walls, making any future
                    wall removal highly unlikely. In addition, not all interior
                    drywall was actually removed as Hanscomb had priced out.

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                                   After reviewing photographs of the work, the Hanscomb
                                   representative agreed not all interior walls were removed.




                                   Photo of Potrero Annex building with modernization in-progress.
                                   Photo showed that section of interior wall drywall cut out to install new
                                   electrical, as opposed to complete demolition.




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                    Photo of Potrero Annex building with modernization in-
                    progress. Photo showed only section of interior drywall
                    removed and replaced.

                    Hanscomb also assumed ceramic tiles were placed on the
                    bathroom floors at Sunnydale, and carpet in the bedrooms.
                    Our unit inspections did not reveal carpet in any units or
                    ceramic tiles on any bathroom floors. The Hanscomb
                    representative said this was probably an error on its part.

                    The Hanscomb unit measurements and quantity reported
                    exceeded those identified during OIG on-site review and
                    review of building plans.          There were significant
                    questionable quantity differences for vinyl floor tile,
                    interior paint, countertop size, receptacles, kitchen hoods,
                    doors, appliances, and additional items. It appears that
                    Hanscomb used plans for a Potrero Annex ‘A’ type
                    building with five small units, instead of the actual plans
                    for two large five-bedroom units occupying the entire
                    building. This exaggerated the number of appliances and
                    fixtures, and resulted in Hanscomb estimating those units
                    as costing $251,246 each. Finally, Hanscomb provided a
                    cost for intercoms in the family units that were not

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                                   installed. These items appear to have overestimated
                                   Potrero Annex costs by $411,407, or $5,714 per unit.

                                   Similarly, the Hanscomb estimate for Sunnydale also
                                   overestimated the quantity of outlets, switches, smoke
                                   detectors, plumbing rough-in, and ceramic tiles. Overall,
                                   these items added an additional $27,133, or $2,467 per unit.

                                   Additional questionable costs related to Hanscomb making
                                   assumptions and overly relying on the SFHA’s
                                   representations concerning the level of modernization work
                                   performed at all three developments. This included
                                   assumptions on miscellaneous coring, miscellaneous
                                   demolition, hazard abatement, door fill-in, staircases, saw
                                   cutting, coring, electrical, plumbing, joists, and floors.
                                   Hanscomb applied lump-sum estimates that were not based
                                   on knowledge of the extent of actual work performed.

                                   Hanscomb’s Clementina asbestos abatement estimate
                                   included cost for acoustical ceiling and complete tile floor
                                   removal totaling $18,700. Based on discussions with the
                                   SFHA, only selected areas of the floor tile had been
                                   removed and the locations could not be identified since
                                   they were undocumented. There was also no acoustical
                                   ceiling to remove. In addition, actual coring and additional
                                   demolition was not known.

                                   Hanscomb estimated the asbestos abatement for all floors
                                   in the Sunnydale units. A document obtained from the
                                   Family Sweep department concerning work completed at
                                   Sunnydale, however, only reported one of the 504 disability
                                   access units had asbestos work.

                                   The Sunnydale estimate included a very large allowance for
                                   saw cutting on six of the disability access conversion units
                                   in three buildings, totaling $60,000 ($55,046 de-escalated).
                                   Meanwhile, five other disability access units in a different
                                   building had only $2,600 ($2,385 de-escalated) for saw
                                   cutting combined. Hanscomb could not explain the size of
                                   the allowances, and the representative affirmed this might
                                   have been an error.

                                   The total questionable cost included in the Hanscomb
                                   estimates totaled $22,945 for Sunnydale, $26,309 for
                                   Potrero Annex, $9,332 for Clementina. If questionable

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                                        items were removed from the Hanscomb estimates, they
                                        would be significantly lower as listed in the following
                                        chart.

                                        Removal of Questionable Costs From Estimate

                    Adjusted Estimate         Sunnydale     Potrero Annex Clementina
                                              504 Per Unit Per Unit         Per Unit
                                              Total Cost    Total Cost      Total Cost
                    Total Direct                    $66,453         $83,042         $28,131
                    Modernization Costs
                    (1)
                    Interior Wall                             -     $(4,142)          $(1,891)
                    Demolition and
                    Installation
                    Furring                                   -            -          $(3,099)
                    Infill Exterior Walls                $(818)            -                 -
                    Balconies                                 -     $(6,264)            $(189)
                    Asbestos                           $(2,066)            -          $(1,870)
                    Sheet Vinyl at Stairs                     -       $(150)                 -
                    Repair Wood Flooring                      -     $(2,729)                 -
                    Base Cabinets                      $(2,573)            -          $(1,600)
                    Floor joists                              -     $(5,205)                 -
                    Stair Work                         $(6,732)            -                 -
                    Scrabble Floor                       $(245)            -                 -
                    Sawcutting Allowance               $(5,691)       $(489)                 -
                    Overestimated Quantity             $(2,689)     $(6,228)                 -
                    Floor Demolition                     $(313)       $(420)            $(183)
                    Stucco wall Pod                                   $(682)
                    Coring Allowance                  $(909)               -            $(250)
                    Misc. Demo                        $(909)               -            $(250)
                    Total Questionable             $(22,945)       $(26,309)          $(9,332)
                    Direct Cost Less                $43,508         $56,733           $18,800
                    Questioned Cost
                    Less 10% Sub-                      $ 4,351        $5,673           $1,880
                    contractor Profit &
                    Overhead (2)
                    Total Direct Less                  $39,157      $51,060           $16,920
                    Subcontractor costs
                    Include Mobilization                 $ 783       $ 1,021            $ 338
                    (2)
                    Include SFHA General               $ 5,991        $7,812            $ 690
                    Conditions and
                    Overhead (2)

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                                   Adjusted Estimate          Sunnydale     Potrero Annex Clementina
                                                              504 Per Unit Per Unit         Per Unit
                                                              Total Cost    Total Cost      Total Cost
                                   Total Costs                      $45,931         $59,893         $17,948
                                   De-escalate Costs (2)            $42,138         $54,948            N/A
                                   Original Hanscomb                $90,558        $113,164         $36,102
                                   Estimate
                                   Difference                      $(48,420)              $(58,216)              $(18,154)

                                                       (1)      Direct costs only, no resident hiring, overhead, or profit
                                                                included. See prior chart on page 39 above to reconcile direct
                                                                costs to Hanscomb total estimate costs.
                                                       (2)      Computations based on rates reported by Hanscomb.

                                                       The adjusted estimate amounts are far below actual costs in
                                                       the general ledger. However, due to the lack of information
                                                       indicating the level of work actually performed, the true
                                                       cost to modernize the units at the three developments
                                                       remains uncertain.

                     Additional Cost Estimates         Additional estimates were provided by the SFHA for
                     Were Unreliable                   modernization work performed at Clementina. However,
                                                       these estimates could not be accurately compared to the
                                                       actual costs incurred up to June 30, 1999, the cut-off date of
                                                       our scope.

                                                       The SFHA provided additional estimate information related
                                                       to common areas work performed at Clementina. This
                                                       included a cost projection for planned 504 common space
                                                       modernization prepared by a consultant in 1998 and an
                                                       estimate of non-504 common space modernization prepared
                                                       by a different consultant on August 31, 2000. These
                                                       estimates included costs for work not yet performed as of
                                                       OIG inspections and these costs were not included in the
                                                       recorded costs as of June 1999 that were used in our cost
                                                       analysis. During the OIG September 1999 and November
                                                       1999 on-site inspections, the SFHA had only partially
                                                       completed the common area flooring. Likewise, the
                                                       common area disability access bathrooms were not all
                                                       complete, and carpet had not been laid in the social room.
                                                       The consultant’s estimates provided costs for all work
                                                       items completed. Other items described in the estimates
                                                       had not been claimed during the inspection as having been
                                                       accomplished, such as a concrete floor-slab, installing
                                                       plastic laminate on wall, and lowering light switches and
                                                       fire alarm pull stations. In fact, the Senior Sweep progress

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                                       report from August 4, 1999 showed Clementina common
                                       area work was only 50% complete, with painting, flooring,
                                       and lighting still in progress. In addition, 504 public space
                                       work was only 10% complete. As a result, we cannot rely
                                       on any listings that would claim all work as being
                                       completed by our cut off date of June 30, 1999.




                    Auditee Comments   The SFHA disagreed with our conclusions and
                                       recommendations. We have summarized its response
                                       below into 11 issues. The SFHA also discussed other
                                       issues during the March 26, 2001 exit conference and in
                                       subsequent correspondence.

                                       (1) It believed the OIG misrepresented information
                                       presented in the July 28, 1998 cost justification letter
                                       provided to HUD. It stated the OIG misrepresented the
                                       costs to convert a senior disability access unit, and OIG
                                       data was not substantiated by the general ledger. The SFHA
                                       response stated the letter did not address and justify each
                                       type of work to be performed by force account, since the
                                       SFHA was only trying to show work that could be
                                       completed.

                                       The SFHA also did not agree with warrantee issues
                                       identified by the OIG.

                                       (2) The SFHA asserted the MOH costs were higher than the
                                       SFHA modernization cost when considering average square
                                       foot costs. It stated the use of per unit modernization costs
                                       was not an accurate method for determining costs, and
                                       square footage methods were preferable. It also asserted
                                       other benefits, such as the employment of residents, were a
                                       significant part of the force account program the OIG did
                                       not consider. When these factors were all considered, the
                                       use of force account was justifiable.

                                       (3) Similarly, the SFHA expressed problems with the OHA
                                       analysis. The SFHA did not believe the OIG comparison of
                                       OHA units to its Potrero Annex modernization was valid.
                                       It stated the average per unit size was 106 feet larger than
                                       an OHA Campbell unit. As a result, force account costs at
                                       Potrero Annex should be higher.

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                                   (4) The SFHA also believed the Senior Sweep force
                                   account work was reasonable. The SFHA referenced an
                                   insurance estimate to repair one fire-damaged unit at
                                   Clementina, and compared it with average unit cost. Since
                                   the actual costs were lower than the insurance estimate, the
                                   force account work was cost effective.

                                   (5) The SFHA stated it maintained a sufficient level of
                                   documentation on how it spent the force account funds and
                                   the work performed. The SFHA stated it was not required
                                   to maintain a specific level of progress reports, and it
                                   maintained sufficient documents. It added that a force
                                   account checklist was established in January 2000, which
                                   provided progress information.

                                   (6) Regarding the inspection process, the SFHA believed it
                                   did not have to obtain city inspections. The SFHA also
                                   argued its inspectors were independent and had sufficient
                                   experience. The independence problem was resolved by
                                   reassigning the inspectors to the Modernization department
                                   in August 1999. The response cited the SFHA had three
                                   qualified inspectors and provided information on their
                                   backgrounds and additional training obtained.

                                   (7) The SFHA beleived unit deficiencies identified in the
                                   report should be considered maintenance problems and not
                                   modernization issues. It pointed out three examples where
                                   the modernization work was completed a significant period
                                   before problems were identified by the OIG.

                                   (8) The SFHA stated emergency conditions existed at its
                                   developments for some time, before it started using
                                   resources for other improvements. It stated it weighed
                                   resolving the emergency conditions compared to
                                   performing other improvements, such as landscaping. It
                                   believed the other improvements would raise the quality of
                                   life for the residents. It excused not addressing the
                                   emergency conditions by stating available CGP funds were
                                   not adequate to resolve the emergency work and all other
                                   priority needs of its public housing stock.

                                   (9) The SFHA stated there were sprinkler problems, but
                                   they were resolved and landscaping is now healthy.


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                                        (10) The SFHA believed the Family Sweep managers were
                                        qualified.

                                        (11) The SFHA stated the OIG did not provide enough time
                                        to provide accurate cost estimates. The SFHA referenced
                                        statements made by Hanscomb. The SFHA points out
                                        Hanscomb asserted differences in unit rates between the
                                        Family and Senior Sweep was due to difficult working
                                        conditions at Clementina, which would increase costs.
                                        Hanscomb also provided some additional information
                                        related to discrepancies in estimate rates.




                    OIG Evaluation of   Our evaluation of the SFHA’s comments parallels the 11
                    SFHA’s Response     SFHA issues.

                                        (1) We considered the SFHA’s position, and removed the
                                        warrantee issue from the audit report.

                                        Senior Sweep costs were taken from the general ledger and
                                        Senior Sweep progress report data. We were aware
                                        disability access conversion cost for 504 units included unit
                                        modernization and additional 504 work performed on
                                        common spaces. However, the SFHA did not separate the
                                        504 unit work from the 504 common area work in either the
                                        general ledger or any other documentation. Back up was
                                        not available to demonstrate how the SFHA calculated the
                                        figures in the July 1998 letter. We have not been presented
                                        with support to suggest our comparison was invalid, a more
                                        accurate determination was possible, or that the figures in
                                        the letter did not include common area work.

                                        When the letter was issued to HUD, the SFHA had already
                                        begun the use of force account, including landscaping
                                        work, and was not simply referencing possible
                                        modernization.

                                        (2) The initial cost comparison provided by the SFHA to
                                        HUD in the July 28, 1998 letter, compared per unit cost of
                                        modernization work performed by the MOH to the SFHA
                                        force account. The OIG review showed the figures
                                        presented to HUD were inaccurate, misrepresenting the
                                        MOH costs as being higher than the SFHA costs. Instead

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                                   of addressing this fact in the response, the SFHA stated the
                                   average cost per square foot should be used instead. The
                                   OIG used per unit costs comparisons to remain consistent
                                   to these unit cost comparisons.

                                   The SFHA averaged the three MOH projects and compared
                                   this figure to the average square footage costs of three
                                   SFHA developments. We do not believe it is appropriate to
                                   compare the figures in this manner, because they do not
                                   provide a reliable cost comparison. Our OIG inspector
                                   stated square footage cost of modernizing smaller units
                                   should not be compared directly to dramatically larger
                                   units. This is because the smaller units can have higher
                                   relative costs since the same number of expensive fixtures
                                   and plumbing are placed into a smaller overall space. As a
                                   result, the studios of Apollo and Lyric should not be
                                   directly compared to the larger units of Potrero Annex.
                                   However, 2300 Van Ness units were similar to Potrero
                                   Annex. The SFHA Potrero Annex square foot costs of
                                   $113.16 are still significantly higher than the MOH Van
                                   Ness costs of $70.46.

                                   The Clementina per square foot costs appeared low
                                   compared to the MOH costs to modernize similar units at
                                   Apollo and Lyric. However, a direct comparison of these is
                                   not reliable. This is why we did not include this
                                   comparison into the audit report. The MOH modernization
                                   costs included complete renovation throughout the
                                   buildings, including seismic upgrades, roof replacement,
                                   upgrades to sprinkler systems, window replacement, the
                                   installation of an elevator at Apollo, etc. On the other
                                   hand, the Clementina cost presented show the cost to
                                   modernize the interior of the ten disability access units and
                                   partially completed disability access work on common
                                   areas. As a result, the rates were not comparable because
                                   the scope of work was significantly different.

                                   The SFHA stated other benefits of force account should be
                                   reviewed, such as resident employment. We did not look
                                   into this area, and therefore cannot provide an opinion on
                                   the actual benefits obtained, or whether they could have
                                   been more effectively conducted through contractors.
                                   Nevertheless, the SFHA did not identify what extra costs
                                   were attributable to using resident as workers or explain
                                   why their use would necessarily increase costs significantly.

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                    (3) The OHA units were reasonably close in size to the
                    Potrero Annex units. If we use the square footages
                    provided in the response, Potrero Annex units would be an
                    average of 106 square feet or 12% larger than Campbell.
                    However, if we use data provided on the Hanscomb
                    estimates, the average per unit size of the completed
                    Potrero Annex units was 945 square feet, only 45 feet larger
                    than the average unit size identified by the OHA. In either
                    case, the increase in size does not justify the SFHA’s high
                    modernization costs, which were approximately 150% the
                    OHA costs.

                    (4) The SFHA did not provide detail of how the insurance
                    estimate was calculated, the scope of work identified by the
                    insurance carrier, or the modernization work done earlier
                    on the unit. As a result, we cannot rely on this estimate as
                    justification for the use of force account.

                    (5) The level of documentation over the work performed by
                    the force account was inadequate for the OIG inspectors to
                    determine the full extent of all modernization, so cost
                    estimates could be produced and accurately compared to
                    actual costs. The SFHA’s cost tracking methods did not
                    allow for sufficient analysis to determine whether the force
                    account was operating cost effectively. This information
                    would have been beneficial for the SFHA’s own needs
                    assessments, program monitoring, cost analysis, and
                    budgeting.

                    The other documents identified in the response by the
                    SFHA did not provide sufficient information for the Family
                    Sweep program to adequately track the level of completion.
                    The fact that Senior Sweep maintained more extensive data
                    showed the two programs were not consistent, and also
                    demonstrated the information could have been developed
                    for the Family Sweep program if it chose to establish a
                    system to do so.

                    The type of information listed on the checklist does not
                    appear to be any more useful than the final inspection
                    reports. The checklist does not identify percentages of
                    completion or the scope of modernization. In addition,
                    since only a blank version of the checklist was included as


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                                   support to the response, we have no evidence these
                                   documents were used.

                                   (6) We considered the SFHA’s position, and removed the
                                   issue concerning inspections from the City of San Francisco
                                   from the audit report.

                                   While Family Sweep inspectors may have been reassigned
                                   to the Modernization department to add to their
                                   independence, all completion reports prepared for the work
                                   reviewed at Sunnydale and Potrero Annex were signed off
                                   when the inspector was still under the Family Sweep
                                   program. In addition, since the manager of the Senior
                                   Sweep program also became the head of the Modernization
                                   department, the inspectors were still reporting to the
                                   management in charge of the force account work. Finally,
                                   no information was provided to show the three inspectors
                                   identified by the SFHA were the inspectors actually
                                   reviewing the force account work. The information was
                                   inconsistent with that of the inspector who signed off on the
                                   inspection reports we examined.

                                   (7) The SFHA has a valid point relating to the unit
                                   deficiencies. We reviewed completion reports provided by
                                   the SFHA and agree several of the items listed in the OIG
                                   audit report do appear likely to be maintenance related
                                   issues. We adjusted the report accordingly. However,
                                   since there were still a number of problems related to the
                                   force account work, our overall opinion has not changed.

                                   (8) We were not presented with any information to show
                                   the conditions were already emergencies as asserted by the
                                   SFHA. In addition, the SFHA’s argument did not provide a
                                   reasonable explanation for not addressing emergency
                                   conditions.     If emergency conditions existed while
                                   resources were limited, then it was not reasonable to first
                                   address other non-emergency needs of the projects. The
                                   SFHA should have tried to resolve known emergencies
                                   immediately with available funding, as opposed to allowing
                                   the health and safety of residents to be threatened.
                                   Resolving emergency conditions quickly would also
                                   prevent further deterioration and increased costs of repairs,
                                   such as from leaking roofs.




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                    (9) There was no information available to show sprinkler
                    systems problems were resolved or can be fully utilized in
                    the future. The irrigation system and condition of the lawns
                    were observed at several points over the course of our
                    review. Of course, in March, after months of rain, the area
                    should green on its own. However, if the sprinkler system
                    is not maintained during the dry months of the year, the
                    landscaping will degrade.

                    (10) Overall, the Family Sweep Management did not have
                    sufficient experience over construction and implementation
                    of an extensive modernization program.

                    The Assistant General manager now lists 14 year of
                    experience with a private sector general contractor.
                    However, we were previously informed this related to the
                    fact that the manager’s husband was a general contractor.
                    There is no certainty of what experience may have been
                    gained. In addition, a previous résumé in the manager’s file
                    did not identify prior experience with a contractor. It also
                    showed the position at the Alabama Power Company was
                    as an office representative / account clerk, where she
                    assisted the office manager.

                    Whether or not the SFHA required the Construction Project
                    Manager position to have experience in construction, the
                    employee had no experience or training in this area, making
                    his appointment questionable. It is not clear how a
                    background in political science aided in the on-site
                    management of a comprehensive modernization
                    construction project. The employee stated he had to learn
                    about construction while on the job.

                    The SFHA claimed an additional five years of experience
                    for the Assistant Construction Project Manager, the nature
                    of which was not specified on the employee’s resume. As a
                    result, we have no information this provided additional
                    experience that would make the employee more qualified.

                    (11) The SFHA’s argument does not change the fact that
                    inaccurate estimates were provided to our office to justify
                    high force account costs. The OIG did not require the
                    SFHA to obtain costs estimates from its consultant,
                    Hanscomb.      The SFHA had opportunity to produce
                    estimates at any time it chose, either before or during the

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                                   course of the audit. The force account management only
                                   volunteered to have this done after results were discussed.

                                   We informed the SFHA we would review any information
                                   presented, but needed it before we concluded our review
                                   and prepared the draft report. The SFHA was told it would
                                   also have an opportunity to provide information as part of
                                   its response to the draft audit. The SFHA’s consultants,
                                   Hanscomb, produced the Clementina estimate on August
                                   15, 2000, five days after Senior Sweep issues were initially
                                   discussed with the SFHA. The estimates for Family Sweep
                                   developments were provided by September 1, 2000,
                                   approximately two weeks after the issues were discussed
                                   with the SFHA.         The SFHA never mentioned the
                                   information could be subject to significant error due to the
                                   short timeframe in which the information was generated.
                                   We discussed the estimates with Hanscomb, and only then
                                   determined it could have provided more detailed and
                                   accurate information if additional time had been available.

                                   Although the reasons Hanscomb identified for the
                                   discrepancies may be reasonable, the actual reason still
                                   appears to be due to an error. We spoke to one of the OIG
                                   inspectors and she agreed the types of conditions identified
                                   by Hanscomb could result in increased cost. However, we
                                   noted the difference in costs matches the de-escalation rate
                                   listed on the estimates for the Potrero Annex and
                                   Sunnydale. In addition, when we inquired into an example
                                   of how Hanscomb determined its Clementina costs, the
                                   representative did not mention any additional conditions or
                                   factors.

                                   We accept Hanscomb’s position on the fixture rough-in and
                                   have made appropriate changes to the audit report finding.




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                    Recommendations   As described in the Prior Audits section of this report, a
                                      previous OIG audit raised concerns over key SFHA staff,
                                      including Family Sweep management. Three personnel
                                      hiring practices recommendations from that audit remain
                                      open because HUD does not yet have assurance that the
                                      SFHA has successfully implemented them. While the full
                                      implementation of those recommendations will partly
                                      address the problems described in the current report,
                                      additional actions are necessary.

                                      We recommend the Assistant Secretary for Public and Indian
                                      Housing require the SFHA to:

                                      1A.      Terminate the use of force account for
                                               comprehensive modernization work and obtain
                                               independent contractors, selected through required
                                               procurement practices, to complete remaining
                                               comprehensive modernization.

                                      1B.      Terminate non-routine maintenance until it can
                                               sufficiently justify the use of force account
                                               employees is more effective than contracting out the
                                               non-routine maintenance. If practical, require the
                                               SFHA to obtain bids from independent contractors
                                               as part of its analysis.

                                      1C.      Obtain qualified management for any force account
                                               activity allowed to continue.

                                      1D.      Establish procedures to ensure adequate record
                                               maintenance     over    modernization    activities,
                                               including detailed specifications of work actually
                                               performed at the developments.

                                      1E.      Reassess the priority of modernization work
                                               remaining to be performed, and ensure that high
                                               priority items are consistently addressed before low
                                               priority improvements.

                                      1F.      Establish maintenance procedures to ensure that the
                                               CGP funded landscaping is adequately maintained,
                                               and the sprinkler system is operational.


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                                   1G.      Correct the HQS violations and problems noted
                                            during the OIG inspections.

                                   1H.      Ensure SFHA Modernization department has fully
                                            qualified and trained inspectors review all aspects of
                                            force account modernization. In addition, require
                                            the SFHA modernization department to have its
                                            inspectors re-inspect buildings and units
                                            modernized by the force account program to ensure
                                            work was adequately performed.                    The
                                            modernization inspectors should be independent
                                            from the force account program.

                                   1I.      Return the $184,161 of excessive modernization
                                            funds to the CGP, to be used for future
                                            modernization.




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                      The SFHA Was Not Adequate Recording and
                      Tracking Assets and Expenditures Under the
                                         CGP
                    The SFHA did not adequately record and track its assets and expenditures. The general
                    ledger recording was inadequate to accurately assess CGP force account expenditures.
                    Expenditures were charged or moved to incorrect project accounts making the general
                    ledger unreliable. The SFHA also did not consistently follow adequate procedures over the
                    generation of its purchase orders relating to force account work. In addition, the inventory
                    system over CGP purchased equipment was insufficient to track all items. Finally, the
                    SFHA was charging ineligible payroll to the CGP grant, while not maintaining adequate
                    documentation to substantiate additional payroll attributed to the grants. These problems
                    occurred because the SFHA did not develop sufficient procedures and controls, or did not
                    follow established procedures. As a result, there was inadequate information to assure that
                    that all assets were accounted for and all expenditures were legitimate for CGP activities.
                    In addition, $98,102 of ineligible and $73,210 of inadequately supported maintenance
                    expenses were charged to the CGP, with possibly additional amounts in other periods.




                                                       HUD’s ACC with the SFHA required the SFHA to
                     Various Rules Govern
                                                       maintain records to identify the source and application of
                     Recording and Accounting
                                                       funds in such a manner as to allow HUD to determine that
                     Requirements
                                                       all funds have been expended in accordance with each
                                                       specific program regulation and requirement. The SFHA
                                                       must maintain complete and accurate books of account for
                                                       the projects of the SFHA in such a manner as to permit the
                                                       preparation of statements and reports in accordance with
                                                       HUD requirements, and to permit timely and effective
                                                       audit. Books and records of the SFHA shall be maintained
                                                       in such a manner as will at all times show the operating
                                                       receipts, expenditures, and reserves for the project separate
                                                       and distinct from all other projects under the ACC.

                                                       Title 24 of the CFR, Section 85, Standards for Financial
                                                       Management Systems, requires grantees to maintain records
                                                       that adequately identify the source and application of funds
                                                       provided for financial-assisted activities.       Unit cost
                                                       information should be developed whenever appropriate.



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                                                                 HUD Guidebook 7485.3G, Comprehensive Grant Program,
                                                                 requires force account labor costs for carrying out physical
                                                                 improvements to be charged to the appropriate
                                                                 development account for hard costs.

                                                                 HUD Handbook 7460.8 Rev 1, Procurement, states that
                                                                 small purchases up to $25,0003 may use simplified
                                                                 procedures, such as purchase orders. The housing authority
                                                                 shall maintain proper records of its small purchases. It is
                                                                 crucial that the purchase order clearly specify the purchased
                                                                 items, services, and the terms and conditions of the
                                                                 purchase.

                                                                 24 CFR Sub-Section 84.34 includes standards for property
                                                                 management for equipment acquired with Federal funds.
                                                                 These standards require:

                                                                 (1) Equipment records shall be maintained accurately and
                                                                 shall include the following information: a description of the
                                                                 equipment; manufacturer’s serial number, model number,
                                                                 federal stock number, national stock number, or other
                                                                 identification number; source of the equipment, including
                                                                 the award number; whether title vests in the recipient or the
                                                                 federal government; acquisition date and cost; information
                                                                 from which one can calculate the percentage of federal
                                                                 participation in the cost of the equipment; location and
                                                                 condition of the equipment and the date the information
                                                                 was reported; unit acquisition cost; and ultimate disposition
                                                                 data, including date of disposal and sales price or the
                                                                 method used to determine current fair market value where a
                                                                 recipient compensates HUD for its share.

                                                                 (2) A physical inventory of equipment shall be taken and
                                                                 the results reconciled with the equipment records at least
                                                                 once every two years. Differences between quantities
                                                                 determined by the physical inspection and those shown in
                                                                 the accounting records shall be investigated to determine
                                                                 the causes of the difference. The recipient shall, in
                                                                 connection with the inventory, verify the existence, current
                                                                 utilization, and continued need for the equipment.




                    3
                        The current small purchase threshold has been increased to $100,000 under 24 CFR 85.36.

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                    SFHA Policies Over   The SFHA Policies and Procedures also contain
                    Inventory            requirements for the maintenance of the inventory system.
                                         This includes an assignment of individuals’ responsible for
                                         inventory. SFHA procedures hold the manager of each
                                         project/location responsible for the assets at the location,
                                         including any unexplained discrepancies. The manager will
                                         also be responsible for monthly inventory reconciliation.

                                         In addition, the Fixed Asset Accountant has several
                                         inventory responsibilities. They include:

                                         •   Reconciling the Fixed Assets subsidiary ledger to the
                                             general ledger,

                                         •   Arranging and conducting periodic fixed assets counts,
                                             and

                                         •   Tag control.

                                         The managers of each project/location also hold additional
                                         responsibility for inventory items. These responsibilities
                                         include:

                                         •   Ensuring that all assets received are appropriately
                                             tagged,

                                         •   Reconciling fixed assets listing received from the Fixed
                                             Assets Accountant on a quarterly basis, and

                                         •   Documenting all transaction (receipts, transfer and
                                             disposals) of Fixed Assets on a transaction basis and
                                             transmission of the information to the Fixed Assets
                                             Accountant.

                                         The Warehouse Manager also has inventory responsibilities
                                         that include:

                                         •   Preparing and distributing tags for new assets/assets
                                             transferred from inventory,

                                         •   Transferring of inventory to fixed assets, and

                                         •   Preparing fixed assets documentation and the
                                             transmission thereof to the Fixed Assets Accountant.

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                                                 According to the SFHA policies and procedures, dwelling
                                                 personal property includes ranges, refrigerators, washers,
                                                 and dryers, is always capitalized no matter the cost of the
                                                 item. All capitalized and expendable equipment items are
                                                 to be assigned an inventory number and tagged at time of
                                                 receipt or transfer from inventory. According to these
                                                 policies, all equipment costing at least $100 should have a
                                                 tag number.

                                                 The SFHA policies and procedures              also   include
                                                 information on periodic inventory counts:

                                                 •   Periodic inventory counts will be conducted under the
                                                     supervision of the Fixed Assets Accountant,

                                                 •   The assets counted will be compared to the assets on
                                                     hand per the fixed assets system,

                                                 •   The development/department manager will               be
                                                     responsible for explaining any discrepancies, and

                                                 •   Records will be maintained related to discrepancies by
                                                     respective departments.

                    CGP Criteria on Ineligible   HUD CGP Guidebook 7485.3G, states that non-routine
                    Costs                        maintenance is an allowable expense, but routine
                                                 maintenance is not.

                    Inadequate General Ledger    The SFHA had an inadequate general ledger tracking and
                    Reporting                    reporting system over its CGP expenditures. The system
                                                 did not accurately identify, track, and report all force
                                                 account modernization expenditures. The SFHA had
                                                 difficulty producing reports, transfers were arbitrarily made
                                                 to match budget, general ledger descriptions were
                                                 inadequate, and allocations to accounts were inconsistent
                                                 and some could not be adequately justified. Expenditures
                                                 could be reviewed on an individual basis to determine what
                                                 they were. However, with the numerous lump sum
                                                 transfers, it was difficult to determine what account the
                                                 amount eventually ended up in. As a result, there was no
                                                 assurance that all expenditures were properly accounted for
                                                 and classified in the general ledger.           In addition,
                                                 management did not have adequate financial information to
                                                 oversee activities.

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                    Comprehensive General Ledger      The SFHA Finance department was not able to produce
                    Reports Not Generated In Timely   general ledger reports from its system that would show
                    Manner                            comprehensive     detail   concerning   force   account
                                                      expenditures charged to CGP accounts. We had to obtain
                                                      this information from Management Information System
                                                      (MIS) department, which resulted in considerable delays
                                                      and limitations on the number of developments that could
                                                      be reviewed.

                                                      We requested the Finance department to provide
                                                      comprehensive general ledger reports detailing CGP
                                                      expenditures. This included listing expenditures attributed
                                                      to all CGP grants for all projects between October 1996 and
                                                      June 1999.      The Finance department did not have
                                                      hardcopies of the documentation available. Finance stated
                                                      it would have to spend considerable time generating this
                                                      documentation from its system, producing a separate report
                                                      for each account number for each fiscal year requested,
                                                      possibly requiring a month of intensive effort. This
                                                      information would also not include related vendor names,
                                                      invoice numbers, check numbers, and purchase order
                                                      information. These reports would need to be produced on
                                                      an individual basis for each transaction.

                                                      As a result, we requested SFHA’s MIS computer
                                                      department to provide the necessary data. It took a week
                                                      for the department to provide the data for a single
                                                      development. A subsequent request for additional data
                                                      resulted in over a four-month wait for documentation,
                                                      between November 1999 and March 2000. The data files
                                                      provided also required extensive adjustment to provide
                                                      accurate expenditure information. As a result, we could
                                                      only review general ledger information for three sample
                                                      projects.

                General Ledger Descriptions of        The SFHA entered inadequate descriptions in the general
                Expenditures Inadequate               ledger to describe the purposes of CGP expenditures. In
                                                      many cases, the only way to sufficiently identify the
                                                      expenditure was through examination of supporting
                                                      documents of individual transactions. As a result, we have
                                                      no assurance that ineligible expenditures were not charged
                                                      to the grants, without an unreasonably extensive effort to
                                                      check each material transaction.


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                                                 We reviewed general ledger reports the Finance department
                                                 could produce and determined they would be inadequate to
                                                 assess force account expenditures. As mentioned above,
                                                 the reports did not include vendor names, invoice numbers,
                                                 check numbers, or purchase order numbers.            Many
                                                 disbursements from accounts payable did not provide
                                                 detailed descriptions of the expenditures. This included
                                                 line item descriptions such as “TRANSFER CLOSED PO
                                                 11”, “3/26/98 8/18/98 3/25/”, “4WV x 12” (4 X 12
                                                 OVAL)”, “PROVIDE PURCHASE ORDE[R]”, “Request
                                                 to increase p”, “UNFORSEEN CONSTRUCTIO[N] (sic).”
                                                 (Note: PO stands for purchase order). Items obtained from
                                                 the SFHA inventory warehouse did not include a
                                                 description, but did list either a claim or warehouse
                                                 identification number. Finally, material general ledger
                                                 transfers between accounts often only included vague
                                                 descriptions such as “ADJ OVERAGE ADJ LINE ITEM
                                                 OVERAGE” or “RECLASS BUDG RECLASS EXPS;
                                                 BUDGET” (sic). Each line item would have to be checked
                                                 individually in the system to obtain the additional
                                                 information. There were over 11,000 expenditure and
                                                 transfer debits and credits under the Sunnydale CGP
                                                 accounts alone. No other reports available from the
                                                 SFHA’s general ledger system could provide the
                                                 comprehensive data needed.

                                                 Information provided by MIS was more comprehensive.
                                                 Invoice, check, vendor name, and other information could
                                                 be linked to the line item expenditures in the database.
                                                 However, the descriptions of the expenditures were still
                                                 inadequate to review expenditures.

                     Transfers and Allocations   The general ledger included many large transfers of funds
                     Make General Ledger         between CGP funds and accounts, made primarily to move
                     Unreliable                  expenditures where funds had been budgeted. In addition,
                                                 allocations of expenditures to projects were not always
                                                 consistent or reliable. As a result, there is no assurance that
                                                 general ledger accounts for CGP modernization reflect
                                                 accurate costs.

                                                 The SFHA Finance department was responsible for
                                                 establishing the account numbers in the general ledger. The
                                                 account numbers distinguished the fund, the type of work
                                                 the expenditure was applicable to, whether it was labor or
                                                 materials, and the applicable project. The force account

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                    departments were responsible for identifying which account
                    an expenditure was attributable to before being entered into
                    the system.

                    Finance prepared transfers so actual expenditures would
                    match its budget. We noted for a single project, Sunnydale,
                    there were 131 non-payroll related transfers between
                    Sunnydale general ledger CGP accounts totaling $18.2
                    million, between May 31, 1997 and July 31, 1999. Finance
                    stated these transfers were primarily expenditures entered
                    into the general ledger in excess of the amount budgeted for
                    the account. It would then transfer the overage either to a
                    different general ledger account under the same fund or to
                    another CGP fund. These lump sum transfers could not be
                    matched to specific expenditures in the general ledger.
                    Finance further stated it did not have the ability to charge
                    expenditures to the next CGP grant fund timely, when the
                    current grant fund budget is fully expended. This occurred
                    because it was difficult for Finance to track and determine
                    the actual expenditures amount balances under a line item.
                    In some instances, Finance transferred amounts back if too
                    much had been transferred earlier.

                    As a result, costs were not consistently charged to the
                    correct accounts, and were often transferred to accounts that
                    did not incur expenditure. Transfers included moving
                    funds between labor and materials accounts. Finance could
                    not substantiate whether transfer amounts were actually
                    labor or materials. These transfers make the designation of
                    labor and material accounts useless and reduce the
                    effectiveness of budgeting. Budgeted amounts cannot be
                    adequately compared to actual costs if actuals are moved
                    within the general ledger to reflect budget. Overall, we
                    identified transfers of $5,238,176 between Sunnydale
                    general ledger accounts that appeared to misrepresent the
                    expenditures, as listed in the following schedule.




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                                   Transferred From            Transferred To                     Amount
                                   Lead Abatement general      HQS Labor                            $47,104
                                   Landscaping Materials       Landscaping Labor                    $34,399
                                   Exterior Painting Labor     Exterior Painting Materials          $17,942
                                   HQS Labor                   Administrative Salaries              $47,104
                                   504 Materials               504 General                           $2,590
                                   HQS Materials               HQS Labor                           $349,245
                                   Landscaping Materials       Landscaping General                 $102,718
                                   HQS Labor                   HQS General                         $905,188
                                   Landscaping Labor           Landscaping General                 $534,083
                                   504 General                 504 Labor                            $38,526
                                   HQS General                 HQS Labor                         $1,326,946
                                   HQS General                 HQS Materials                     $1,828,852
                                   Landscaping General         Landscaping Materials                 $3,480
                                   TOTAL:                                                        $5,238,176

                                              The SFHA was also attributing significant expenditures to
                                              general CGP accounts with no project designated, called
                                              ‘PHA-Wide’ accounts.          These amounts were then
                                              transferred to the individual projects at a later point in time
                                              instead of initially recording the expenditures under the
                                              project account in question.

                                              We identified two significant allocations of expenditures
                                              from the ‘PHA-Wide’ accounts to projects that were not
                                              based on where the expenses were actually incurred. In one
                                              instance, $601,413 was allocated evenly to four different
                                              Family Sweep developments. Finance could not produce
                                              information to establish whether all the expenses actually
                                              pertained specifically to these projects in the ratio applied.
                                              In another case, $160,228 was allocated to various family
                                              and senior developments based on its budget percentages
                                              for the year. In the latter case, the expenditures could not
                                              be identified by Finance within a reasonable timeframe to
                                              determine whether they were overhead or direct
                                              construction expenses that had not been tracked by the
                                              SFHA to specific developments.

                                              There were 69 allocations to the senior projects from the
                                              ‘PHA-Wide’ accounts for force account expenditures
                                              between January 1997 and July 1999. These expenditures
                                              totaled $403,922 and included various materials for force
                                              account work, and were not simply overhead. Although the
                                              Senior Sweep department apparently tracked these
                                              expenditures individually, it was not readily apparent, based

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                                                    on invoice review, whether they all were actually applicable
                                                    to the projects transferred. While it was not practical to
                                                    review all 14,000 debit and credit entries in the PHA-Wide
                                                    accounts, we noted no instances of any amounts having
                                                    been allocated to an incorrect development. Nevertheless,
                                                    the result of these transfers to the senior projects’ general
                                                    ledger accounts was lack of detailed descriptions of
                                                    purchases. The accounts only showed the transfer entries
                                                    for these expenditures and did not specifically identify the
                                                    individual expenditures.

                                                    The SFHA did not have the ability to fully identify the
                    Method of Recording Costs
                                                    actual costs of different modernization work items.
                    Insufficient To Identify
                                                    Finance did not track expenditures to this level of detail and
                    Costs of Different Activities
                                                    neither did the Family and Senior Sweep programs. This
                                                    makes it difficult for the SFHA to assess the costs of
                                                    different crafts and determine whether it was performing
                                                    work in a cost effective manner.

                                                    At Sunnydale, the cost of non-routine maintenance could
                                                    not be separated from the cost of performing
                                                    comprehensive modernization on non-504 units. It was
                                                    impossible to determine what work was attributed to these
                                                    accounts.      At Potrero Annex, work performed to
                                                    rehabilitate the exterior balconies cannot be separated from
                                                    the interior work or other exterior work performed. Thus,
                                                    management could not compare its actual costs directly to
                                                    the planned costs.

                                                    The Senior Sweep program also could not separate the
                                                    costs of work performed on disability access work on
                                                    common areas from disability access work performed
                                                    directly to the units. In addition, the Senior Sweep progress
                                                    report significantly misreported the cost of its work
                                                    performed on Clementina 504 disability access units.
                                                    Senior Sweeps had not been able to distinguish its own 504
                                                    costs from work charged to the accounts from prior periods.
                                                    This prior period work was performed on other units by the
                                                    previous modernization program, and was not
                                                    representative of Senior Sweep costs or activity. These
                                                    additional costs would significantly increase and
                                                    misrepresent the overall modernization costs of the Senior
                                                    Sweep program. As a result, it is not certain whether
                                                    progress reports accurately reflected modernization.


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                                                  The SFHA was not consistently following established
                    SFHA Was Not                  purchase order procedures relating to its force account
                    Consistently Following        expenditures charged to the CGP. Force account purchase
                    Proper Purchase Order         orders were frequently prepared after the expenses were
                    Procedures                    incurred and invoices were submitted by the vendor. In
                                                  addition, the purchase orders did not consistently identify
                                                  items purchased and the quantity. Some invoices were also
                                                  not charged to the correct purchase order. This occurred
                                                  because there were inadequate controls to assure that
                                                  Procurement and Finance knew and approved of purchases
                                                  before they were incurred.

                    Purchase Orders Prepared      A significant number of purchase orders were prepared
                    After Invoices Received       after the expenditures had been incurred and invoices were
                                                  submitted to the SFHA. Nine of 21 purchase orders
                                                  reviewed for force account materials had an invoice date
                                                  earlier than the purchase order. The differences ranged
                                                  from several days to several months.

                                                  Descriptions on the purchase orders were inadequate.
                    Purchase Order Descriptions   Twenty-one of 34 purchase orders reviewed had inadequate
                    Inadequate                    descriptions of the items and quantity to be purchased.
                                                  They included descriptions such as “Transfer Closed
                                                  PO#11442”, “Increase encumbrance to PO 7321 for
                                                  flooring materials and supplies”, “Increase encumbrance to
                                                  open PO 6867”, and “Open purchase order for electrical
                                                  materials and supplies for Sunnydale.” These purchase
                                                  orders did not identify item purchased, the individual
                                                  prices, or the quantities.

                                                  In addition, the project reported on the purchase order was
                    Invoices Applied To           not always consistent with the project reported on the
                    Incorrect Purchase Orders     invoice. We selected a sample of 10 invoices where the
                                                  applicable development was reported on the document.
                                                  Two of the purchase orders attached and referenced in
                                                  writing on the invoice specified they had been created for a
                                                  different development. In one case, invoice number 5640
                                                  for Sunnydale was attached to purchase order number 8225
                                                  for Westbrook. In the other instance, a Potrero Annex
                                                  invoice was attached to Alice Griffith purchase order
                                                  12635.

                                                  These problems occurred because SFHA policies did not
                                                  prevent the creation of ‘open’ orders identifying specific
                                                  items purchased. These purchase orders often had arbitrary

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                                                  set amounts, under which force account staff could
                                                  purchase whatever materials required. However, the force
                                                  account frequently purchased more materials than the
                                                  purchase order allowed, which was apparently not
                                                  recognized until the invoices were submitted to the SFHA.
                                                  As a result, another purchase order would be generated to
                                                  cover the expense, after the fact.

                    The SFHA Did Not Have an      The SFHA did not maintain an adequate inventory system
                    Adequate Inventory System     to allow for the accurate tracking and recording of SFHA
                                                  equipment and supplies. The SFHA did not consistently
                                                  track and update all items, perform inventory counts, or
                                                  maintain logs for supplies and equipment stored on-site.
                                                  The SFHA did not place an emphasis on tracking and
                                                  confirming assets. As a result, there was no assurance that
                                                  equipment and other materials were all accounted for and
                                                  were used for CGP activities.

                                                  The SFHA implemented its present Creative Computer
                                                  Solutions (CCS) system in 1995. According to the Finance
                                                  department, it considered the fixed asset element of the
                                                  system to be unimportant and did not implement it. In
                                                  addition, the SFHA maintained a manual system that did
                                                  not have accurate information.

                                                  Appliance inventory listings did not have accurate
                    Appliance Inventory Reports
                                                  information.    A significant number of identification
                    Inaccurate
                                                  numbers listed on the reports did not match the actual items
                                                  in the units       We selected 61 appliances from the
                                                  Sunnydale, Potrero Terrace, Pine Street, and Valencia
                                                  developments for on-site inspections. Eighteen of 52
                                                  appliances did not match the appliances actually in the
                                                  units. We could not confirm the remaining nine appliances
                                                  because the identification numbers could not be observed.

                                                  There was some confusion among the SFHA departments
                                                  as to which department could provide the most accurate
                                                  inventory information. Property managers believed the
                                                  warehouse had the information. The warehouse department
                                                  stated the information was all submitted to Finance for
                                                  record maintenance.     Finance believed the Customer
                                                  Service department may have had more accurate
                                                  information. However, Customer Service was unable to
                                                  generate the information because it had not been entered
                                                  into the computer system.

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                                                 We attempted to locate a sample of equipment that should
                    All Equipment Could Not Be
                                                 have been tracked through the SFHA’s inventory system.
                    Confirmed
                                                 This included Family and Senior Sweep force account
                                                 equipment and some additional Modernization, Finance,
                                                 and Central Service items charged to the CGP grant.
                                                 Equipment logs from the force account programs were
                                                 insufficient to adequately confirm items. We generally
                                                 sampled expensive items reported in the CGP general
                                                 ledger accounts, such as vehicles, computers, tractors, and
                                                 other equipment and attempted to obtain identification
                                                 numbers to track the items and then check the items on-site.
                                                 However, due to the SFHA’s inadequate inventory system,
                                                 all equipment could not be confirmed.

                                                 Assets were not consistently tagged for tracking. We did
                                                 note all 35 vehicles checked had fleet numbers assigned to
                                                 them, and we were able to obtain the vehicles’ serial
                                                 numbers. However, several other assets examined during
                                                 our sample inspection did not have a tag number or the tag
                                                 number could not be confirmed.

                                                 There was also inconsistency between SFHA practice and
                                                 written procedures. SFHA policy required the tagging of
                                                 all items costing over $100. However, the Finance office
                                                 advised that only items of $500 or more were tagged and
                                                 tracked. Based on items within our sample, of the 164
                                                 other assets sampled that should have been tagged, costing
                                                 $129,768, 128 items had no tag number. These untagged
                                                 sample items had a cost of $88,833.

                                                 We confirmed a sample of eight tagged items of equipment
                                                 costing $75,579 and 11 vehicles from the SFHA records to
                                                 the items on-site. All vehicles were located and accounted
                                                 for. Of the remaining non-vehicle items, three items
                                                 totaling $12,109 could not be adequately confirmed on-site.
                                                 This included computers totaling $5,273 and one $6,836
                                                 electric bender.

                                                 We noted a material exception relating to Finance
                                                 department computer equipment charged to the CGP. Of
                                                 three laptop computers purchased by the SFHA, only one
                                                 could be located. The Executive Office had ordered the
                                                 computers and their location was unknown. The employee
                                                 initially assigned to the computers no longer worked for the

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                                                 SFHA. The Executive Office was unable to provide any
                                                 additional information concerning where the two computers
                                                 totaling $5,273 computers were located.

                                                 An electric bender did not match to inventory information
                                                 available. The electric bender observed on-site had
                                                 different identification numbers than shown by the Finance
                                                 department. The Family Sweep department stated the
                                                 vendor had replaced the item. The vendor did confirm a
                                                 replacement. Nevertheless, neither the vendor nor the
                                                 Family Sweep department could provide information
                                                 indicating the identification number of the new item. Thus,
                                                 there is not assurance additional electric benders were not
                                                 purchased, which might account for the item on hand.

                                                 The SFHA did not sufficiently identify and track equipment
                    Insufficient Force Account   because it was not consistently applying established
                    Inventory Practices          inventory procedures. The SFHA was not taking regular
                                                 physical inventory to confirm recorded assets to actual
                                                 items on hand. In addition, the Sweeps programs were not
                                                 adequately generating or updating their inventory lists. The
                                                 information presented on the lists was also insufficient.
                                                 These issues arose because the SFHA placed little priority
                                                 over tracking and confirming inventory records over its
                                                 assets and equipment, so there was no assurance items
                                                 purchased had been accounted.

                                                 The SFHA written inventory procedures required project
                                                 managers to perform monthly inventory reconciliations, and
                                                 department managers to reconcile with the Fixed Asset
                                                 Accountant on a quarterly basis.      In addition, SFHA
                                                 procedures required periodic inventory counts under the
                                                 supervision of the Fixed Assets Accountant, but do not
                                                 specify the frequency. However, 24 CFR Sub-Section
                                                 84.34 required a physical inspection and reconciliation of
                                                 equipment inventory every two years.

                                                 We requested tools and equipment inventory listings from
                                                 the Senior and Family Sweep departments on two
                                                 occasions. Updated listings were not available from either
                                                 office when new listings were later requested the following
                                                 year. This demonstrated the Senior Sweep department
                                                 performed no inventory tracking for at least eight months.
                                                 Likewise, there was no tracking performed by the Family
                                                 Sweep department for at least ten months.

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                                   There was no consistency between the Family and Senior
                                   Sweep vehicle listings. In general, the list prepared by the
                                   Senior Sweep department provided more information than
                                   the Family Sweep list. The Family Sweep list was updated
                                   based on our request for inventory information. However,
                                   it still did not provide an identification number for one of
                                   its vehicles. The list did not contain the same useful
                                   information as the Senior Sweep list, such as the vehicles
                                   license plate number, make, model, year, or mileage.
                                   Updated vehicle lists were later requested before our on-site
                                   confirmation. The Family Sweep did not prepare or supply
                                   updated vehicle listings.

                                   Both Sweeps’ equipment lists were incomplete and did not
                                   have enough information available to track the expenditure.
                                   The Family Sweep list contained 320 items, of which 126
                                   had no identification number. In addition, 288 of the items
                                   did not specify which employee the item was assigned.
                                   Likewise, the Senior Sweep equipment list contained 147
                                   items, of which 77 had inadequate identification. The lists
                                   did not include the price of the items; therefore, one cannot
                                   determine whether the items required a SFHA assigned tag
                                   number. These items are not traceable to the general ledger
                                   due to lack of the vendor name, invoice number, or the
                                   purchase order number. There was no distinction between
                                   which items were obtained from the warehouse and which
                                   were purchased directly.

                                   The Senior Sweep equipment inventories were prepared by
                                   the foremen in-charge of each department, who were also
                                   responsible for the items in question. The equipment
                                   listings were prepared specifically based on our request for
                                   inventory information. The Senior Sweep department
                                   stated that old equipment lists were not maintained.

                                   There was no information on the Family Sweep report to
                                   establish when and if a physical inventory was performed to
                                   confirm items on hand. Family Sweep department had no
                                   documented inventory procedures available when
                                   requested. The Family Sweep department said inventory
                                   lists were created as part of surprise inspections performed
                                   approximately every two months. However, the department
                                   did not provide subsequent listings when requested to
                                   confirm this process actually occurred.

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                                                  There was no evidence to show the force account
                                                  departments were performing quarterly inventory
                                                  reconciliations with the Fixed Asset Accountant. Sweeps
                                                  staff stated they did not take a physical inventory to
                                                  compare tools and equipment on hand to the items
                                                  purchased to determine if discrepancies exist, or confirm
                                                  whether these items were officially disposed or retired.
                                                  There were also no comparisons to previously generated
                                                  lists to identify discrepancies.

                    Inadequate Tracking of On-    The SFHA also did not maintain logs over its force account
                    Site Materials and Supplies   materials and supplies stored at the project sites. During
                                                  site visits, we noted storage containers used to keep various
                                                  materials and equipment for the force account programs. In
                                                  addition, at the Sunnydale development, large amounts of
                                                  materials and supplies were stored in an entire building.
                                                  Items observed in the Sunnydale storage area included
                                                  water heaters, sinks, plumbing accessories, wall heaters,
                                                  etc. The number of items in storage was not certain.




                                                  Photo of Sunnydale storage building showing a small
                                                  portion of the supplies maintained, including sinks and wall
                                                  heaters.

                                                  The Family Sweep department initially informed us that
                                                  logs were maintained on-site to show materials going in
                                                  and out of the storage areas. However, Sunnydale could
                                                  not provide these logs requested in August 1999. The
                                                  Assistant Construction Project Manager stated that an
                                                  employee had maintained a log until she left in March
                                                  1999. The logs she maintained were missing and no

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                                               subsequent logs had been kept. A Family Sweep staff
                                               member also advised that logs for items in storage at
                                               Potrero Hill were not maintained

                                               Due to the inadequate accounting and inventory records as
                                               well as physical inventories, the SFHA has no assurance
                                               that important assets were properly used or had not been
                                               misappropriated.

                                               The SFHA charged routine maintenance costs to the CGP
                    Lack of Controls Over      grant, despite the CGP guidelines making routine
                    Maintenance Cost Charged   maintenance ineligible. In addition, inadequate records
                    to Grant                   were maintained to designate why the Maintenance
                                               employees charged to the CGP changed over time. A lack
                                               of procedures and controls over which employees should be
                                               charged to the grants resulted in ineligible costs of $98,102
                                               and unsupported costs of $73,210.

                                               The CGP guidebook criteria only allowed non-routine
                                               maintenance or more comprehensive modernization to be
                                               charged to the grant. Routine maintenance was specifically
                                               disallowed.

                                               We identified several Central Service Maintenance
                                               employees charged to the CGP. Between October 1, 1998
                                               and September 30, 1999, the SFHA charged $552,716 to
                                               the CGP grant for 24 Maintenance employees, 18 of which
                                               were painters. The number of employees varied from
                                               month to month as shown in the following table.




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                                                       Month          Central Service      Payroll Amount
                                                                       Employees to
                                                                          CGP
                                                  October 1998              15                      $63,740
                                                  November 1998              7                      $32,468
                                                  December 1998             15                      $65,786
                                                  January 1999              13                      $94,687
                                                  February 1999             13                      $66,648
                                                  March 1999                14                      $69,064
                                                  April 1999                 1                       $1,797
                                                  May 1999                   0                           $0
                                                  June 1999                  5                       $2,935
                                                  July 1999                 10                      $65,136
                                                  August 1999               12                      $68,082
                                                  September 1999             5                      $22,372
                                                      TOTAL:                                       $552,716

                                                  The SFHA Finance department was unable to provide
                                                  information why these persons were charged to the grant,
                                                  and why the employees changed from month to month.
                                                  The Central Service department stated that persons charged
                                                  to the grant should perform non-routine maintenance on
                                                  long outstanding work orders. However, Central Service
                                                  was also unable to explain why the persons charged varied
                                                  from month to month. In addition, Central Service did not
                                                  believe some staff charged to the grants performed non-
                                                  routine maintenance.

                                                  Payroll records for a sample of five employees showed they
                                                  had previously worked for the force account program, and
                                                  were transferred to the Central Service Maintenance
                                                  department. Nevertheless, their payroll continued to be
                                                  charged the CGP.

                                                  Review of work orders for the 18 Maintenance painters
                    Ineligible Costs of $98,102   charged to the CGP showed three were primarily working
                    Charged to CGP                on standard interior painting of vacant units with work
                                                  orders outstanding for less than 30 days.             Other
                                                  Maintenance employees who assisted to complete many of
                                                  the same work orders were not charged to the CGP. The
                                                  total payroll for these three employees charged to the CGP
                                                  was $98,102 for fiscal year 1999.

                                                  Finance did not know who was supposed to be charged to

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                                       the grant, and Central Service did not know who was
                                       actually being charged to the grant.

                                       We did not have sufficient time available to review
                                       additional fiscal years and confirm that only non-routine
                                       maintenance cost were charged to the CGP grants.
                                       Likewise, insufficient time was available to confirm
                                       $73,210 of questionable payroll costs for additional Central
                                       Service staff charged to the CGP. This included four of the
                                       Central Service painters charged to the CGP during the
                                       year, but not during the sample periods reviewed. Their
                                       contested payroll charged to the CGP was $42,009 for that
                                       year. We also did not have sufficient time to confirm the
                                       five Central Service laborers and a Central Service
                                       administrative clerk charged to the CGP in fiscal year 1999.
                                       The total cost of these additional employees was $31,201,
                                       and they were not charged to the grant on a consistent basis.
                                       It was not readily evident what activities the Maintenance
                                       laborers and administrative clerk were performing that were
                                       non-routine maintenance related. As a result, there is no
                                       assurance that routine maintenance costs were not charged
                                       in other periods and for other employees not reviewed.




                    Auditee Comments   The SFHA indicated general disagreement with our
                                       conclusions and recommendations. We have summarized
                                       its response below into four issues.

                                       (1) The SFHA did not agree with the OIG conclusions on
                                       the general ledger and other force account tracking
                                       documentation, although it did agree the general ledger
                                       system had limitations. It stated the Senior Sweep program
                                       was able to adequately distinguish and separate work
                                       performed in prior periods. It argued all expenses could be
                                       tracked to documentation, and its general ledger accounting
                                       system was therefore sufficiently maintained. Timely
                                       manually prepared project reports were generated for each
                                       development to show detailed actual expenditures. In
                                       addition, it stated cumulative project expenditures were not
                                       transferred in lump sums to balance budgets, but were
                                       merely period or fungible charges brought forward for
                                       budgeted line items. The SFHA also believed its system
                                       for tracking expenditures was adequate because it produced

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                    project reports for cumulative expenditures. It stated the
                    reports requested from MIS were duplication of data
                    available through documents referenced in the general
                    ledger. In addition, the SFHA excused problems with
                    general ledger descriptions by noting they were prepared by
                    various staff with different writing abilities. Project
                    expenditures were not moved from one project to another in
                    the general ledger unless a journal entry explaining the
                    correcting adjustment was prepared. It also compared its
                    method for charging funds to a first-in, first-out system.
                    Finally, the SFHA proposed implementing additional
                    tracking through general ledger account numbers.

                    (2) The SFHA accepted that procurement procedures
                    should be followed in all cases, in advance of purchases. It
                    stated it would provide future procurement training to staff.
                    However, the SFHA excused other issues identified in the
                    OIG finding. The SFHA did note HUD Handbook 7460.8
                    Rev-1 has an outdated $25,000 threshold on small
                    purchases, since 24 CFR Part 85.36 changed it to $100,000.
                    In addition, the SFHA stated purchases may have to be
                    made that do not follow required procurement practices due
                    to construction job conditions. It also concluded instances
                    of actual purchases exceeding the purchase order amount
                    were isolated.

                    (3) The SFHA did not agree with the OIG position over the
                    inventory. It argued enough information was available to
                    confirm the electric bender as part of the inventory review.
                    It also stated the issue of Family Sweep not maintaining
                    sufficient vehicle inventory data was unclear since they
                    accounted for all vehicles. In addition, it concluded Family
                    Sweep did maintain adequate inventory documentation.
                    Nevertheless, Family Sweep stopped maintaining inventory
                    on site and will only obtain materials for jobs in progress.

                    (4) The SFHA appeared to argue the maintenance
                    employees charged to the CGP were all working on eligible
                    work orders. It questioned how we were able to arrive at
                    ineligible and unsupported costs amounts if its records were
                    inadequate. In subsequent correspondence, the SFHA
                    stated it may have charged employees to the wrong account
                    and would perform a reconciliation.




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                    OIG Evaluation of   Our evaluation of the SFHA’s comments parallels the four
                    SFHA’s Response     issues.

                                        (1) The Director of Modernization was able to separate
                                        costs from prior periods in the disability access accounts,
                                        since the ledger entries were dated. However, this
                                        distinction was not made until August 2000 after further
                                        cost analysis. Progress reports previously provided by the
                                        Senior Sweep program incorrectly included this prior
                                        period costs in determining its per unit cost of Senior
                                        Sweep modernizing units.

                                        We did not question the SFHA’s ability to track a general
                                        ledger line item expense to a hardcopy purchase order or
                                        invoice. The issue with the general ledger system was that
                                        information could not be presented in a manner to
                                        sufficiently evaluate the force account costs. The response
                                        referred to timely manually prepared project reports
                                        generated for each development to show detailed actual
                                        expenditures. However, no examples were provided.

                                        We agree the SFHA had reports showing the cumulative
                                        total expenditures. However, these reports do not identify
                                        what individual expenditures made up the totals.

                                        We had no argument that the expenditures were fungible
                                        and could be charged to the subsequent CGP funds in the
                                        general ledger.      However, Finance staff could not
                                        adequately determine when CGP fund limits had been
                                        reached. Overcharged amounts then had to be moved in
                                        lump sums to subsequent grants, and these entries did not
                                        designate which individual expenditures were included. In
                                        addition, amounts were transferred to project accounts
                                        based on questionable allocation methods. The general
                                        ledger descriptions were also inadequate to consistently
                                        determine why the transfers had been made. This made it
                                        difficult to determine which expenditures were applicable
                                        to the different accounts.

                                        The staffs’ writing abilities was not a valid excuse for a
                                        lack of information that should have been available in the
                                        general ledger.


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                    It was also not clear what the SFHA meant when it stated
                    the reports requested from MIS were duplication of data
                    available through documents referenced in the general
                    ledger.    The general ledger referenced invoices and
                    purchase orders. We agree these documents were available.
                    However, to determine exactly what the SFHA had been
                    purchasing, a review of general ledger line item expenditure
                    detail was necessary. The SFHA was unable to produce
                    this type of data in a reasonable fashion.

                    The SFHA proposed increased tracking of expenditures.
                    This should be helpful as long as it does not lead to an
                    increased level of transfers between accounts, making the
                    general ledger more difficult to review. Currently, it is not
                    clear whether the SFHA’s application of this method would
                    allow for significant improvement in its ability to track
                    costs.

                    (2) We agree the HUD handbook does not reflect the higher
                    threshold. We have added a footnote to the report
                    regarding this fact. However, this amount has no bearing
                    on the audit conclusions.

                    The problem with the open purchase order system was that
                    the instances when purchases exceeded purchase order
                    amounts did not appear isolated since a significant number
                    of purchase orders were prepared after the invoice dates. In
                    addition, if managers of force account programs are
                    allowed to make purchases without following procurement
                    procedures, there is no assurance this will not become
                    common practice. Finally, the practice of not identifying
                    materials to be purchased violates the requirements of HUD
                    Handbook 7460.8, requiring records over small purchases
                    to clearly specify items purchased on the purchase order.

                    (3) The SFHA did not accept it had a problem with its
                    inventory system. The fact that the electric bender’s serial
                    number in available records was not adjusted, and support
                    of its replacement was not maintained, was an example of a
                    control problem with the inventory recording system.

                    Even though the Family Sweep program was able to
                    account for all sample vehicles inspected, a control problem
                    still existed relating to the tracking of vehicles because
                    records were incomplete and not updated. Inadequate

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                                      controls may lead to the misuse of assets purchased with
                                      CGP funds.

                                      The SFHA was not able to show Family Sweep maintained
                                      logs for storage areas on site, since none of these records
                                      could be provided. While the new practice of not storing
                                      materials on project sites makes control easier, we have not
                                      confirmed how this practice is followed. Inventory records
                                      are still necessary to track items to the site locations.

                                      (4) We did not disallow any costs relating to central service
                                      employees performing non-routine maintenance activities.
                                      The employees cited were performing routine maintenance
                                      activities during the periods in question.

                                      We did not question the SFHA’s ability to track where
                                      employee payroll was charged.          However, records
                                      identifying reasons the employees were charged to the CGP
                                      were unavailable. While the SFHA provided a list of work
                                      orders charged to the CGP grant as part of its response,
                                      none of these were involved with the 45 sample work
                                      orders reviewed.




                    Recommendations   We recommend the Assistant Secretary for Public and Indian
                                      Housing require the SFHA to:

                                      2A.      Update its accounting software so that Finance can
                                               adequately monitor force account related costs in the
                                               general ledger and produce comprehensive detailed
                                               reports in a timely manner.

                                      2B.      Implement procedures to ensure that costs are
                                               adequately reported in the general ledger (via
                                               description), including the quantity if multiple items
                                               are purchased.

                                      2C.      Implement procedures and controls to ensure that
                                               transfers are no longer made to incorrect accounts,
                                               simply to match budget.

                                      2D.      Develop procedures and controls relating to
                                               purchase order generation to ensure purchase orders

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                             are prepared before expenditures are made, and
                             sufficiently identify the items and quantities to be
                             purchased.

                    2E.      Consistently record the applicable project on each
                             invoice, and charge direct cost expenditures directly
                             to the project accounts instead of to ‘PHA-Wide’
                             accounts. Also, require the SFHA to establish
                             controls to ensure invoices and purchase orders are
                             properly charged to the correct project account
                             numbers.

                    2F.      Develop procedures to ensure allocations from
                             general accounts to project accounts are performed
                             in a consistent manner, as close to actual as
                             possible. The reasons and basis for the allocation
                             method used should be documented. In addition,
                             only     actual     indirect    overhead      costs,
                             indistinguishable between developments, should be
                             charged to the ‘PHA-wide’ accounts.

                    2G.      Implement the inventory procedures required in its
                             own policies and procedures manual, requiring the
                             tagging and tracking of inventory and the
                             implementation of a computerized fixed asset
                             system.

                    2H.      Maintain complete logs over on-site inventory of
                             materials and supplies for any continuing force
                             account program. These logs should be compared
                             with purchase and use information on a routine
                             basis to ensure accurate accounting over all items.

                    2I.      Perform periodic physical inventory counts over
                             equipment and appliances and reconcile back to
                             fixed asset records no less than every two years.

                    2J.      Develop procedures relating to charging non-routine
                             maintenance to the CGP grant, including the
                             identification of the employees.

                    2K.      Return the ineligible routine maintenance payroll
                             costs of $98,102 to the CGP grant.

                    2L.      Provide support for $73,210 in questionable Central

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                                            Service payroll to demonstrate           that   these
                                            expenditures were allowable activity.

                                   2M.      Identify all central service employees charged to the
                                            CGP grants during fiscal year 1998 and 2000.
                                            Provide documentation to support the charges were
                                            for allowable activity.




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                    Management Controls
                    In planning and performing the audit, we considered the management control systems used by the
                    SFHA to determine the audit procedures and not to provide assurance on management control.
                    Management control is the process effected by an entity’s board, management, and other
                    personnel, designed to provide reasonable assurance for achieving program operations objectives,
                    validity and reliability of data, compliance with applicable laws and regulations, and
                    safeguarding resources.



                    Relevant Management                 The following control systems were relevant to the audit
                    Controls Were Considered            objective:

                                                        •   Force account management and reporting,

                                                        •   General ledger system reporting,

                                                        •   Equipment and appliance inventory recording, tracking,
                                                            and maintenance,

                                                        •   Employee hiring practices, and

                                                        •   Purchase order generation

                                                        We obtained an understanding of the control structure for
                                                        the above systems and determined the risk exposure to
                                                        design audit procedures. We concluded the audit would be
                                                        performed more efficiently by doing substantive tests
                                                        without reliance on management control due to the SFHA’s
                                                        control environment. Therefore, we did not necessarily
                                                        make a complete assessment of control design or determine
                                                        whether all policies and procedures had been placed in
                                                        operation.

                    Significant Weaknesses Were         A significant weakness exists if management control does
                    Noted                               not give reasonable assurance that control objectives are
                                                        met. We observed significant weaknesses with general
                                                        ledger maintenance (Finding 2), employee hiring practices
                                                        (Finding 1), purchase order generation (Finding 2), force
                                                        account management and record maintenance (Finding 1),
                                                        and inventory system (Finding 2).




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                    Follow Up On Prior Audit Reports
                    The HUD OIG previously audited the SFHA’s contracting procedures, Public Housing
                    Management Assessment Program (PHMAP), operating subsidy housing-unit-months-available,
                    contracting procedures, hiring and compensation, and Section 8 receivables programs for the
                    period of March 1, 1996 to September 30, 1999. The audit report (number 00-SF-201-1001) was
                    issued March 31, 2000.




                    The Prior Report Contained        In the area of hiring and compensation, that audit raised
                    Similar Issues                    similar issues to those problems identified in this report.
                                                      The SFHA selected employees without considering other
                                                      candidates, their qualifications were questionable, and they
                                                      were overcompensated. Specifically, the OIG found the
                                                      General Manager of the Family Sweep program was not
                                                      qualified to head the force account program. He also did
                                                      not meet the educational requirement and did not have the
                                                      necessary prior experience for the position.

                                                      The prior audit’s recommendations for the above issues are
                    Prior Recommendations
                                                      still open. These include recommendations:
                    Remain Open
                                                      2B.      Closely monitor the SFHA’s employment and
                                                               personnel practices until there is confidence that the
                                                               use of sound methods are in effect and will continue.

                                                      2C.      Have an independent, HUD-approved expert in
                                                               personnel classification and compensation review
                                                               the qualifications and salaries of the questioned
                                                               personnel.

                                                      2D.      As a result of recommendation 2C, require the
                                                               SFHA to reimburse its federal programs for all
                                                               excessive salaries.

                                                      HUD has received and evaluated the results of an expert’s
                                                      review of personnel activities and has tentatively identified
                                                      amounts to be returned. OIG is currently evaluating these
                                                      matters.




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                                                                                                                     Appendix A


                    Schedule of Questioned Costs
                                         ISSUE                          INELIGIBLE        UNNECESSARY/            UNSUPPORTED
                                                                            A/            UNREASONABLE                C/
                                                                                               B/
                    Finding 1 -- Clementina Common Area                                     $184,1614
                          Costs
                    Finding 2 – Routine Maintenance                       $98,102                                     $73,210
                          Charged to CGP


                    A/      Ineligible amounts are those that are questioned because of an alleged violation of a
                            provision of a law, regulation, contract, grant, cooperative agreement, or other agreement
                            or document governing the use of funds, or are otherwise prohibited.

                    B/      Unnecessary amounts are those not generally recognized as ordinary, prudent, relevant, or
                            necessary within established practices. Unreasonable amounts exceed those that would
                            be incurred by the ordinarily prudent person in the conduct of a competitive business.
                            Costs must be necessary and reasonable to be eligible under federal cost principles.

                    C/      Unsupported amounts are those whose eligibility or reasonableness cannot be clearly
                            determined during the audit since they were not supported by adequate documentation or
                            due to other circumstances. Under federal cost principles, a cost must be adequately
                            supported to be eligible.




                    4
                      The total unreasonable amount was $191,132. However, approximately $6,971 of the unreasonable amount was
                    incurred prior to September 1997, when HUD formally returned control over the SFHA to the City of San Francisco
                    appointed Board of Commissioners.

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                                                                                                                   Appendix B


                    Auditee Comments
                    AUDITEE COMMENTS TO DRAFT REPORT - SAN FRANCISCO
                    HOUSING AUTHORITY FORCE ACCOUNT MODERNIZATION
                    PROGRAM

                    This response is the Auditee Comments for the EXECUTIVE SUMMARY and should
                    be incorporated into the HUD-OIG report in full and as submitted.

                    EXECUTIVE SUMMARY

                    The OIG concludes in its draft report that the SFHA use of in-house force account construction
                    was not cost effective or managed effectively. The SFHA disagrees with this conclusion for the
                    following reasons:

                    §    The result of the SFHA’s analysis indicates that the average cost per square foot for the
                         SFHA force account work was $101.67 per square foot while the average cost per square
                         foot for the MOH/IG work was $103.60 per square foot or, in other words, the cost of the
                         MOH/IG work was 1.9% higher than the work performed by the SFHA, as follows:
                                                   Number              Total                   Total    Cost

                                                      of               Hard                  Average    Per

                                                     Units            Costs                   Square   Square

                                Development          Figures Furnished by IG                   Feet     Feet



                                         MOH / IG OUTSIDE

                                2300 Van Ness         22                   $1,300,000 *       18,449      $70.46

                                Apollo                80                   $3,342,560         24,895     $134.27

                                Lyric                 58                   $2,774,546         26,157     $106.07

                                                                           MOH / IG Outside Average    $103.60

                                        SFHA

                                Potrero Annex         57                   $6,488,937         57,342     $113.16

                                Clementina            10                    $329,040          4,210       $78.16

                                Sunnydale             11                   $1,093,066         9,614      $113.70

                                                                    SFHA Average                       $101.67



                                                            SFHA Average                     $101.67



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                                                     IG Outside Average              $103.60

                                                Difference                            -$1.93

                                                 Percent                              -1.9%
                                                 Variance


                    Therefore, this would demonstrate that the SFHA force account work was cost effective
                    and economically beneficial while meeting Congressional mandates to build economic self
                    sufficiency for public housing residents in an effort to move public housing residents from
                    Welfare to Work. Indeed, since, as the IG notes, the SFHA spent approximately $18.2
                    million on Clemintina, Potrero and Sunnydale, the SFHA accomplished 1.9% or
                    $345,550.00 more in improvements than the IG comparators would have accomplished.

                    §    The OIG analysis of construction costs for SFHA force account work compared SFHA
                         average per unit costs against average per unit costs of rehabilitation work performed
                         through the Mayor’s Office on Housing (MOH).
                    §    The square footage of SFHA units are generally larger than the units rehabilitated by MOH.
                    §    As a result, a comparison of average unit costs resulted in higher costs for SFHA units and
                         inaccurate conclusions on the part of the auditor.
                    §    Industry standard in real estate for construction estimates, appraisals, etc. is to utilize square
                         footage and not general unit numbers to take into account variances in unit sizes.
                    §    The SFHA converted the numbers used by the OIG to average costs per square foot to make
                         an accurate comparison between the work performed by the SFHA and that performed by
                         MOH.

                    Notwithstanding the fact that the SFHA force account work was performed at a lower average
                    cost per square foot than the comparator used by the IG, it is the position of the SFHA that
                    additional cost savings were realized by the SFHA and the public in general by using SFHA
                    residents to perform the work which were not taken into account in this audit. The use of force
                    account provided employment opportunities for residents of public housing that would not
                    otherwise have been available through the use of contractors. Well over 600 public housing
                    residents have gained experience in skilled crafts through force account and other SFHA efforts.

                    Some residents of the SFHA’s family developments, and especially the Big 4 of Sunnydale,
                    Potrero Hill, Alice Griffith, and Hunters Point, are economically challenged, single mothers who
                    receive public assistance, or residents who may have had contact with the criminal justice
                    system. By employing SFHA residents in this manner, the SFHA instills hope, pride and
                    direction in its residents potentially avoiding costs associated with populations at risk such as the
                    following:

                                   $25,600                      The cost to the State of California to house
                                                                one person in prison for one year
                                   $20,000                      The cost for the federal government to
                                                                house one person in prison for one year
                                   $10,000-12,000               The cost to move a person from welfare to
                                                                work in California

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                                $5,000                       The cost to provide job training to one
                                                             person in California

                    We would suggest that the employment opportunities provided to SFHA residents through our
                    force account labor force were extremely effective in providing high quality work experience, a
                    superior work product, meeting the needs of residents, and avoiding public and victim costs
                    associated with crime.

                    In addition, SFHA force account work accounted for the following:

                    §    Establishment of in-house force account labor force to immediately address the bricks and
                         mortar and quality of life needs of residents
                    §    Modernized 22 Senior and Disabled High Rise buildings or 2,025 units
                    §    315 units modified for handicap accessibility through March 2001
                    §    721 units of public housing modernized using CIAP and CGP funds
                    §    82 units off line for over 5 years brought back on to rent rolls to serve those on the SFHA
                         waiting list of 14,700 households

                    Work items performed by SFHA force account labor included, but is not limited to the following:

                    §   Plumbing/Irrigation Systems
                    §   Heating
                    §   Electrical
                    §   Heating Systems
                    §   Waterproofing
                    §   Roofing
                    §   Elevator Upgrades
                    §   Common Area Renovation and Renewal
                    §   Security Interior/Exterior Lighting
                    §   Handicap Accessible Units
                    §   Landscaping and Tree Pruning
                    §   Interior Lead Based Paint (LBP) Abatement/Stabilization
                    §   Exterior Painting/Exterior LBP Abatement/Stabilization
                    §   Asbestos Removal
                    §   Housing Quality Standards (HQS) Repairs
                    §   Playgrounds
                    §   Childcare Center Interior Design, Painting and Layout

                    The draft audit further suggests that the SFHA failed to maintain adequate records over assets
                    and expenditures. A reading of the draft audit report makes clear that the criticism of the
                    auditors is more directly related to their opinion as to whether or not data could be retrieved in
                    the manner they requested. This is particularly true given that many of the reports requested by
                    the auditors were specialized requiring the SFHA to write programs to customize its data in the
                    form requested by the auditor. While it may be the opinion of the auditor that our records were
                    cumbersome, not user friendly or awkward, the fact remains that appropriate documentation was

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                    and is maintained by the SFHA in accordance with HUD Financial Management Guidelines and
                    Generally Accepted Accounting Standards. The issue of convenience does not meet the standard
                    of a finding and boils down to a subjective personal standard.

                    However, the computer system currently utilized by the SFHA for financial recording and
                    tracking can be improved. We will continue to work on those improvements and seek technical
                    assistance from HUD to assist us in improving our data systems. And finally, the current CCS
                    software is dated and should be updated. However, this is a resource issue and not a regulatory
                    issue.

                    AUDITEE COMMENTS TO DRAFT REPORT - SAN FRANCISCO
                    HOUSING AUTHORITY FORCE ACCOUNT MODERNIZATION
                    PROGRAM

                    This entire response is the Auditee Comments for Finding 1 and should be incorporated
                    into the HUD-OIG report in full and as submitted.

                    General Comments to Audit Report

                    The SFHA is deeply disappointed that your office has continued this audit after informing the
                    SFHA that your audits were complete. As you may know, your audits of the SFHA began in
                    1998. Your office issued draft reports in January and February 2000 with the final draft dated
                    February 24, 2000. As a result of these drafts, the SFHA provided comprehensive responses
                    refuting the alleged findings and asking your staff to withdraw them. During this review and
                    comment process, the SFHA was informed verbally and in writing that we had been provided
                    with all the findings. In fact, Mr. Mark Pierce's letter dated February 15, 2000 states "This is the
                    fourth of four findings we anticipate for the audit report". (Tab 1) On March 13, 2000, Mr.
                    Sululagi Palega, Sr., President of the SFHA Board of Commissioners sent a letter to your
                    predecessor, Mr. Robert Velasco expressing great concerns about the draft audit report. Mr.
                    Palega followed up on March 27, 2000 with a letter to Mr. Harold Lucas, the Assistant Secretary
                    for Public and Indian Housing and included a copy of his March 13, 2000 letter.

                    On March 31, 2000 your office issued Report 00-SF-201-1001. Shortly thereafter, we were
                    informed that the audit was NOT over and that your auditors would be returning to
                    continue their review of the SFHA's force account modernization program. Since all audits
                    began at about the same time, and since your staff informed us that all findings had been
                    provided to us, we believe that the audit of force account and modernization may be
                    retaliatory because of the SFHA's vigorous and comprehensive response to your earlier
                    findings. This reaction by your office is regrettable.

                    This draft report is presented by the HUD-OIG, after nearly 30 months of inspections from the
                    inception of the audit to the delivery of this draft (August 1998 to February 2001). The audit
                    report covers generally the recovery effort of the SFHA from January 1997 to June 30, 1999. It
                    should be noted that effective September 30, 1999 and immediately after the conclusion of this

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                    audit period, the SFHA was designated by HUD as a “High Performing” public housing
                    authority under the Public Housing Assessment System (PHAS).

                    By way of putting the period of time covered by this audit in context and perspective, it is
                    important to note that at the time HUD began the recovery effort at the SFHA and continuing
                    through the return the San Francisco Housing Authority to local control, HUD, the new Board of
                    Commissioners and Acting Executive Director were confronted with severe, pervasive and long-
                    standing problems typified by the following:

                           §    Physical decay of housing units
                           §    High levels of crime
                           §    Asbestos and lead in housing units affecting families and children
                           §    Housing units and common areas not accessible to the those with disabilities
                           §    The average age of housing in the Big 4 was nearly 50 years old
                           §    Decades of neglect
                           §    Excessive insurance claims and insurance premiums
                           §    Potential for cancellation of insurance due to lead based paint liability
                           §    The leadership of the organization had been decimated by the recovery effort

                    As a result of the above, HUD and ultimately the newly appointed Board of Commissioners and
                    Acting Executive Director were confronted with continuing exigent conditions that required
                    immediate, bold, and broad based corrective action.

                    Corrective actions taken included:

                           §    Establishment of in-house force account labor force to immediately address the
                                bricks and mortar and quality of life needs of residents
                           §    Modernized 22 Senior and Disabled High Rise buildings
                           §    315 units modified for handicap accessibility through March 2001
                           §    721Units of public housing modernized using CIAP and CGP funds
                           §    82 Units off line for over 5 years brought back on to rent rolls to serve those of the
                                SFHA waiting list of 14,700 households
                           §    217,000 Work Orders processed
                           §    Removal of the severely troubled housing authority designation under the HUD
                                Recovery Team with a PHMAP troubled score of 50.7 to a High Performing
                                housing authority for fiscal year 1999
                           §    Reduction in insurance claims
                                ü Slips, trips and falls claims reduced from average of 58 per year (1995-98) to
                                    average of 11 (1998-00)
                                ü Reduction in all claims from average of 162 per year (1995-98) to average of 46
                                    (1998-00)
                                ü Reduction in insurance premiums from 41% increase (1996-97) to 10% decrease
                                    (1998-99)
                           §    Well over 600 public housing residents employed in good jobs


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                    The chronology below also adds a perspective and context to the issues affecting the SFHA over
                    the past decade. As stated in your draft report, the audit generally covers the period January 1997
                    to June 30, 1999.

                    1995-to FYE 1997    SFHA determined by HUD to be a troubled housing authority with a
                                        PHMAP score of 50.7.
                    May 1996- Sept 1997 Mayor Brown asks HUD to take over operation of the SFHA. HUD
                                        responds by sending in a recovery team to run the agency on a day-to-day
                                        basis.
                    1992-1997           The SFHA accumulates nearly $69,000,000 in unspent CIAP and
                                        Comprehensive Grant Program funds while public housing residents are
                                        living with lead based paint, asbestos, and generally substandard living
                                        conditions.
                    April 1997          SFHA requests approval from HUD to establish its force account program.
                                        (Under HUD’s control)
                    September 1997      SFHA is returned to local control.
                    July/August 1998    Second request to HUD for approval to establish its force account
                                        program.

                    In preparing this draft audit report the auditors attempted to limit their analysis to pure monetary
                    costs and disregards benefits. While the SFHA may not agree with this analysis, this audit report
                    demonstrates the failure of HUD to integrate the multitude of requirements imposed on public
                    housing authorities into its Audit Guidebooks and Handbooks. By Congressional mandate and
                    ultimately HUD Regulation, housing authorities are not only required to manage and maintain
                    rental property but also:

                    §    Move residents from Welfare to Work.
                    §    Reduce crime.
                    §    Provide employment training to its residents.
                    §    Abate lead and asbestos.

                    An audit which does not take into consideration and integrate these additional requirements
                    imposed on housing authorities can not help but result in a one dimensional analysis resulting
                    in skewed conclusions. The Board and management of the SFHA must balance its institutional
                    needs with the human needs of its resident population and apply its best judgment to achieving
                    this balance.

                    SFHA RESPONSE TO OIG INTRODUCTION

                    The introduction in your draft report may need some clarification to prevent any
                    misunderstanding regarding the status of the SFHA between November 1996 and September
                    1997. The introduction states, in part,

                           "… HUD sent a recovery team (consisting of HUD officials, consultants, and employees
                           from other housing agencies) to assess the SFHA's operations and develop strategies to

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                            deal with the problems. This phase was concluded in November 1996 [emphasis
                            added]. HUD contracted to fill several key management positions to continue the
                            recovery efforts."

                    As you know, HUD continued to run the SFHA from March of 1996 until September 1997 when
                    the agency was returned to local control. (Tab 2).


                    SFHA RESPONSE TO FINDING 1

                    THE SFHA IN-HOUSE FORCE ACCOUNT PROGRAMS OPERATED EFFECTIVELY
                    TO REDUCE COSTS, PROVIDE RESIDENT EMPLOYMENT, AND RESPOND
                    RAPIDLY TO REQUIRED CONSTRUCTION NEEDS RESULTING IN MASSIVE
                    IMPROVEMENTS TO THE QUALITY OF LIFE FOR SFHA RESIDENTS

                    OIG Finding: The Force Account Justification Submitted to HUD Was Inaccurate

                    The auditor incorrectly asserts that the force account justification was inaccurate. Upon review,
                    the SFHA has the following response:

                    G   The auditor misinterpreted the letter that made this request. A clear reading of the SFHA
                         letter of July 28, 1998, Subject: Force Account Cost Effectiveness (Tab 3), shows that the
                         letter is discussing the use of force account for work such as HQS, modification of units and
                         common spaces for handicap accessibility, lead based paint stabilization and abatement, and
                         exterior painting. The SFHA letter goes on to state, among other things, that there are no
                         warranty benefits available for this specific type of work. This statement was not intended
                         as a generalized comment covering all construction work as apparently inferred by the
                         auditor. Clearly the SFHA did and does require warranties on construction work performed
                         by contractors.

                    G   The OIG misrepresents the cost for force account to convert a fully wheel chair accessible
                         unit. The SFHA explained to the auditors several times that the costs in the general ledger
                         (GL) included all costs including modification of public space. In the face of this
                         information, the auditor simply took the costs and divided by the number of units to arrive at
                         a figure. By using this rudimentary calculation, the OIG concluded that the cost for Senior
                         Sweep to convert a 504 unit ranged between $18,931 and $96,233. The OIG then averages
                         these incorrect costs per unit and comes up with a figure that is $7,245 higher then the
                         Authority’s calculated costs. The OIG then uses this erroneous figure and multiplies it by 90
                         to fabricate additional costs of $652,000. This is not substantiated by the current general
                         ledger, which includes all completed work.

                    G   The auditor does not consider the improvements to common and public spaces in his costs.
                         By making this simple calculation, the OIG did not take into account the Court Settlement
                         Agreement that required the Authority to provide modifications for accessibility throughout
                         the public spaces in all 22 senior/disabled buildings.

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                    G   The OIG auditor attacks figures in the July 28 letter, by comparing costs of projects
                         completed by the Mayor's Office of Housing (MOH) to SFHA costs. Upon further research,
                         and using the OIG's adjusted MOH construction costs, the SFHA documented the following
                         (Tab 4):

                         §   2300 Van Ness hard costs $70.46 per square foot.
                         §   Apollo hard costs $134.27 per square foot.
                         §   Lyric hard costs $106.07 per square foot
                         §   MOH average cost per square foot $ 103.60.
                         §   Clementina average cost per square foot $78.15 (25% below MOH average).

                    G   The OIG raises the issue of warranties at least twice. We note the following:

                             §   The HUD CGP Guidebook, 7485 G, allows the use of force account labor for
                                 modernization work with HUD approval provided it is cost effective, appropriate
                                 given the type of work to be done, and the PHA has the capacity to serve as its own
                                 contractor. This guidebook does not state that a warranty is required when force
                                 account is used.
                             §   It is not clear how in-house, force account labor could provide a warranty. The use of
                                 force account is tantamount to being "self-insured."
                             §   If HUD required a warranty for force account work, it is evident that housing
                                 authorities would not be able to use force account under any circumstances.

                    G   The auditor concludes that the July 28, 1998 letter to HUD did not comprehensively address
                         all work eventually performed by force account labor.

                         §   The intent of the letter submitted to HUD was to outline general work that could be
                             completed by force account rather than to detail every single construction related job that
                             might be performed.
                         §   Through the force account landscaping work the SFHA was able to hire many residents to
                             participate in the program. Although the benefits of hiring residents may not be apparent
                             in developing a cost/benefit analysis, crime and vandalism were greatly reduced at the
                             developments that were landscaped. This was a direct cost benefit to the Authority. It
                             also improved the quality of life for our residents, those who were working, and those
                             who were affected by the reduction of crime.
                         §   From December 1996 to July 1999, Senior Sweep reported 1209 HQS work orders
                             completed at Clementina. The reported expenditures for HQS work orders are $446,121,
                             which is $369 per work order. The use of force account labor allowed the SFHA to
                             rapidly address resident's needs and improve the quality of their lives. This capability to
                             deliver a very rapid response is an intangible that may not be apparent in making a cost
                             estimate.

                    OIG Finding: Force Account Costs Exceeded Cost to Have a Contractor Perform theWork


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                    G The auditor states that the SFHA did not have records sufficient to allow the OIG inspectors
                       to adequately develop cost estimates for work performed.
                    G Each of the developments covered by the OIG report had a work plan that set forth the work
                       to be done. The assigned construction inspector makes a daily record of the work performed.
                       All costs are submitted to finance. These records were available, and in many cases reviewed
                       by the OIG auditors and inspectors.
                    G The SFHA is not aware of a HUD regulation that requires the costs for modernization or
                       HQS to be reported in the detail that the auditors seem to imply in their report.
                    G As indicated above, the costs for Clementina were 25% per square foot below the average
                       adjusted cost of work performed for the MOH by outside contractors (see Tab 5).
                    G The OIG opines that the development at 2300 Van Ness is "fairly close" to the units at
                       Potrero Annex. The former development was modernized under contract by the MOH and
                       the latter by SFHA force account workers. The MOH completed three developments with
                       square foot costs ranging from Van Ness at $70.46 to Apollo at $134.27 per square foot with
                       an average of $103.60 per square foot. The auditor does not explain his reasons for choosing
                       the "fairly close" Van Ness development as a basis for comparison rather than the more
                       expensive Apollo or the average cost (see Tab 4).
                    G In September 1999, the SFHA obtained an estimate from our insurance carrier to repair Unit
                       610 at 320 Clementina. This estimate was $44,818 to repair the unit (Tab 5). The insurance
                       carrier had no motivation to inflate their estimate. It should be noted that Senior Sweep's
                       average cost per unit of $32,450 was significantly below the independent estimate by the
                       insurance carrier.
                    G Using the average cost per square foot for all MOH developments, and the square footage of
                       the Potrero Annex units, i.e., 1,006 square feet per unit, the average cost per square foot is
                       $113, which compares favorably to the MOH average cost per square foot.
                    G The OIG auditor also uses the Oakland Housing Authority (OHA) as a basis for comparison.
                       The developments chosen have units that are considerably smaller than those at Potrero
                       Annex (OHA-Campbell at an average of 900 square feet; OHA-Peralta at 600-900 square
                       feet; Potrero Annex at 1006 square feet). Because of the size differences, the OIG uses only
                       the Campbell development, but does not appear to factor in the appreciable difference in
                       square footage between the Campbell units and the Potrero Annex units.
                    G The SFHA informed the auditor that part of the costs for Potrero Annex were attributable to
                       dry rot, termite damage, and the need to install additional electrical transformers. However,
                       this information is "dismissed" by the auditor. The SFHA has provided photographs that
                       clearly show the extensive damage to these buildings. (Tab 6 )
                    G The auditor, after constructing a spurious argument that the SFHA costs are much higher than
                       either the MOH or OHA then extrapolates this simplistic number over all modernization
                       work done by force account personnel and concludes that the SFHA may have overspent
                       approximately 50% of all modernization expenditures. Therefore, the conclusions of the
                       auditor are grossly overstated, inflated, misleading and inaccurate.

                    OIG Finding: The Family Sweep Did Not Maintain Adequate Progress Records

                    G   The basis for this alleged "finding" is not clear since the level of records suggested by the
                         OIG do not appear to be required. The work to be performed is set forth in an approved

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                       workplan, the inspectors keep records of daily progress, time sheets record the personnel
                       working on a specific project, materials are charged to a specific project, and all costs are
                       recorded in the general ledger.
                    G The auditor states that Senior Sweep keeps better records than Family Sweep without
                       explaining the significance of this comment.
                    G Since January 2000, Modernization has established a Force Account Construction Checklist
                       and sets up a project file for each force account project, whether Senior or Family Sweep
                       (Tab 7).

                    OIG Finding: The SFHA Was Not Adequately Inspecting Work

                    G   The SFHA inspectors are at sites daily and record work done daily.
                    G   The auditor spells out the entire rationale for the SFHA not obtaining building permits
                         from the City and County of San Francisco (CCSF) for work performed by force account.
                         The auditor mentions the 1995 legal opinion from the City Attorney and the concurrence of
                         the Director of the Department of Building Inspections that the SFHA is exempt from
                         obtaining building permits for in-house construction (Tab 8). However, the auditor
                         discussed the matter with the Director of Building Inspections who apparently opined that
                         the SFHA "should" actually be obtaining permits, in spite of a legal opinion to the contrary.
                    G   The auditor, based on nothing more than his opinion, "agrees" that the SFHA should be
                         obtaining building permits.
                    G The SFHA previously identified that its inspectors needed additional professional training
                       and has been providing this training. In addition, in August 1999 the inspectors were
                       reassigned out of Family Sweep to the Modernization Department to enhance their
                       independence. The auditor details the experience required by the CCSF for its building
                       inspectors but does not specify how these requirements might apply to the SFHA inspectors.
                       We note that the three (3) inspectors assigned to Modernization include:

                            §   One Certified Building Inspector (ICBO Certificate number 0847382-10 issued
                                January 23, 1999).
                            §   One Inspector with 17 functional inspection and construction seminars combined with
                                continuing education leading to ICBO certification.
                            §   One inspector with 11 functional inspection and construction seminars combined with
                                continuing education leading to ICBO certification.

                    OIG Finding: Housing Quality Standards Deficiencies Noted During Inspections

                    G   The OIG lists 40 properties at Sunnydale and Potrero Annex that had some type of problem,
                         e.g., broken window, bath fan cover missing, damaged floor tile, smoke detector missing.
                         The auditor states that their inspectors were in the units between August and October 1999
                         and concludes, based on their inspection, that "…all modernization work was either not done
                         or not performed adequately." In fact, this entire portion of the report is replete with
                         suppositions, assumptions and unsupported statements. We believe many of the problems
                         noted are attributable to the time difference between the completion of the work by Family
                         Sweep and the inspection by the OIG. However, the OIG inspector does not even address the

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                         possibility that the work was completed and of high quality, but damaged after installation.
                         An examination of SFHA records would have shown that the unit at 1502 Sunnydale which
                         had a damaged electrical outlet, excessively peeling paint, missing smoke detector, damaged
                         tile, sills, and doors was completed in December 1997, two full years prior to the OIG
                         inspection. Likewise, the unit at 1868 Sunnydale which reportedly had problems with the
                         switch coverplate, water heater vent, and interior paint was completed in May 1998 while the
                         unit at 1605 Sunnydale with a missing smoke detector was completed in February 1998. The
                         problems noted by the OIG inpsector are mostly typical maintenance problems that are
                         routinely identified on HQS inspections and corrected by Maintenance crews, not force
                         account.

                    OIG Finding: Emphasis On Low-Priority Modernization Lead [sic] to Emergency Situations

                    G Emergency conditions existed for some time and were not created by performing lower
                       priority work items.
                    G Given the emergency conditions, SFHA exercised legitimate business discretion to weigh
                       when the emergency work items could be completed with available funds against improving
                       the quality of life for the residents.
                    G The SFHA was performing significant modernization work at two of its most troubled
                       developments, e.g., Sunnydale and Potrero Terrace. These developments are nearly 60 years
                       old and needed massive amounts of attention to raise the quality of life for the residents. The
                       SFHA determined that exterior improvements such as landscaping would have a very
                       positive impact on the overall quality of life for the residents. The SFHA leadership believed
                       that landscaping and common area improvements would result in an overall decrease in
                       maintenance costs and actively encourage residents to take pride in their homes.
                    G There is no connection between the CIAP and CGP expenditures and the request for
                       emergency funding. Normal CGP would not be adequate to take care of the known
                       emergency work and all the other priority needs relating to our 50 public housing sites
                       scattered throughout the city.
                    G According to the SFHA’s 5-year plan the immediate total capital need of the agency is $449.8
                       M. Clearly, neither the normal CGP allocation nor a modest infusion of emergency funds
                       would fulfill this large need.
                    G HUD approved the emergency funds after long and careful scrutiny. It is clear that HUD
                       believed the need for emergency funds was urgent.
                    G The auditor clearly states that the SFHA leadership was empowered to determine the
                       priority of work to be performed. However, the auditor concludes that in his opinion, such
                       a decision by the SFHA "…was not prudent." This is pure opinion contrary to regulatory
                       empowerment of SFHA management and is not appropriate for inclusion in an audit report.
                    G A statement is attributed to the Executive Director regarding doing landscaping and other low
                       priority work. However, the auditor never asked the Executive Director if he made such a
                       decision, or if so, the rationale or context.
                    G The SFHA disagrees with the comments and conclusions of the auditor. The actions of the
                       SFHA were a valid exercise of management discretion, particularly in light of the long delays
                       in making capital improvements.


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                    OIG Finding: Significant Modernization Work Was Not Maintained

                    G   The SFHA agrees that problems developed in maintaining the landscaping at Sunnydale and
                         Potrero Terrace. The sprinkler systems were damaged and required frequent maintenance.
                         The SFHA resorted to hand watering in selected areas and while the irrigation system was
                         repaired to maintain the landscaping and most of the landscaping installed by force account is
                         not an issue. There may be selected areas where the condition of the grass is a problem for a
                         variety of reasons. However, suggesting that all landscaping is ruined is misleading and
                         inaccurate. Photographs taken in March 2001 clearly show healthy landscaping at the
                         developments in question. (Tab 9 )

                    OIG Finding: Family Sweep Management Inadequate

                    G General Manager Family Sweep. The SFHA previously submitted voluminous information
                       regarding the General Manager of Family Sweep and believes this employee is fully qualified
                       for the position.
                    G Assistant General Manager/Principal Administrative Planner of Family Sweep. At the time of
                       the on site audit, this employee's personnel file was incomplete. As the auditor points out,
                       the employee has an Associate's degree in accounting. In addition, the employee has
                       continued to take college courses. The employee's other relevant experience is as follows:
                           G 14 years experience with a private sector general contractor. The employee was
                               responsible for scheduling, estimating, payroll records, soliciting vendors, tracking
                               jobs, attending local boards and commissions when projects were on their agendas,
                               and meeting with local officials.
                           G 3 years experience with a power company that provided experience in scheduling,
                               work orders, dispatch of work crews, adjustments of bills, negotiations with unions,
                               handling customer complaints and reporting incoming payments.
                           G 1997 to 1999 - SFHA as a Principal Administrative Planner. Responsible for budget
                               reports, job estimates, scheduling, attendance at meetings relating to projects, public
                               presentations to residents.
                           G 1999 to Present - SFHA as the Assistant General Manager of Family Sweep. This
                               position requires any combination of education, experience, and training that would
                               likely provide the required knowledge and skills to accomplish the duties of the
                               position. Examples of qualifying include AA degree in business administration,
                               finance or cost estimating and four (4) years of increasingly responsible experience in
                               construction, budget development, administration and rehabilitation management.
                           G At the time the employee entered the Assistant General Manager of Family Sweep
                               position, she possessed an AA in the appropriate field and had at least 20 years of
                               construction related experience. This individual met the minimum qualifications for
                               this position.
                           G The auditor comments that the employee was assigned to the position on April 12,
                               1999 while the position description was not signed until April 19. In this case, the
                               Classification Specialist had completed work on the job description and had
                               determined the salary schedule number. Since this action involved a promotion, it
                               was made effective on April 12 at the start of a pay period. The employee is in this

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                               position on a temporary promotion, which under SFHA policies does not have to be
                               advertised. (Tab 10)
                    G Construction Project Manager. The individual in this position has left the SFHA. The
                       position requires a Bachelor's degree in fields that include public administration and five (5)
                       years of administrative experience in public facilities construction and rehabilitation,
                       including three (3) years of supervisory experience. This employee had a Bachelor's degree
                       in Political Science. In addition, the employee had extensive public sector experience
                       including one (1) year as Executive Assistant at the SFHA. He also had over two (2) years of
                       significant financial management experience. The position does not require hands on
                       construction experience, but "administrative experience" in public facilities construction.
                       The SFHA determined that the totality of this employee's education and experience met the
                       minimum qualifications for this position. (Tab 11)
                    G Assistant Construction Project Manager. The individual in this position has left the SFHA.
                       This position requires any combination of experience and training that likely would provide
                       the required knowledge and skills to perform. The qualifications could include a Bachelor's
                       degree in a field related to construction or public administration, two (2) years of increasingly
                       responsible administrative experience in public facilities construction and rehabilitation and
                       one (1) year of supervisory experience. The employee's resume shows a certificate in
                       accounting from a business school and two (2) years at university. In addition, the resume
                       shows two (2) years of college with a major in construction inspection. The employee had
                       more than five (5) years in construction as an ironworker that included interpreting blueprints
                       and specifications. In addition, the employee had over one (1) year as an engineering
                       technician in the construction field. A summary statement from the employee claims an
                       additional five (5) years in the construction field, including managing projects, analyzing
                       materials and writing reports. It is clear this employee met the minimum qualifications for
                       this position at the time of his appointment. (Tab 12)

                    OIG Finding: SFHA Provided Unreliable Estimates to Counter OIG Claims

                    G The SFHA was not provided with an adequate opportunity or sufficient time to provide
                       independent and professional cost estimates.
                    G This finding by the HUD-OIG fits the classic definition of chutzpah, i.e., the child who kills
                       his parents and asks the court for mercy because he is an orphan. In this case, the HUD-OIG
                       presented the SFHA with various calculations arrived at during the year they had conducted
                       their audit. These calculations were not consistent with SFHA estimates and experience.
                       The SFHA employed an independent firm, Hanscomb, to perform a cost study. However,
                       such work takes time. The auditor gave the SFHA about two weeks to have the consultant
                       prepare a report for extensive work done at three developments. When the consultant was
                       not able to complete its work in the unreasonably short time, the auditor characterized the
                       work as "unreliable". The time limits were set by the OIG, not the SFHA. The chronology
                       below sets forth the time sequence for some of the audit site visits and other activities. The
                       dates are established by e-mail (Tab 13):

                           §   Aug. 2, 1999 Auditor to visit the SFHA's Egbert Street Office for data


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                             §   Sept. 16, 1999 Auditor's message that they will perform additional unit inspections at
                                 Potrero Annex and Clementina "next week"
                             §   Sept. 22, 1999 Auditors will visit Clementina
                             §   Oct. 18, 1999 Auditor reviewing work orders for Clementina
                             §   Nov.9&10, 1999 Auditor to visit Egbert St. Office for data
                             §   Aug. 15, 2000 Auditor meets with SFHA staff on draft findings
                             §   Aug. 30, 2000 Auditor states by e-mail that SFHA provide any documentation,
                                 including the Hanscomb estimates for Sunnydale and Potrero Annex by Friday,
                                 September 1, 2000 or the documentation might not be considered before the draft
                                 report is issued
                             §   Feb. 2, 2001 Draft report issued

                    G The issues raised by the OIG regarding the reliability, quality and thoroughness of
                       Hanscomb's cost estimates are directly related to the auditor's insistence that the
                       information they were producing be provided within an unrealistic timeframe.
                    G Hanscomb estimates that they would need between 6-8 weeks to properly evaluate and
                       prepare cost estimates for the three developments but they were given approximately one
                       week based on the OIG's unreasonable deadline.
                    G Hanscomb was contacted regarding the OIG's findings and offered the following insights:


                         §   We agree with OIG on using the documented 1998 rates if given more time to research
                             historical costs. OIG is questioning the methodology. Both methods are correct depending
                             on the availability of time. Since Potrero Annex and Sunnydale are bigger projects and
                             require more time to prepare the cost estimates than Clemetina, we favored the de-
                             escalation approach since it is a faster approach.

                         §   Inconsistencies in the unit rates can be explained by the fact that no two jobs are the
                             same. In general, the OIG is saying that the Clementina rates used are higher than Potrero
                             Annex and Sunnydale after de-escalation. This is true because it is easier to work in a
                             building that was totally gutted out with no concerns for occupied units above and below.
                             In addition both Potrero Annex and Sunnydale are easily accessible from the street
                             compared to Clementina which has ten units spread throughout the entire twelve stories.
                             This requires more mobilization between units and material management from the
                             staging area on the ground floor by an elevator to the upper floors. Other factors include
                             restrictive working hours and noise considerations.

                         §   In reference to the unit rate sample the OIG used, the rates for toilet, lavatory and kitchen
                             sink need to include rough-in costs at $366.97 for each fixture. This would make the
                             difference between Clementina and Potrero Annex smaller. The cabinet demolition for
                             Clementina should be higher than $6.50/lf, an oversight on our part. The interior painting
                             to the ceiling for Potrero Annex at $3.21/sf includes gypsumboard ceiling and is not
                             comparable to the $1/sf for painting only costs for Clementina.

                    Recommendations


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                    The SFHA believes the issues raised in this draft report are unfounded and the resulting
                    recommendations unnecessary. These recommendations by the IG have no basis or merit, are
                    unfounded, misleading and without quantitative substantiation.


                    AUDITEE COMMENTS TO DRAFT REPORT - SAN FRANCISCO HOUSING
                    AUTHORITY FORCE ACCOUNT MODERNIZATION PROGRAM - FINDING 2

                    This response is the Auditee Comments for Finding 2 for the Executive Summary and
                    should be incorporated into the HUD-OIG report and the Executive Summary previously
                    submitted with Finding 1. These comments should be reported in full and as submitted.

                    AUDITEE COMMENTS REGARDING FINDING 2

                    This entire response is the Auditee Comments for Finding 2 and should be incorporated
                    into the HUD-OIG report in full and as submitted.

                    THE SFHA MAINTAINED SYSTEMS THAT PROPERLY TRACKED AND
                    RECORDED COMPREHENSIVE GRANT FUND ASSETS AND EXPENDITURES

                    OIG Finding: Various Rules Govern Recording and Accounting Requirements

                    G   The SFHA concurs the auditor cited a variety of regulations.

                    G   With regard to HUD Handbook 7460.8 Rev 1, Procurement, we note that this handbook is
                         dated January 14, 1994 and does have a $25,000 limit on small purchases. However,
                         according to 24 CFR Part 85.36 (d)(1), "Small purchase procedures are those relatively
                         simple and informal procurement methods for securing services, supplies, or other property
                         that do not cost more than the simplified acquisition threshold fixed at 41 USC 403 (11)
                         (currently set at $100,000)." (Tab 1) This provision has been in place for several years.

                    OIG Finding: Inadequate General Ledger Reporting

                    G   The gist of this finding appears to be that the auditor was inconvenienced because the
                         automated system maintained in the Finance Department was not able to instantly create all
                         the reports the auditor requested within the time period requested by the auditor. However, it
                         is clear from the draft report that the information was supplied or could have been supplied
                         from available records or systems, therefore this finding is inappropriate for inclusion in an
                         OIG audit report.

                    G   While the OIG, in its subjective opinion, may find reviewing the GL to determine line item
                         charges inconvenient and time consuming, SFHA GL determinations conform to HUD
                         financial guidelines and generally accepted accounting principles (GAAP).

                    G   The OIG incorrectly states that, “Senior Sweeps [sic] had not been able to distinguish its


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                         own 504 costs from work charged to the accounts from prior periods.” The General Ledger
                         gives the dates of all charges to line items. The previous modernization program had spent
                         approximately $200,000 and these amounts were properly recorded and easy to distinguish.

                    G   The SFHA’s Creative Computer Solutions (CCS) (now Emphasys Computer Solutions
                         (ECS)) software does not have a true relational database engine to provide the type of CGP
                         general ledger (GL) reporting capabilities described by the auditors. There is no drop-down
                         or ad hoc reporting feature in the GL module to display transaction details directly from the
                         Payroll, Purchasing or Work Order modules. CCS has the largest installed base and is in use
                         at over 150 PHAs. While other systems are being looked at by the SFHA and other PHAs,
                         capital funds to upgrade or replace CCS are in short supply and any replacement vendor
                         would have to be able to provide seamless interaction between the legacy system and the desk
                         top PC and have a true relational data base. However, despite the limitations of CCS, the
                         recording and reporting of all transactions can be tracked from the GL down to each hard
                         document in accordance with HUD financial guidelines and GAAP. A GL transaction detail
                         report has account and reference numbers on every entry for tracking purposes, and timely
                         manually prepared project reports are generated for each development that shows detailed
                         actual expenditures against budgeted line items.

                    G   The “lump sum transfers” referred to are merely period or fungible charges brought forward
                         for budgeted line items. Cumulative project expenditures are not arbitrarily transferred in
                         lump sums to merely balance budgeted line items as asserted by the OIG.

                    G   The MIS department can extract detailed project expenditure reports by reading and writing
                         directly from data files with the use of its Editor programming tool, but this process can be
                         time consuming and limited, as the auditors discovered. Hard copies of manually prepared
                         budget to actual project expenditure reports were kept back to the 1996 period, but GL
                         reports were not run because they were not routinely used by SFHA staff.

                    G   All transaction details for labor, materials, equipment, supplies, and outside services
                         expenditures are identified through a GL transaction report by account and reference number.
                         The hard copy documentation behind every transaction is maintained in Accounts Payable,
                         Payroll, Purchasing, and the Central Warehouse. This is of necessity a manual system, but
                         project reports for cumulative expenditures to work and budget line items are regularly
                         prepared and distributed to both program and project managers.

                    G   The reports the auditor requested from MIS were a duplication of the data available from
                         hard copy documents referenced in the GL. For clarification purposes, MIS does not get
                         involved with expenditure adjustments. Journal entries are made by Finance only after
                         properly justified and documented reasons are received from program and project managers.

                    G   The GL, Accounts Payable and Purchasing module description fields were designed by CCS
                         for a one line display. Users whose writing abilities vary greatly prepare these descriptions.
                         The auditors could have examined the supporting documents to determine that there are
                         ample details of all labor, material and outside service expenditures properly charged to

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                         HUD-approved CGP work and budget line items. Since this audit went on for nearly 30
                         months, the auditors could have wisely invested their time in reviewing available
                         documentation.

                    G   The SFHA did not transfer funds between CGP accounts to move expenditures where funds
                         had been budgeted. Current HUD guidelines (Tab 2) on fungibility allows the SFHA “to
                         substitute any work item from the latest approved Five-Year Action Plan to any previously
                         approved CGP Annual Statement and to move work items among approved modernization
                         budgets without prior HUD approval.” The SFHA was dealing with CGP funds from several
                         years and wanted to ensure that the oldest grant funds were spent first. HUD-approved work
                         and budget line items for specific projects were moved from period to period, while formal
                         budget revisions were submitted to move funds from project to project. No project
                         expenditures were moved from one project to another in the GL unless a journal entry
                         explaining the correcting adjustment was prepared.

                    G   The auditor discusses 131 nonpayroll transfers of funds for Sunnydale totaling $18.2 M. and
                         includes a table showing various fund transfers from one account to another totaling $5.2 M.
                         The auditor concludes that Finance could not reliably charge costs to the correct accounts. As
                         was explained to the auditor, force account project work is typically budgeted and carries
                         over for more than one CGP year. Expenditures are charged to the oldest grant year first and
                         are moved forward to the next one within the same budget and work line item. This is
                         similar to a first-in, first-out (FIFO) system for inventory purposes, which is a commonly
                         accepted accounting standard and practice. GL transaction details can be matched to the
                         original source documents by looking at the reference numbers. The so called “lump sum
                         transfers” mentioned by the auditor can be accurately matched to the GL based on current
                         practices. There are no misrepresentations of expenditures as alleged by the auditor. (Tab 3)

                    G   To enhance the SFHA's ability to track expenditures, the Modernization & Construction
                         Department along with the Finance Department have come up with a budget tracking
                         procedure for all of Force Account Job Files. The account number will be identified with the
                         type of work, the development and the unit. We are starting this process with Comprehensive
                         Grant 2000.

                    OIG Finding: SFHA Was Not Consistently Following Proper Purchase Order Procedures

                    G   The draft report states that purchase orders are "frequently" prepared after the expense has
                         been incurred. The selection of imprecise and general language by the auditor makes it
                         impossible for the SFHA or users of the report to determine the magnitude of the alleged
                         problem, if any.

                    G   The SFHA concurs that procurement procedures should be followed in all cases. However,
                         construction projects, by their nature, contain some uncertainty regarding the amounts of
                         supplies and materials required for the job. In some cases, force account personnel may have
                         been in the midst of a job and discovered an unanticipated need for additional supplies or
                         materials. These officials may have opted to make the purchase quickly rather than have high

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                         cost craft personnel with no materials to continue their work. This would appear to be a
                         prudent exercise of discretion to avoid down time and ensure timely project completion. Any
                         expenditures would clearly be small purchases under simplified processes and would be
                         quickly corrected by preparing the appropriate documents for approval.

                    G   The SFHA concurs that all procurement steps should be completed in advance of purchases.
                         In this regard, the recently updated contracting and procurement policies and procedures
                         (adopted January 2001) (Tab 4) directs staff to follow the proper procurement processes. In
                         addition, the Executive Director issued a reminder on Unauthorized Obligations of Funds on
                         February 9, 2000. (Tab 5) The SFHA will provide training to all staff on proper procurement
                         procedures to ensure a complete understanding by all.

                    G   The auditor comments that SFHA policies did not prohibit the creation of "open" orders. We
                         are not aware of any regulatory basis for such a prohibition. The SFHA has about 12 open
                         purchase orders. The intent of establishing these open orders is to assure the accessibility to
                         a single vendor, e.g., Home Depot that can provide the necessary supplies and materials when
                         they are needed for jobs in progress. Under these limited circumstances, the use of an open
                         purchase order is prudent since the alternative would be to stop work until supplies and
                         materials could be procured on an individual basis. The total amount of any open order is
                         well within the HUD definition for a small purchase. The use of these types of orders is an
                         alternative to the use of a SFHA credit card for small purchases as might be done by a federal
                         agency.

                    G   Under an open order, the individual items are not identified in the purchase order, but are
                         specified on the invoice and are identified to a specific project or development. While the
                         SFHA attempts to closely monitor the use of these open orders, there may be isolated
                         instances where the amounts purchased exceeded the amount of the purchase order requiring
                         that the purchase order be increased. Additional safeguards are included in the revised
                         SFHA Procurement Policies and will be covered by future procurement training.

                    OIG Finding: The SFHA Did Not Have an Adequate Inventory System

                    G   The auditor offers an unsubstantiated opinion that the SFHA did not place an emphasis on
                         tracking and confirming assets.

                    G   One finding by the OIG is that an electric bender did not match the inventory information
                         available. The bender on site had a different identification number than shown on the SFHA
                         inventory. However, the auditor was told that the original machine was defective and the
                         vendor replaced it under the warranty. In fact, the auditor confirmed this information with
                         the vendor. In spite of all this information, the auditor supposed that additional benders
                         might have been purchased, thereby explaining the bender with the different identification
                         number. The SFHA hereby certifies there is only one bender.

                    G   The auditor found an inconsistency between Senior and Family Sweep Departments with
                         regard to the quality of their vehicle inventory lists and rated the Senior Sweep list as

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                         superior. However, since the auditor concedes that Family Sweep was able to account for all
                         their vehicles the relevance of this comment is unclear.

                    G   The OIG also states that equipment lists for Senior and Family Sweep were incomplete and
                         did not provide enough information to track expenditures. However, the type of equipment is
                         not identified. We would note that construction equipment is subject to hard, daily use in the
                         field and inventory tags could be knocked off.

                    G   The auditor states, "We did not review any Senior Sweep storage areas. However, Senior
                         Sweep informed us no logs or records were maintained over materials stored on-site."
                         Senior Sweep informed the auditor that it does not maintain any inventory on site and
                         that is the reason no logs or records are maintained. Senior Sweep draws necessary
                         materials from the SFHA warehouse and only takes to the site the materials it needs for the
                         job, e.g., paint when painting is required. Family Sweep did maintain an inventory of
                         supplies and materials in storage containers. However, this practice has been discontinued.
                         Family and Senior Sweep not draw supplies and materials from the warehouse only for jobs
                         in progress.

                    G   The SFHA set up a Management Analyst position in August 2000 to establish inventory
                         control systems.

                    OIG Finding: Lack of Controls Over Maintenance Cost [sic] Charged to Grant

                    G   The SFHA is aware that routine maintenance is ineligible to be charged against CGP and it
                         did not do so. The SFHA assigned six (6) Laborers and eighteen (18) Painters to the
                         Maintenance Department to handle work orders that were deferred for the modernization
                         program. Under the PHMAP guidelines, “Referral to next year’s modernization program is
                         acceptable only when there are less than three months remaining in the current fiscal year
                         when the inspection is conducted.” (Tab 6) Additionally, PHMAP guidelines, component
                         #1, Section A, item 2.b, clearly states “Deferred for modernization work order. Maintenance
                         work being completed under a modernization program is not included. This encompasses
                         any work that is combined with similar work and scheduled to be completed within the
                         current or following year if there are less than three months remaining before the PHA’s FYE
                         when the work order was generated under the PHA's modernization program or other capital
                         improvement program. This work is included in the modernization budget or program
                         budget rather than the PHA's operating budget.” (Tab 7) All work orders assigned and
                         charged to CGP were those generated with less than three months remaining in the SFHA's
                         current fiscal year which is October 1 to September 30. (Tab 8)

                    G   The SFHA assigned force account employees to the Director of Maintenance for supervision
                         while they were performing deferred maintenance. We are not aware of any regulation that
                         prohibits such a supervisory arrangement. The auditor opines that there was a lack of
                         procedures, controls, and records, yet he was able to allege that personnel charges resulted in
                         "ineligible costs" of $98,102 and "unsupported costs" of $73,210. These are very precise
                         numbers for a system with "inadequate records."

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                    G   The auditor contends that three (3) Maintenance employees were improperly charged to CGP
                         even though they were allegedly primarily working on standard interior painting of vacant
                         units with work orders outstanding for less than 30 days. The auditor does not further
                         identify the employees, work orders, or development (s). The SFHA properly assigned and
                         charged work orders to either maintenance or CGP. It is possible the auditor associated
                         individual employees with a funding source for the entire period without comparing
                         employee names against the pay periods and corresponding fund charges in the payroll
                         register.

                    G   Inexplicably, the auditor states that he did not have sufficient time to confirm what he
                         describes as "questionable payroll costs" for CGP staff supervised by Maintenance. We note
                         that the site visits with the Central Service staff were approximately 16 hours. Contrary to a
                         statement in the draft report, the SFHA staff responded to all questions raised by the Auditor.
                         We believe the auditor may have been confused by associating names of the individual
                         employees with funding source during the entire period being reviewed, rather than
                         comparing employee names against pay periods and corresponding fund charges in the
                         payroll register. During the midst of the audit, the primary auditor introduced a second
                         auditor and told Central Service staff that she would continue and conclude the audit. She
                         did not contact Central Service staff after the initial introduction.

                    OIG Recommendations:

                    The SFHA believes the issues raised by this draft report are generally unfounded and the
                    resulting recommendations unnecessary. However, the SFHA has two comments regarding the
                    recommendations, as follows:

                    1. The SFHA will continue to review the potential to upgrade its software. This is a serious
                       resource question because of the amount of capital funds and staff time required.
                    2. The SFHA will continue to monitor its processes to make them as responsive and user
                       friendly as possible.




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                                                                                                  Appendix C


                    Distribution
                    Acting General Deputy Assistant Secretary, Office of Public and Indian Housing, HUD
                    Director, Office of Public Housing, California State Office, HUD
                    Director, Troubled Agency Recovery Center, Memphis Area Office, HUD
                    Office of Comptroller, Texas State Office, HUD
                    Secretary, HUD
                    Acting Deputy Secretary, HUD
                    Deputy Secretary, Special Assistant, HUD
                    Chief of Staff, HUD
                    Office of Administration, HUD
                    Assistant Secretary for Congressional and Intergovernmental Relations, HUD
                    Deputy Assistant Secretary, Office of Public Affairs, HUD
                    Administrative Services, Office of the Executive Secretariat, HUD
                    Acting Deputy Assistant Secretary for Intergovernmental Relations, HUD
                    Acting Deputy Chief of Staff, HUD
                    Deputy Chief of Staff for Programs, HUD
                    Deputy Chief of Staff for Policy, HUD
                    Special Counsel to the Secretary, HUD
                    Senior Advisor to the Secretary, HUD
                    Special Assistant for Inter-Faith Community Outreach, HUD
                    General Counsel, HUD
                    Assistant Secretary for Housing/Federal Housing Commissioner, HUD
                    Assistant Secretary for Policy Development and Research, HUD
                    Assistant Secretary for Community Planning and Development, HUD
                    Assistant Deputy Secretary for Field Policy and Management, HUD
                    Office of Government National Mortgage Association, HUD
                    Assistant Secretary for Fair Housing and Equal Opportunity, HUD
                    Director, Office of Departmental Equal Employment Opportunity, HUD
                    Chief Procurement Officer, HUD
                    Director, Office of Departmental Operations and Coordination, HUD
                    Office of the Chief Financial Officer, HUD
                    Office of the Chief Information Officer, HUD
                    Director, Enforcement Center, HUD
                    Director, Real Estate Assessment Center, HUD
                    Director, Office of Multifamily Assistance Restructuring, HUD
                    Acting Secretary’s Representatives, HUD
                    Headquarters Officials for Public and Indian Housing, HUD
                    Audit Liaison Office for Public and Indian Housing, HUD
                    Acquisition Librarian, HUD
                    Director, Office of Federal Housing Enterprise Oversight
                    Subcommittee on General Oversight and Investigations, U.S. House of Representatives
                    Director, Housing and Community Development Issue Area, U.S. General Accounting Office
                    Chief, Housing Branch, Office of Management and Budget
                    Chairman, Committee on Governmental Affairs, U.S. Senate

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                    Ranking Member, Committee on Governmental Affairs, U.S. Senate
                    Chairman, Committee on Government Reform, U.S. House of Representatives
                    Ranking Member, Committee on Government Reform, U.S. House of Representatives
                    San Francisco Housing Authority




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