Concord Housing Authority, Concord, New Hampshire

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-03-29.

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




       MARCH 29, 2002

                                                                 Issue Date
                                                                         March 29, 2002
                                                                 Audit Case Number

TO: Donna J. Ayala, Director, Office of Public Housing, 1APH

FROM:     Barry L. Savill, District Inspector General, Office of Audit, 1AGA

SUBJECT:       Concord Housing Authority
               Concord, New Hampshire

We completed an audit of the Concord Housing Authority (CHA). Our audit objectives were to
determine whether the CHA was administering its public housing and Section 8 programs in an
efficient, effective, and economical manner, and whether the CHA was complying with the terms
and conditions of its Annual Contributions Contract, applicable laws, HUD regulations, and other
applicable directives.

The report contains four findings: 1) improper procurement activities: 2) CHA lacked an
adequate system of management controls; 3) improvement needed over the Public Housing Drug
Elimination Program (PHDEP); and 4) improvement needed over administration of Section 8
Program. We identified unsupported costs totaling $58,160 relating to PHDEP and ineligible
costs of $6,108 relating to duplicate Section 8 payments.

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

Should you or your staff have questions, please contact me at (617) 994-8380.
Management Memorandum

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2002-BO-1002              Page ii
Executive Summary
We performed an audit of the Low-Income Public Housing and Section 8 Programs operated by
the Concord Housing Authority (CHA). Our audit objectives were to determine whether the
CHA is administering its public housing and Section 8 programs in an efficient, effective, and
economical manner, and whether the CHA is complying with the terms and conditions of its
Annual Contributions Contract (ACC), applicable laws, HUD regulations, and other applicable

                                    We determined that the CHA needs to:
 Audit Results
                                    Ø Follow proper procurement procedures in accordance
                                      with HUD regulations and its own policies and

                                    Ø Implement an adequate system of management controls
                                      over assets.

                                    Ø Improve the administration and accountability over its
                                      Public Housing Drug Elimination Program (PHDEP).

                                    Ø Improve the administration of its Section 8 program.

                                    The CHA did not follow HUD procurement regulations and
                                    its own procurement policies and procedures. Procurement
                                    deficiencies included: awarding contract without
                                    competition; selecting contractors without adequate
                                    competition; use of sole source contractor not justified; and
                                    emergency work not performed timely. CHA could not
                                    provide assurance to HUD that the contracts for
                                    construction, equipment, and related services, totaling
                                    $772,001, were awarded after the consideration of full and
                                    open competition, and at the most favorable cost. These
                                    weaknesses occurred because the CHA’s management did
                                    not fulfill its responsibility to establish and implement
                                    effective management controls over the procurement
                                    process, including management’s failure to provide
                                    oversight of a Coordinator hired to monitor the CHA’s
                                    Comprehensive Grant Program.

                                    The CHA’s management controls over bank reconciliation,
                                    receipts, cash disbursements, tenant receivables, fixed
                                    assets and investments were not adequate. As a result of
                                    these management control weaknesses, the CHA’s

                                        Page iii                                    2002-BO-1002
Executive Summary

                    resources are not adequately safeguarded against waste, loss
                    and misuse. These conditions exist because the CHA’s
                    management did not fulfill its responsibility to establish
                    and implement effective management controls.

                    The CHA needs to improve the administration and
                    accountability over its Public Housing Drug Elimination
                    Program (PHDEP). Specifically, the CHA has not: ensured
                    proper control and administration of patrol services; and
                    complied with HUD regulations which require that
                    activities and accomplishments in Semi-Annual
                    Performance Reports conform to approved PHDEP Grant
                    Applications. As a result, HUD has no assurance that
                    program objectives were met as stated in the PHDEP Grant
                    Applications; and, that PHDEP funds were used efficiently
                    and effectively. We are questioning PHDEP costs of
                    $58,160 for police patrols because baseline services were
                    not established, as required. These problems occurred
                    because the CHA management did not adequately monitor
                    the functions and responsibilities performed as part of the

                    The CHA does not have an acceptable system of controls
                    over its Section 8 program. Specifically, the CHA did not
                    ensure that: 1) annual recertifications were performed
                    timely; 2) Housing Quality Standards inspections are
                    performed timely; 3) reasonable rent procedures were
                    adhered to; 4) Section 8 waiting list was maintained and
                    updated accordingly; 5) procedures were established to
                    ensure that Housing Assistance Payments made to
                    landlords were appropriate; and 6) certificates and vouchers
                    were utilized at the appropriate rate. These deficiencies
                    occurred because the CHA’s management did not fulfill
                    their responsibility to provide adequate oversight of the
                    Section 8 program. As a result, we are questioning $6,108
                    relating to overpayments to landlords.

                    We have provided specific recommendations to assist in
 Recommendations    correcting the reported deficiencies. CHA Management
                    must take a more active role in administering HUD
                    programs it operates. The CHA needs to develop and
                    implement procedures over procurement, management
                    controls over assets, and administration of the PHDEP and
                    Section 8 programs.

2002-BO-1002            Page iv
                                                         Executive Summary

                  We are also recommending that the CHA reimburse the
Findings and      federal programs for amounts that are not supported; the
Recommendations   unsupported portion of the $58,160 charged to the PHDEP,
                  and the $6,108 in ineligible costs charged to the Section 8

                  The findings were discussed with the CHA during the
                  course of the audit. We held an exit conference on
                  February 25, 2002. On March 1, 2002, we provided the
                  CHA a copy of the draft audit report for comment. We
                  received the CHA’s response on March 15, 2002.

                  We have included pertinent comments of the CHA’s
                  response in the Findings section of this report. The CHA’s
                  narrative response is provided as Appendix B. Attachments
                  included with the CHA response will be provided to the
                  Massachusetts Office of Public Housing under separate

                       Page   v                                 2002-BO-1002
Executive Summary


2002-BO-1002                Page vi
Table of Contents
Management Memorandum                                                  i

Executive Summary                                                   iii

Introduction                                                           1


1. Improper Procurement Activities                                 5

2. CHA Lacked an Adequate System of Controls                      17

3. Improvement Needed Over the Public Housing Drug Elimination
   Program                                                        27

4. Improvement Needed Over Administration of Section 8 Program    33

Management Controls                                               39

   A Schedule of Ineligible and Unsupported Costs                 41

   B Auditee Comments                                             43

   C Distribution                                                 61

                             Page vii                     2002-BO-1002
Table of Contents


ACC             Annual Contributions Contract
ADA             Americans with Disabilities Act
CD              Certificate of Deposit
CFR             Code of Federal Regulations
CGP             Comprehensive Grant Program
CHA             Concord Housing Authority
COE             U.S. Army Corps of Engineers
HAP             Housing Assistance Payment
HQS             Housing Quality Standards
HUD             Department of Housing and Urban Development
IPA             Independent Public Accountant
MOU             Memorandum of Understanding
NOFA            Notice of Funds Availability
OIG             Office of Inspector General
OMB             Office of Management and Budget
PHA             Public Housing Authority
PHDEP           Public Housing Drug Elimination Program
PHMAP           Public Housing Management Assessment Program
RFP             Request for Proposals
SEMAP           Section 8 Management Assessment Program
TAR             Tenant Accounts Receivable

2002-BO-1002                          Page viii
A five-member Board of Commissioners, chaired by Doris Desautel, governs the Concord
Housing Authority (CHA). The Executive Director, Ian R. McLauchlan, is responsible for the
administration of CHA operations. The CHA office is located at 15 Pitman Street, Concord, New
Hampshire. The CHA is administering 224 units under the Section 8 Program and 262 units in
five projects under the Low Income Public Housing Program.

The U.S. Army Corps of Engineers (COE) performs Contract Administration Reviews for
selected Housing Authorities on behalf of HUD. The CHA was cited in June 1999 and August
2000 by the COE for problems in its procurement and contracting practices. This report also
includes a finding relating to improper procurement activities (Finding 1).

                                   The purpose of our audit was to determine whether:
 Audit Objectives
                                   1. The CHA is using its resources and managing its
                                      programs and operations efficiently, effectively, and

                                   2. The CHA is complying with the terms and conditions of
                                      its Annual Contributions Contract, applicable laws,
                                      HUD regulations, and other applicable directives.

                                   To accomplish the audit objectives, we:
 Audit Scope and
 Methodology                       Ø Reviewed Federal requirements including the Code of
                                     Federal Regulations (CFR), HUD Handbooks, Public
                                     and Indian Housing Notices and Directives, OMB
                                     Circulars, the CHA’s organizational and administrative
                                     structure, administrative plans and personnel policies,
                                     and recorded minutes of the Board of Commissioners

                                   Ø Reviewed Independent Public Accountant (IPA) reports
                                     for FYs 1999, 2000 and monitoring reviews conducted
                                     by the HUD Field Office.

                                   Ø Interviewed Massachusetts and New Hampshire State
                                     Office of Public Housing personnel, the CHA
                                     Executive Director and staff, and the CHA’s Fee
                                     Accountant to obtain information relating to CHA’s
                                     operations and management controls.

                                        Page 1                                  2002-BO-1002

               Ø Interviewed the CHA staff regarding its procedures for
                 accounting, administration, procurement, maintenance,
                 occupancy, training, cash receipts, cash disbursements,
                 fixed assets, Public Housing Drug Elimination Program
                 (PHDEP), Comprehensive Grant Program (CGP), to
                 determine if the CHA’s procedures were adequate.

               Ø Reviewed a random sample of ten out of 192 Section 8
                 tenant files to verify that tenants qualified as a family;
                 that tenants’ income was within income limits; and to
                 determine that recertifications were performed on an
                 annual basis.

               Ø Examined CHA’s compliance with HUD’s utility
                 allowance provisions, administration of the waiting list,
                 rent reasonableness determinations, utilization of
                 Section 8 certificates and vouchers, procedures on HQS
                 inspections, and supervisory control inspections.

               Ø Examined the CHA’s procedures and supporting
                 documentation for all nine CGP related contracts
                 awarded during the audit period.

               Ø Reviewed CHA bank statements and cancelled checks
                 for assurance that sources of cash were accounted for.

               Ø Analyzed tenant accounts receivable, fixed assets,
                 security deposits, cash receipts and disbursements, and
                 investment records to ensure that assets were
                 safeguarded and properly recorded in the CHA’s

               Ø Evaluated the CHA’s PHDEP to verify that: (1) grant
                 expenditures were properly accounted for, supportable,
                 eligible and reasonable; (2) the CHA evaluated and
                 monitored its PHDEP activities to ensure that the
                 results were in accordance with program objectives; and
                 (3) the CHA monitored police services provided under
                 the contract.

               For transaction testing methodology, we used non-
               representational samples rather than statistically valid
               samples. The non-representational sample methodology
               was more appropriate for audit testing on the areas

2002-BO-1002       Page 2

The audit was conducted between March 2001 and
September 2001, and covered the period from October 1,
1998 through February 28, 2001. When appropriate, the
audit was extended to include other periods.

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

    Page 3                                2002-BO-1002


2002-BO-1002               Page 4
                                                                                         Finding 1

                Improper Procurement Activities
The Concord Housing Authority’s (CHA) procurement practices are not in compliance with
HUD regulations and its own procurement policy. Deficiencies were noted in five of nine
contracts reviewed: (1) contract awarded without competition; (2) contractors selected without
adequate competition; (3) failure to justify sole source contractor; (4) emergency work not
performed timely; and (5) bid proposals and contract documents missing. These deficiencies
occurred because the CHA's management did not fulfill its responsibility to establish and
implement effective internal controls over the procurement process. As a result, CHA could not
provide assurance to HUD that the contracts for construction, equipment, and related services,
totaling $772,001, were procured after the consideration of full and open competition, and at the
most favorable cost.

                                     Procurement regulations contained in the Code of Federal
 HUD Requirements                    Regulations (24 CFR 85.36) require the Public Housing
                                     Authority (PHA) to:

                                     Ø Conduct all procurement in a manner to provide full
                                       and open competition (24 CFR 85.36(c)(1)).

                                     Ø Maintain sufficient records to show the history of a
                                       procurement. The records should include the rationale
                                       and justification for the method of procurement, the
                                       type of contract, the selection of the contractor, and the
                                       basis for the contract price (24 CFR 85.36(b)(9)).

                                     Ø Utilize noncompetitive proposals only when the award
                                       of the contract is infeasible under sealed bids and after
                                       solicitation of a number of sources, competition is
                                       determined inadequate (24 CFR 85.36(d)(4)(i)).

                                     Procurement Handbook for Public and Indian Housing
                                     Authorities, HUD Handbook 7460.8, paragraph 4-26 (E)
                                     states that:

                                        “if a housing agency receives fewer than three proposals,
                                        the PHA should analyze the proposals and document the
                                        reason for the poor response. Depending on the results
                                        of the analysis, the PHA may either reject the proposals
                                        and issue a revised solicitation or proceed to evaluate the

                                         Page 5                                      2002-BO-1002
Finding 1

                             The CHA’s Procurement Policy: provides for the fair and
  CHA’s Procurement Policy   equitable treatment of all persons or firms involved in
                             purchasing by the CHA; assures that supplies, services and
                             construction are procured efficiently, effectively, and at the
                             most favorable prices available to the CHA; promotes
                             competition in contracting; provides safeguards for
                             maintaining a procurement system of quality and integrity;
                             and assures that CHA purchasing actions are in full
                             compliance with applicable Federal standards, HUD
                             regulations, and State and local laws.

                             We reviewed all nine contracts awarded during the audit
 Procurement Deficiencies    period and identified deficiencies associated with five of
 Identified                  these contracts. The total cost expended for the five
                             contracts was $772,001 for the period from May 21, 1999
                             through August 31, 2001. For each of the five contracts, we
                             identified one violation of HUD regulations and/or the
                             CHA’s procurement policy as follows:

                              Work Performed – Note 1                    Total Cost     Deficiencies
                              Hired Coordinator to monitor                 $34,706           1
                              Comprehensive Grant Program
                              ADA/Renovations of community room            $155,381          2
                              Replacement of stoves and refrigeration      $145,040          3
                              Installation of trash compactor and lift       $8,901          4
                              Roofing and re-caulking                      $427,973          5
                              Total                                        $772,001

                              Note 1: All contracts were with the same contractor with the
                                      exception of the contract to hire a Coordinator to monitor
                                      the CHA’s Comprehensive Grant Program.

                             Deficiency Explanations:

                             1. Contract awarded without any competition.

                             2. Contractor selected with inadequate competition.

                             3. Failure to justify sole source.

                             4. Emergency work not performed timely.

                             5. Bid proposals and contract documents missing.

2002-BO-1002                      Page 6
                                                                         Finding 1

                      The CHA contracted for a CGP Coordinator to manage
Contractor Awarded    contracting responsibilities without competition. Rather
Without Competition   than prepare Requests for Proposals (RFP) for the services
                      and solicit responses in order to achieve open and free
                      competition, the CHA granted the work to the firm it
                      preferred. The Executive Director stated that the CHA by-
                      passed the bidding process because they needed to expend
                      the remaining CGP funds before HUD recaptured the
                      money. HUD allows a two-year period to obligate funds
                      and three years to expend the funds. Hence, there is no
                      assurance that the services represent those that could be
                      best attained.

                      Procurement regulations for competitive proposals, 24 CFR
                      85.36(d)(3), stipulate that:

                         “The technique of competitive proposals is normally
                         conducted with more than one source submitting an
                         offer, and either a fixed price or cost-reimbursement
                         type contract is awarded.”

                      If this method is used, the following requirements apply:

                      Ø RFPs will be publicized and identify all evaluation
                        factors and their relative importance (24 CFR 85.36

                      Ø RFPs will be solicited from an adequate number of
                        qualified sources (24 CFR 85.36 (d)(3)(ii).

                      Ø Grantees and subgrantees will have a method for
                        conducting technical evaluations of the proposals
                        received and for selecting awardees (24 CFR 85.36

                      Ø Awards will be made to the responsible firm whose
                        proposal is most advantageous to the program, with price
                        and other factors considered (24 CFR 85.36 (d)(3)(iv).

                      CHA management disregarded these regulations in order to
                      expedite the hiring of the Coordinator. Management did not
                      provide adequate justification for not following regulations.
                      For the period from November 19, 1999 through August
                      17, 2001, the CGP Coordinator was paid $34,706.

                          Page 7                                      2002-BO-1002
Finding 1

                           There was one contract awarded by the CHA with
Contractor Selected With   inadequate competition. Only one contractor submitted a
Inadequate Competition     bid proposal for Americans with Disabilities Act (ADA)
                           renovations of the community room at Boucher
                           Apartments. The firm awarded this contract was already
                           performing work under another CHA contract (Installation
                           of Appliances – See Sole Source Not Justified below). The
                           amount of the contract was $147,648 and the final cost was

                           When the CHA did not receive an adequate number of bid
                           proposals, the CGP Coordinator did not follow required
                           procedures in awarding this contract to the sole bidder. The
                           CHA is required to: document the evaluation process;
                           document the possible reason why only one firm submitted
                           a bid proposal; justify why it was not necessary to re-bid; or
                           perform a cost or price analysis to verify the reasonableness
                           of the costs. Because the above procedures were not
                           performed and/or not documented, there is not adequate
                           assurance that the lowest possible price was obtained for
                           the services received.

                           We identified one instance where the CHA could not justify
 Failure to Justify Sole   using a sole source contractor. The CHA paid the
 Source                    contractor $145,040 to deliver, install new stoves and
                           refrigerators, and dispose of 234 old stoves and
                           refrigerators at its five developments. Bid tabulations show
                           that three bid packages had been sent out, but that only one
                           bid was received. The CHA did not maintain records that
                           adequately justified awarding the contract to the sole
                           bidder. The CHA did not have records showing the
                           rationale for the method of procurement, contractor
                           selection and the basis for contract price as required by 24
                           CFR 85.36(b)(9). The CGP Coordinator’s and the
                           Executive Director’s primary justification for a large-scale
                           replacement of the appliances and their failure to follow
                           proper procurement procedures is that the CHA had only a
                           short timeframe in which to expend the remaining CGP
                           funds before HUD recaptured the money. The potential
                           recapture of the GCP funds is not justification for not
                           following the procurement regulations.

                           The Coordinator advised that he preferred to obtain a
                           contractor that would offer both installation of the new
                           appliances and disposal of the old equipment. According to

2002-BO-1002                   Page 8
                                                                       Finding 1

                     the CGP Coordinator, only one contractor was offering
                     both services. However, CHA did not maintain sufficient
                     documentation to support this claim.

                     An emergency request for the installation of a trash
Emergency Work not   compactor at the CHA’s Kennedy Building was not acted
Performed Timely     upon by the CHA in a timely manner. The CGP
                     Coordinator advised that, due to the emergency nature of
                     the procurement, the contract was never formally
                     advertised, but was handled as a public exigency or
                     emergency procurement. HUD regulations provide that,
                     “due to the public exigency or emergency for the
                     requirement will not permit a delay resulting from
                     competitive solicitation” (24CFR 85.36 (d) (4) (i) (B)).
                     The CHA executed a contract for $134,153 on May 31,
                     2001 for the installation of a trash compactor and lift
                     system and construction work necessary for installation.
                     Although the CHA awarded this contract on an emergency
                     basis, the contract did not identify any time frame for
                     completion. The CGP Coordinator advised that the
                     contractor was selected primarily because the contractor
                     was available and expressed a strong interest in performing
                     the work. The contractor was currently working on the
                     ADA renovations at Boucher Apartments when selected for
                     the job. As of November 13, 2001, the contract was still in
                     process with $8,901 paid.

                     HUD initially approved the trash compactor in the CHA’s
                     CGP Application on September 16, 1997. The work on the
                     compactor was scheduled for accomplishment in 1999. On
                     July 5, 2000, the local fire department conducted an
                     inspection of the Kennedy Building and cited that trash
                     cans located in the hallways as a fire hazard and a code
                     violation, adding that the violation required immediate
                     abatement. The abatement schedule required that the trash
                     cans be removed from hallways and the CHA install a trash
                     compactor and this compactor be operational not later than
                     December 31, 2000. The CHA did not comply with the fire
                     department’s request. The local fire department cited the
                     CHA a second time in their inspection on May 10, 2001, re-
                     emphasizing the same violations. The fire department
                     stated that a follow-up inspection would be conducted on
                     June 29, 2001. The violation was still not corrected by that
                     date and, in fact, was not corrected as of November 13,
                     2001. During this time, the project continued to utilize the

                         Page 9                                     2002-BO-1002
Finding 1

                              trash cans in its hallways. As a result, tenants were exposed
                              to fire hazards for 16 months.

                              Documentation provided by the CGP coordinator show that
                              the work for this project began in June 2001, and was
                              completed as of December 31, 2001.              The work
                              completion, originally scheduled for September 30th, was
                              delayed due to design and layout problems associated with
                              installation of the compactor and the accompanying trash
                              chute. In our opinion, the delays encountered in the
                              preparation of work specifications and project design could
                              have been avoided had they been addressed during the 11-
                              month period between the citation by the Concord Fire
                              Department and the final contract award.

                              The CHA's contract files did not contain adequate histories
 Bid Proposals and Contract   of the procurements as required by both the CHA's
 Documents Missing            Procurement Policy and federal regulations. From May 21,
                              1999 through September 17, 2000, the CHA paid $427,973
                              for roofing and re-caulking work at Crutchfield
                              Apartments; however, there is no evidence that a bid or
                              proposal was either obtained or requested or that a formal
                              contract was issued. Without sufficient documentation
                              showing a history of procurement, we were unable to assess
                              whether costs were reasonable and eligible under this
                              contract. Neither the CGP Coordinator nor any CHA staff
                              members were able to find any documentation on file
                              related to this procurement. The CGP Coordinator advised
                              that this work pre-dated his arrival at the CHA.

                              The U.S. Army Corps (COE) of Engineers in June 1999
                              reviewed CHA’s contract administration. The COE report
                              also indicated that files for construction contracts were
                              missing or lacked many of the contract documents.

                              The CHA adopted an acceptable procurement policy, which
                              meets federal requirements. However, as shown above, the
                              CHA did not follow its policy in all cases and made
                              management decisions that are contrary to the best interests
                              of the CHA and its tenants. Wasteful procurements drain
                              the CHA's limited financial resources and contribute to
                              fiscal problems. It is the responsibility of the CHA
                              management to assure that only essential materials and
                              services are purchased, adopted policies are strictly adhered

2002-BO-1002                      Page 10
                                                                    Finding 1

                   to, and that procurements are made for the best possible
                   products at the lowest possible prices.

Auditee Comments   The CHA provided the following comments for each
                   deficiency noted in the finding:

                   1. Hiring of CGP Coordinator:

                      The CHA acknowledged that the services of the CGP
                      Coordinator were obtained “without competition”. The
                      CHA then provided an explanation for why they
                      engaged the coordinator without competition. The
                      CHA also advised that the CHA Board voted to
                      terminate the contract with the CGP Coordinator
                      effective May 15, 2002, and to issue a new RFP for
                      these services.

                   2. Contractor Selected With Inadequate Competition:

                      The CHA states that bid solicitations for this work were
                      sent to five trade advertisers in September 2000 about
                      two weeks before the bid opening. The CHA stated that
                      they were trying to obligate FY 1998 CGP funds prior
                      to September 30, 2000, which, “precluded the re-
                      advertising and re-bidding” of this contract work.

                   3. Failure to Justify Sole Source Bid:

                      The CHA states that, in their opinion, this contract was
                      not “a sole source procurement”. The CHA advised
                      that in February 28, 2000, they were attempting to
                      obligate FY 1997 CGP funds before March 31, when
                      HUD would have recaptured these funds. The CHA
                      sent “bid solicitations” to three trade advertisers and
                      “bid packages” to three appliance vendors in early
                      February 2000. At the bid opening on February 28,
                      2000 only one bid was received. In letters sent by the
                      CHA Executive Director and the CGP Coordinator in
                      March 2000, CHA requested HUD approval of this
                      contract award. HUD did not respond to this request,
                      and CHA awarded the contract to the sole bidder on
                      March 28, 2000.

                       Page 11                                   2002-BO-1002
Finding 1

               4. Emergency Procurement Not Performed Timely:

                  The CHA acknowledged that the installation of a trash
                  compactor was identified as part of a CGP Application
                  in 1997. At that time, this work was not considered a
                  “priority” item, and was scheduled for completion in
                  1999. In July 2000, the Concord Fire Department cited
                  CHA with a fire code violation of placing trashcans in
                  the hallways. CHA states that it explored the possibility
                  of purchasing the necessary equipment, and then
                  contracting separately for its installation. At some
                  point, CHA noted, “it soon became obvious that the
                  installation was going to be far more complex than
                  originally anticipated”. In May 2001 (eleven months
                  after the initial fire code violation), the Concord Fire
                  Department “insisted that corrective action be taken to
                  rectify the trash situation”. CHA identifies this action
                  as the “real emergency”. After CHA approached two
                  contractors, then working for CHA, only one of these
                  firms expressed interest in performing the work. This
                  company was awarded the contract on May 31, 2001.
                  The initial completion date of the work was scheduled
                  for September 30; it was later extended to December
                  31, 2001. The CHA stated that HUD approval was
                  granted for the emergency procurement.

               5. Contract Documents Missing:

                  The CHA stated that they are in the process of replacing
                  procurement documents that are not currently in the
                  CGP files.

               In addition, the CHA indicated that they generally concurred
               with all of the audit recommendations and had initiated
               corrective action in most cases.

2002-BO-1002       Page 12
                                                                       Finding 1

OIG Evaluation of   1. Hiring of CGP Coordinator:
Auditee Comments
                       We are aware of the reasons that it was a priority for the
                       CHA to contract for the services of a CGP Coordinator.
                       These reasons do not justify circumventing the
                       procurement regulations. We agree with the action
                       taken by the CHA to terminate the CGP Coordinator’s
                       contract and to issue a new RFP for those services.

                    2. Contractor Selected With Inadequate Competion:

                       Documents provided by the CHA show that a fax
                       message was sent to the 5 trade advertisers, not “bid
                       solicitations” as noted in the CHA’s response. This fax
                       message did not include all of the relevant data needed
                       for potential sources to submit bids. Also, in our
                       opinion, the two-week period between the fax notice
                       being sent to the three advertisers and the bid opening
                       was not sufficient time for potential bidders to submit
                       bids. Although CHA was attempting to obligate funds
                       before their expiration, this did not justify awarding the
                       contract to the only bidder.

                    3. Failure to Justify Sole Source Bid:

                       While we agree that this contract does not represent a
                       sole source procurement, that is how the CHA
                       identified it to HUD in their letters. Documents
                       provided by the CHA show that a fax message was sent
                       to the three trade advertisers, not the “bid solicitations”
                       noted by CHA. The CHA provided “bid packages” to
                       two appliance vendors who did not request the packages
                       and to one contractor who was working at the CHA
                       under another contract. The CHA awarded the contract
                       to this sole bidder because they needed to obligate the
                       funds from their FY 1997 CGP grant. Proper planning
                       of the procurements by the CHA would preclude the
                       need to award contracts to avoid the recapture
                       provisions of the program. As noted previously, the
                       attempt to obligate funds before their expiration is not
                       justification for awarding the contract to the sole bidder.

                        Page 13                                     2002-BO-1002
Finding 1

                  4. Emergency Procurement Not Performed Timely:

                        As noted, the compactor was included in CHA’s 1997
                        CGP Application for completion in 1999. Although
                        this project may not have been a high priority, CHA
                        management recognized this work requirement and it
                        was scheduled in the CGP Plan accordingly. When the
                        Concord Fire Department cited CHA with the fire code
                        violation in July 2000, CHA had been using trashcans
                        in the hallways for almost two years. We do not agree
                        with CHA’s claim that the real emergency occurred in
                        May 2001. Having been aware of this requirement
                        since 1997, and having recognized that the use of
                        hallway trashcans was an untenable solution to the trash
                        problem, CHA should have responded immediately and
                        awarded a contract after being cited by the Fire
                        Department in July 2000. The CHA had more than
                        enough time to procure this contract in a timely manner
                        to avoid any need to procure the contract under
                        emergency measures.

                  5. Contract Documents Missing:

                        CHA should provide support for the contract to HUD.

Recommendations   We recommend that you:

                  1A.      Require the CHA to provide assurance that, in the
                           future, all phases of the CHA’s procurement policy
                           are effectively carried out.

                  1B.      Require the CHA to provide justification for the
                           procurement decisions made in awarding the
                           contracts totaling $772,001 in cost.

                  1C.      Instruct your staff to perform an evaluation and cost
                           estimation on the work specifications included in
                           the projects pertaining to each contract award.

                  1D.      Require the CHA to reimburse the amount of any
                           contracts awarded in excess of the estimated costs
                           derived from the HUD evaluation and cost

2002-BO-1002            Page 14
                                              Finding 1

1E.      Require the CHA to maintain documentation
         supporting the basis for contracts awarded.

1F.      Require the CHA to develop and use independent
         cost estimates for evaluating bids received
         whenever possible.

      Page 15                              2002-BO-1002
Finding 1


2002-BO-1002               Page 16
                                                                                     Finding 2

                     CHA Lacked an Adequate
                       System of Controls
The Concord Housing Authority (CHA) did not maintain an adequate system of controls over its
assets. This condition exists because CHA management did not fulfill its responsibility to
establish and implement effective management controls. In addition to the conditions cited in
other findings contained in this report (Procurement Drug Elimination Program and Section 8
Program), we identified specific management control deficiencies in the following categories:

   Ø Tenant Accounts Receivable (TAR) was not reconciled.

   Ø Rent collection procedures were not followed.

   Ø Maintenance materials were not properly accounted for.

   Ø Improper allocation and accounting of Federal Program costs.

   Ø Inadequate management of fixed assets.

   Ø Policies needed for deposit accounts.

   Ø Bank accounts were overdrawn and the accounts were not properly reconciled.

   Ø Inadequate training for CHA staff and a lack of job descriptions.

As a result of these insufficient management controls, CHA resources were not adequately
safeguarded against waste, loss and misuse; and HUD has little assurance that the CHA was
following the appropriate laws, regulations, and policies.

                                    The basic purpose of a system of management controls is to
 Management Control
                                    promote the efficient operation of an organization. The
                                    system of management controls consists of all measures
                                    employed by an organization to: 1) safeguard assets from
                                    waste, fraud and inefficient use; 2) promote accuracy and
                                    reliability in the accounting records; 3) encourage and
                                    measure compliance with policies and procedures; and 4)
                                    evaluate the efficiency of operations.          In essence,
                                    management controls consist of all measures taken to
                                    provide management the assurance that everything is
                                    functioning as it should. It is the responsibility of CHA’s

                                        Page 17                                   2002-BO-1002
 Finding 2

                             Executive Director to assure that management control
                             policies and procedures are enforced.

                             HUD regulations state that the financial management
                             systems of grantees must meet internal control standards.
                             The regulations also stipulate that effective control and
                             accountability must be maintained for all grant funds, real
                             and personal property, and other assets. Grantees must
                             adequately safeguard all such property and must ensure that
                             it is used solely for authorized purposes (24 CFR

                             Regulations further state that grantees must maintain
                             records, which adequately identify the source and
                             application of funds provided to financially assisted
                             activities.   These records must contain information
                             pertaining to grant awards and authorizations, obligations,
                             unobligated balances, assets, liabilities, outlays or
                             expenditures, and income (24 CFR Part 85.20(b)(2)).

                             The CHA’s TAR did not accurately reflect total receivables
   TAR not Accurate          due from tenants.         CHA does not maintain reliable
                             documentation from which to determine the exact amount of
                             tenant receivables, and how long tenant rents were
                             outstanding. CHA uses the following data to manage tenant
                             receivables: records of tenant cash receipts; tenant
                             transaction histories, the "Tenant Balances Report;" and the
                             "Aged Accounts Receivable Report". The balance in the
                             General Ledger Tenant Accounts Receivable did not
                             reconcile with the Aged Account Receivable Report. As a
                             result, CHA could not provide adequate assurance that the
                             General Ledger Tenant Account Receivable balance of
                             $55,866 was accurate.

                             As of June 30, 2001, the CHA Finance Director could not
                             provide evidence of any reconciliation of the Tenant
                             Accounts Receivable to supporting records and documents.

                             The CHA has not adhered to the requirements of its’ own
Rent Collection Policy not   policy. As of June 30 2001, there were a total of 13
Followed                     residents from two of the five housing projects who failed
                             to pay rent, and there were four tenants who underpaid their
                             rent. As of July 31, 2001, CHA management had not
                             initiated adequate collection actions for these 17 residents.
                             In an evaluation of CHA's collection efforts, we examined

 2002-BO-1002                    Page 18
                                                                                Finding 2

                            five of the larger tenant account balances and found that
                            four of them were under a repayment plan. Our review
                            disclosed that none of the four are adhering to the
                            repayment plan. In one example, the tenant at 7 Jennings
                            Drive (Haller Apts.) entered into a repayment plan on June
                            16, 2000 to pay $50 per month in addition to the normal
                            rent, for one year. As of June 16, 2000, the tenant owed
                            $730. By June 30, 2001, the amount owed increased to
                            $2,102 while under the repayment plan. The CHA needs to
                            follow its’ collection procedures in taking timely collection

                            HUD Regulations require that accounting records be
Maintenance Materials not   supported by source documents (HUD Guidebook 7510.1,
Accounted for               Sections II.6, PIH Low-Rent Technical Accounting Guide).

                             The CHA did not properly control employee use of the three
                            credit cards for purchase of materials and supplies from local
                            department stores. For the period of January 1, 2000 to
                            August 31, 2001, the CHA had purchases totaling $44,253
                            from three local supply stores. From our review of
                            supporting documentation, we could not determine which
                            CHA employees purchased the items. Purchases were either
                            not supported with purchase orders or, when they were, the
                            purchase orders were incomplete. In most instances, the
                            purchase orders reviewed did not:

                            Ø Include a proper description of item(s) purchased.

                            Ø Identify the individual who approved or authorized the

                            Ø Indicate where items were to be delivered or received.

                            Ø Indicate what CHA employee was designated to receive
                              and sign for the item purchased.

                            Based on the records available for review, we were unable
                            to determine whether the items purchased were for the
                            benefit of the CHA.

                                Page 19                                     2002-BO-1002
Finding 2

                             Section 15 of the Annual Contributions Contract (ACC)
 Improper Allocation of      requires the CHA to maintain complete and accurate books
 Program Costs               of account and records in connection with the development
                             and operation of the project, including records that permit a
                             speedy and effective audit.

                             The CHA commingles its costs among various federally
                             funded programs, and does not always record correct
                             amounts to the appropriate programs such as the Public
                             Housing Drug Elimination Program (PHDEP) and the
                             Comprehensive Grant Program. Amounts charged to
                             programs are often not adjusted to the appropriate accounts
                             until months later when the CHA Fee Accountant prepares
                             adjusting journal entries. To illustrate, CHA’s former
                             Finance Director charged PHDEP salaries of $27,500,
                             earned from October 1999 to September 2000, to the CHA
                             payroll account, but failed to record this salary cost to the
                             PHDEP account. The Fee Accountant subsequently created
                             a journal entry on September 30, 2000 posting the salaries
                             to the “Tenant Services Salaries” (Account 4210, the
                             correct PHDEP account established for salaries). The
                             CHA’s Finance Director should have been recording the
                             salaries to the Tenant Services Account on a consistent
                             basis; however, most Finance Directors hired by the CHA
                             in the past several years lacked the training and/or
                             knowledge to perform these routine tasks.

                             Federal regulations require grantees to 1) maintain detailed
 Fixed Assets not Properly   property records of equipment, 2) conduct physical
 Recorded                    inventories of property and equipment and reconcile the
                             results with property records once every 2 years, and 3)
                             develop control systems to ensure adequate safeguarding of
                             assets against loss, damage, and theft of property (24 CFR
                             85.32(d)(1) to (3).

                             The CHA has not established adequate controls to ensure
                             that fixed assets are properly recorded and managed.
                             Although records were maintained for appliances
                             (refrigerators and stoves) by serial number and location,
                             there were no similar records for maintenance and office
                             equipment, including computers and printers. The CHA
                             management indicated that inventories of maintenance and
                             office equipment had been conducted; however, there was
                             no documentation to support this claim. Without sufficient
                             documentation to support the annual inventory of these

2002-BO-1002                     Page 20
                                                                                Finding 2

                              equipment items, there is limited assurance that CHA assets
                              have not been lost or stolen, or were susceptible to
                              unauthorized use. CHA management was not aware of the
                              requirement that inventory records should be maintained
                              for maintenance equipment and office equipment.

                              The CHA lacked adequate written policies and procedures
Policies Needed for Deposit   for monitoring its deposit accounts. In a letter dated May
Accounts                      12, 2000, the CHA Fee Accountant cited “hundreds of
                              thousands of dollars” in 16 deposit accounts that were
                              accumulating either low or no interest income. In one
                              example, a certificate of deposit (CD) in the amount of
                              $108,556 had expired in February 2000 and was then
                              placed by the bank into the local program account of CHA
                              where it earned no interest. The Fee Accountant, in a
                              follow-up letter dated September 13, 2000, indicated that
                              the $108,556 was still in the non-interest bearing account.
                              At one time, the CHA Finance Director could not identify
                              the specific CD accounts held with each bank, the amount
                              of the CD in each account and how much interest was being
                              earned. During the course of our audit, CHA had begun to
                              convert these 16 CD accounts into three high-yield “sweep”
                              accounts. The CHA Fee Accountant, who addressed this
                              issue in separate correspondence to the CHA on May 12,
                              2000, September 13, 2000, and November 10, 2000,
                              estimated that approximately $30,000 was lost in fiscal year
                              2000 by not investing these funds properly.

                              CHA did not reconcile its bank account statements with the
Bank Accounts Overdrawn       financial records in a timely manner. In most instances,
                              bank account statements were not reconciled until more
                              than a month after they were received. This led to
                              overdrafts in the Public Housing bank account in the
                              amounts of $7,803 and $45,125 for November 2000 and
                              March 2001, respectively. The CHA Fee Accountant
                              informed CHA management that bank account statements
                              should be reconciled within two to three days of their
                              receipt. Prudent practice and generally accepted accounting
                              principles dictate that the CHA cash balance be properly
                              monitored and that, at a minimum, bank accounts be
                              reconciled in a timely manner.

                                  Page 21                                    2002-BO-1002
Finding 2

                              Our review identified a high turnover of personnel and a
 Staff Inadequately Trained   lack of continuity among the CHA management staff,
                              especially as it pertained to the Finance Department. In our
                              opinion, this deficiency is a contributing factor to the poor
                              management control environment at the CHA. The CHA
                              has had five Finance Directors in the past three years and
                              has experienced staff turnover in other departments as well.
                              Statements obtained from CHA personnel and from the
                              CHA Fee Accountant indicate that the staff has received
                              inadequate on-the-job and/or formal training, and a general
                              lack of management oversight in this regard.

                              We reviewed the personnel files for four CHA management
                              employees and noted that there was a job description for
                              only one position, the Executive Director. There were no
                              job descriptions for the other three: the Director of Finance;
                              the Director of Housing; and the Resident Service
                              Coordinator. During the audit, we requested copies of job
                              descriptions for these positions; however none was
                              provided. The lack of job descriptions could impede the
                              CHA’s Executive Director’s ability to manage and evaluate
                              its staff.

                              HUD regulations stipulate that the assessment of training
                              needs for PHA staff, and the addressing of those needs are
                              essential management requirements. Management must
                              ensure that employees have the skills necessary for the
                              PHA to succeed. The issue of assessing training needs is
                              closely linked to the process of evaluating employee
                              performance and to the quality of job descriptions. PHA
                              management needs to assure through training and hiring
                              practices that those employees with responsibility to carry
                              out work processes understand what is expected of them
                              (HUD Directive 7460.9G, Organization, Management, and
                              Personnel Monitoring Guidebook, Chapter 2, Sections 2-5
                              and 2-9).

                              Our review showed that CHA did not always comply with
 Management Problems          administrative controls and procedures as a means of
                              ensuring adequate management control over CHA
                              operations. As noted in Findings 1, 3 and 4 of this report,
                              CHA has experienced management problems, which affect
                              its ability to carry out its housing programs efficiently and
                              effectively. In our opinion, CHA’s failure to provide
                              adequate on the job training for its staff, frequent turnovers

2002-BO-1002                      Page 22
                                                                      Finding 2

                   in staff, and a failure to develop appropriate operational
                   policies and procedures contributed to the problems
                   identified during our audit.

                   CHA is in the process of developing written policies and
                   procedures for its operations. Formal written policies and
                   procedures provide direction for day-to-day operations and
                   help maintain consistency in all housing authority
                   functions. As noted, the prior lack of adequate written
                   policies and procedures has contributed to the ineffective
                   and inconsistent operations of CHA. CHA’s Financial
                   Policies and Procedures pertaining to cash receipts, tenant
                   receivables, Section 8 program, and Fixed Asset inventory
                   had not yet been fully implemented.

                   The CHA’s management is responsible for the lack of
                   management controls and the problems associated with the
                   high turnover of personnel. An important element of
                   management controls is job descriptions for staff, especially
                   for the Executive Director. Our review noted that the job
                   description for the position of Executive Director requires:
                   (1) performance of highly administrative and supervisory
                   work in planning, organizing and directing CHA
                   operations, (2) oversight of the maintenance of records and
                   books of accounts showing receipts and expenditures, and
                   (3) rendering to the Board an accounting of the financial
                   condition of the CHA.

Auditee Comments   The CHA provided the following comments for each
                   management control weakness identified:

                   1. Tenant Accounts Receivable not Accurate

                      The CHA stated that it has been working with its
                      computer consultant to resolve TARs. As of January
                      2002, the account remains out of balance by $378.

                   2. Rent Collection Policy not Followed

                      The CHA acknowledged that its Rent Collection Policy
                      has not always been followed, but that it is currently
                      enforcing this policy in an aggressive manner.

                       Page 23                                     2002-BO-1002
Finding 2

               3. Maintenance Supplies not Accounted for

                  The CHA disputed the audit finding by stating that, in
                  their opinion, credit card purchases have been properly
                  documented and authorized. CHA also requested
                  clarification on statements in the audit finding
                  indicating that we were unable to determine where the
                  purchased items were used and whether the items
                  purchased were for the benefit of CHA.

               4. Improper Allocation of Program Costs

                  The CHA acknowledged the past practice and advised
                  that in-house staff was making the proper allocation

               5. Fixed Assets not Properly Recorded

                  The CHA indicated that they are now conducting
                  annual inventories and have all funds properly invested.

               6. Bank Accounts not Reconciled Timely

                  The CHA advised that the bank accounts are now
                  reconciled within a day or two of receiving the

               7. Staff Inadequately Trained

                  The CHA disputed the conclusion in the audit finding
                  that CHA staff was inadequately trained. CHA’s
                  response lists several courses taken by staff members
                  from May 1999 through March 2002. The CHA also
                  acknowledged that position descriptions are being
                  prepared and will be finalized by May 2002.

                                 *   *   *   *   *   *   *   *

               The CHA concurred with all of the recommendations in
               this finding and has taken action or plans to take action to
               correct the deficiencies noted in the finding. Also, the
               CHA Board of Commissioners has adopted a Financial
               Procedures Guide, prepared by the CHA Fee Accountant,
               for immediate implementation in March 2002. This Guide
               addresses most of the deficiencies noted in the finding.

2002-BO-1002       Page 24
                                                                    Finding 2

OIG Evaluation of   1. Tenant Accounts Receivable not Accurate
Auditee Comments
                       CHA has taken action to address this deficiency,
                       however, the account has not been fully reconciled yet.

                    2. Rent Collection Policy not Followed

                       CHA’s reported corrective action is adequate for this

                    3. Maintenance Supplies not Accounted for

                       Our review focused on credit card purchases from
                       October 2000 through March 2001. It appears from the
                       CHA response that they have improved their controls
                       over the credit cards. We deleted the statement
                       indicating that we were unable to determine where the
                       purchased items were used. Our concern was that the
                       supporting documentation did not indicate where the
                       items were delivered. Our comment indicating that we
                       were unable to determine whether the items purchased
                       were for the benefit of the CHA relates to the same
                       matter. We were unable to identify from the supporting
                       documentation who authorized the purchase, where it
                       was delivered or who received the material. Without
                       this information we could not determine if the items
                       purchased benefited the CHA.

                    4. Improper Allocation of Program Costs

                       CHA’s reported corrective action is adequate for this

                    5. Fixed Assets not Properly Recorded

                       CHA’s reported corrective action is adequate for this

                    6. Bank Accounts not Reconciled Timely

                       CHA’s reported corrective action is adequate for this

                       Page 25                                   2002-BO-1002
Finding 2

                  7. Staff Inadequately Trained

                        Of the 14 training sessions for staff members listed in
                        CHA’s response, 12 occurred either during or after our
                        on-site review. In general, the period of review for the
                        audit, from October 1998 through February 2001,
                        reflected the condition cited as to inadequate training.
                        Recent efforts by CHA to address the training issue, as
                        is evident from the CHA response, should correct this
                        deficiency. The new job descriptions should be
                        forwarded to HUD when complete.

                        The CHA had initiated adequate corrective actions to
                        close four of the six recommendations in our draft
                        report.    The recommendations pertaining to rent
                        collection procedures, credit card purchases, allocation
                        of program costs, recording of fixed assets, and the
                        reconciling of bank accounts have been deleted. We
                        also revised the two remaining recommendations
                        regarding reconciliation of the TARs and the
                        preparation of job descriptions for CHA staff.

Recommendations   We recommend that you require the CHA to:

                  2A.      Ensure that the Tenant Accounts Receivable is

                  2B.      Submit job descriptions for your staff’s review and

2002-BO-1002            Page 26
                                                                                      Finding 3

           Improvement Needed Over the
     Public Housing Drug Elimination Program
The Concord Housing Authority (CHA) did not administer its Public Housing Drug Elimination
Program (PHDEP) in accordance with HUD requirements and guidelines. Specifically, the CHA
did not:

   Ø Follow procedures to ensure proper control and administration under the contract for
     police patrol services provided.

   Ø Ensure that (1) reported activities and accomplishments in its Semi-Annual Performance
     Reports conform to approved PHDEP Grant Applications, and (2) a resident survey was
     performed by an organization independent of the CHA.

Due to lack of proper controls to ensure costs were reasonable and supported, we are questioning
unsupported PHDEP costs of $58,160 incurred for police patrol services. We believe these
conditions exist because of the CHA’s inadequate financial record keeping and failure to follow
HUD guidelines established for the PHDEP program. As a result, HUD has no assurance that all
program objectives were met as stated in the PHDEP Grant Applications; and, that PHDEP funds
were used in the most efficient and effective manner.

                                    HUD Regulations state that Grantees are responsible for
 CHA’s Responsibilities             managing the day-to-day operations of grant and subgrant
                                    supported activities. Grantees must monitor grant and
                                    subgrant activities to assure compliance with applicable
                                    Federal requirements and that performance goals are being
                                    achieved. Grantee monitoring must cover each program,
                                    function or activity of the grant (24 CFR 761.35).

                                    In addition, grantees must establish an auditable system to
                                    provide adequate accountability for funds that it has been
                                    awarded (24 CFR 761.30 (b)(6)(c)).

                                         Page 27                                   2002-BO-1002
Finding 3

                             The CHA did not charge law enforcement costs (for police
 Record Keeping Inadequate   patrols) in accordance with PHDEP budgets submitted with
                             Grant Applications in program years 1995 through 1999.
                             Our review determined that:

                             Ø Costs charged to the CHA General Ledger accounts for
                               police patrol services did not agree with amounts shown
                               on PHDEP Grant Applications.
                             Ø Police patrol charges were not adequately substantiated
                               with supporting documents such as officer reports.
                             Ø The CHA did not execute a valid agreement with the
                               Concord Police Department until September 23, 1998,
                               some 33 months after services were initiated.

                             The CHA discontinued their use of police patrols as of
                             December 2000.

                             CHA spent $58,160 of the ($96,200) total budgeted for
                             police patrols in PHDEP Program Years 1995 to 1999:

                                PHDEP Program Year     Funds Awarded    Funds Expended
                                      1995                    $25,000           $16,832
                                      1996                    $40,000           $20,312
                                      1997                         $0            $6,637
                                      1998                    $24,000            $7,747
                                      1999                     $7,200            $6,632
                                      Total                   $96,200           $58,160

                             The CHA’s PHDEP Grant Agreement Article I, Part 8
                             requires that,

                               “The Grantee not make or cause to be made any changes
                               to the services without the express written consent by
                               HUD, the granting of which consent shall be in the sole
                               discretion of HUD.”

                             The CHA files do not indicate that the CHA had HUD
                             approval for any changes to the PHDEP Programs. The
                             CHA recorded charges totaling $6,637 for police patrol
                             services in Program Year 1997, even though the 1997
                             PHDEP Grant Application did not provide for any law
                             enforcement/police patrol costs. The 1998 PHDEP Grant
                             Application shows a budget of $24,000 for police patrols;
                             however, only $7,747 of this $24,000 was charged for
                             police patrols.

2002-BO-1002                    Page 28
                                                                                   Finding 3

                               Police officers patrolling the CHA developments were
                               required to routinely file reports of patrols performed. For
                               the period of December 29, 1999 to February 29, 2000, the
                               Concord Police worked a total of 72 shifts, indicating that a
                               total of 72 Officer’s Reports should be documented in the
                               CHA’s files. Of the 72 Officer’s Reports that should have
                               been on file, we found reports for only 45. There were no
                               reports submitted for the remaining 27 shifts.

                               The basis for hourly rates charged by the Police Department
                               was not substantiated and documented in CHA records. Our
                               review of invoices revealed that the hourly rate charged was
                               $30 at the start of the contract and increased to $37 sometime
                               prior to September 2000. CHA management personnel were
                               unable to provide supporting documentation that
                               substantiated the basis for either the $30 per hour rate or the
                               $37 per hour rate. There is no written documentation or
                               information with regard to how the police were to be
                               compensated even in their agreement for services.

                               CHA did not adhere to proper procedures in administration
Contract for Police Services   of their Memorandum of Understanding (MOU) with the
                               Concord Police Department. Specifically, the MOU: (1)
                               was not executed timely; (2) did not address hourly rates;
                               and (3) did not define a baseline for police services.

                               HUD regulations provide that police services can only be
                               funded under PHDEP for services, which exceed those
                               provided under its Cooperation Agreement. An applicant
                               seeking funding for this activity must first establish a
                               baseline by describing the current level of services provided
                               by local law enforcement (in terms of the kinds of services
                               provided, the number of officers and equipment and the
                               actual percent of their time assigned to the developments
                               proposed for funding), and then demonstrate that the funded
                               activity will represent an increase over this baseline (24 CFR
                               761.17 (a)(2)(i).

                               A PHDEP Notice of Funds Availability (NOFA) published
                               in the Federal Register on April 1, 1994 provides:
                               “Expenditures for activities under this section may not be
                               incurred until the grantee and the local law enforcement
                               agency execute a contract for the additional law enforcement
                               services” (Paragraph I (c)(2)(v)).

                                   Page 29                                      2002-BO-1002
Finding 3

                           The CHA did not enter into the MOU with the Concord
                           Police Department until September 23, 1998, although the
                           Police Department had been providing services since June
                           1996. CHA management was unable to explain why a
                           contract was not executed earlier. The MOU stipulated
                           that: (1) the CHA would inform the Concord Police of any
                           alleged criminal activity within its developments; (2) a
                           hotline would be established for CHA residents to report
                           criminal activity to the Police; (3) the Concord Police
                           would report to the CHA all alleged criminal activity
                           occurring on or near Housing Authority property; and (4)
                           the Concord Police Department would name a member of
                           its staff as liaison officer to the CHA.

                           The MOU did not specify either “baseline” or “above
                           baseline” for police services, and CHA management were
                           unable to provide any additional documentation or
                           clarification to support what was considered baseline police
                           services. We are questioning the $58,160 disbursed to the
                           Police Department because the CHA cannot determine if
                           services provided exceeded “baseline.”

                           The CHA has not complied with PHDEP Guidebook
 Activities not Reported   requirements in its preparation of the Semi-Annual
                           Performance Reports submitted January 1999 to December
                           2000. The Semi-Annual Performance Report is designed to
                           measure the progress of PHAs in achieving their program
                           goals, and HUD uses the information contained in these
                           reports to monitor PHDEP grants. A new electronic system
                           for Semi-Annual Reporting became effective July 1, 1999,
                           and the reporting requirement applied to both existing and
                           future grants. This system, which requires a separate report
                           for each open and active grant, contains several major
                           components for reporting information.          Our review
                           disclosed discrepancies and unsupported data with the
                           reporting for three components: crime statistics, PHDEP
                           activities, and resident surveys.

2002-BO-1002                   Page 30
                                                                                Finding 3

                             Some of the data reported in crime statistics could not be
Crime Statistics             supported. For example, we verified actual crime statistics
                             reported for the current and last reporting periods with
                             CHA records, however, CHA records were not available to
                             verify the crime statistics numbers for the baseline period.
                             As already discussed, the baseline for police services had
                             not been defined.

                             The CHA did not report all program activities and
PHDEP Supported              accomplishments as required. For example, the CHA's
Activities                   1998 PHDEP Grant provides $24,000 to be allocated for
                             Reimbursement of Law Enforcement (Police Patrols) and
                             the 1997 PHDEP provides $10,500 to be allocated for the
                             purchase of playground equipment for one of the CHA
                             projects. CHA did not report these as accomplishments in
                             its Performance Reports. The Performance Reports also
                             indicate that the CHA Drug Elimination Coordinator
                             initiated various PHDEP-related activities and programs.
                             However, due to the disorganization and poor record
                             keeping of PHDEP records and files at CHA, supporting
                             documentation could not be located for these activities and
                             programs reported in Performance Reports. In the PHDEP
                             Performance Report for FY 1998, Section 4.1 describes
                             community organizing activities. The CHA performance
                             report showed that 19 participants took part in these
                             activities for a total of 375 hours. We were unable to locate
                             any supporting documentation that either identified the 19
                             participants or described what specific activities were

                             CHA failed to conduct, and report on a Resident Survey in
Result of Resident Surveys   1999, and CHA did not ensure that surveys were conducted
                             by an independent organization. In accordance with the
                             PHDEP Instruction Guidebook for the Semi-Annual
                             Performance Reporting System, annual surveys of residents
                             of PHDEP-targeted developments are to be performed by
                             an organization not associated with the Housing Authority
                             (CHA), and the results of these surveys must be reported in
                             the January Semi-Annual Report. The CHA reported a
                             resident survey taken in January 2000, however, CHA files
                             do not indicate that this survey was conducted by an
                             organization independent of CHA. CHA management was
                             unaware of the requirement that surveys be performed

                                 Page 31                                     2002-BO-1002
Finding 3

Auditee Comments    The CHA has taken action to contact the Concord Police
                    Department and request further information regarding the
                    hourly rates charged and data on the baseline services
                    provided by the police prior to the PHDEP. The CHA has
                    also indicated that they will maintain the required records
                    to comply with HUD regulations including the filing of
                    semi-annual reports.

OIG Evaluation of   The actions taken and planned by CHA should correct the
                    deficiencies noted in the finding. Your staff’s review of
Auditee Comments
                    documentation provided by the CHA concerning: (1)
                    hourly rates for police patrols, and (2) baseline services
                    provided by the police, will determine if the CHA needs to
                    reimburse any funds to HUD.

Recommendations     We recommend that you require the CHA to:

                    3A       Provide supporting documentation to substantiate
                             the basis for the hourly rates paid for police patrol
                             services under the PHDEP.

                    3B.      Provide evidence that the police services received
                             by the CHA exceeded baseline by $58,160.

                    3C.      To reimburse the program for that portion of the
                             $58,160, which does not exceed baseline services
                             and/or not supported.

                    3D.      Establish procedures that will provide for effective
                             monitoring and accurate reporting of the PHDEP in
                             accordance with HUD regulations.

2002-BO-1002              Page 32
                                                                                        Finding 4

              Improvement Needed Over
           Administration of Section 8 Program
The Concord Housing Authority (CHA) needs to improve the administration of its Section 8
program. Specifically, CHA needs to ensure that: (1) annual recertifications are performed in a
timely manner; (2) Housing Quality Standards (HQS) inspections and supervisory quality control
inspections are performed timely; (3) reasonable rent procedures are followed; (4) Section 8
waiting list is maintained and updated accordingly; (5) procedures are established to ensure that
Housing Assistance Payments (HAP) made to landlords are correct; and (6) it increases
utilization of certificates and vouchers. These weaknesses occurred because the CHA’s
management did not fulfill its responsibility to provide adequate administration of the Section 8
program. The lack of effective controls resulted in unnecessary delays in processing tenant
documentation, a lack of assurance that tenants are living in safe and sanitary conditions,
overpayments to landlords totaling $6,108, and under utilization of Section 8 certificates and

                                     Federal Regulations require that Public Housing
 Recertification Required            Authorities (PHAs) must re-examine the income and
                                     composition of all families at least once every 12 months.
                                     At the time of the annual re-examination of family income
                                     and composition, the PHA shall require the family to
                                     submit any certification, release, information or
                                     documentation as the PHA or HUD determines to be
                                     necessary (24 CFR 982.516(a) and (g)).

                                     Our review disclosed that 73 of 195 leased tenants were not
 Recertifications not Timely         recertified on time. The re-examinations for these tenants
                                     were overdue ranging from one to 29 months. The
                                     following table shows a summary of the tenants who were
                                     not recertified timely:

                                       Number of Months Overdue    Number of Notifications Overdue
                                            1 to 6 Months                        28
                                           7 to 12 Months                        30
                                           Over 12 Months                        15

                                     The CHA’s Executive Director stated that he was aware
                                     that many of the Section 8 recertifications were overdue
                                     and he agreed to take corrective action.

                                         Page 33                                     2002-BO-1002
Finding 4

                           Federal regulations require that the PHA must inspect each
 Inspection Requirements   unit leased to a family at least annually, and at other times
                           as needed, to determine if the unit meets HQS. The
                           regulations also stipulate that the PHA conducts
                           supervisory quality control HQS inspections. (24 CFR

                           The CHA is not inspecting all units to ensure they meet
 HQS Inspections not       HQS. As of July 20, 2001, our review of the CHA Section
 Performed                 8 (Tenant) database, disclosed that 91 of 189 leased units
                           were not inspected. For nine of the 91 units, inspections
                           were not performed for over two years. The goal of the
                           Section 8 program is to provide decent, safe, and sanitary
                           housing to lower income families. The HQS standards
                           protect tenants receiving assistance under the program by
                           guaranteeing a minimum level of acceptable housing.
                           Without annual inspections by the CHA, there are no
                           assurances that HUD is paying for decent, safe, and sanitary

                           In addition, CHA has failed to monitor the quality of
                           housing through supervisory quality control inspections.
                           Because the CHA does not monitor inspections, it does not
                           have the information needed to ensure an inspector’s work
                           is in compliance with HUD regulations. A proper
                           monitoring system assures high performance when
                           inspectors are aware that their work is subject to review.

                           The CHA’s Director of Housing is cognizant of the fact that
                           many units are overdue for inspections and plans on taking
                           the necessary corrective action. The Executive Director
                           and Director of Housing indicated that they were not aware
                           of the requirements regarding supervisory quality control
                           inspections. The Director of Housing informed us that, in
                           the future, the CHA will re-inspect units to ensure that
                           inspectors are conducting thorough inspections.

                           Federal Regulations require the PHA to determine that the
 Reasonable Rent           rent to the owner is a reasonable rent in comparison to rent
 Requirements              for other comparable unassisted units. To make this
                           determination, the PHA must consider: (1) the location,
                           quality, size, unit type, and age of the contract unit and (2)
                           any amenities, housing services, maintenance, and utilities
                           to be provided by the owner (24 CFR 982.507(b)).

2002-BO-1002                   Page 34
                                                                                Finding 4

                            The Executive Director and Director of Housing indicated
Rent Procedures Not         that they were not aware of the requirements for
Followed                    determining reasonable rent. As a result, there is no
                            assurance that the rents allowed by the CHA for the owners
                            of Section 8 units are reasonable. The Director of Housing
                            advised that she would take the necessary measures to
                            implement a system to determine reasonable rents.

                            Federal regulations require a Housing Authority to select
Waiting List Requirements   participants from their waiting list in accordance with
                            admission policies in its Administrative Plan (24 CFR
                            982.204). The CHA’s Section 8 Administrative Plan
                            dictates that the Authority will update and purge its waiting
                            list at least annually to ensure that the pool of applicants
                            reasonably represents interested families.

                            The CHA did not comply with its own administrative
Waiting List not Updated    policies and procedures in maintaining and updating its
                            Section 8 waiting list. We selected the first ten applicants
                            from the CHA Section 8 waiting list. Three of the 10
                            applicants were current tenants on the CHA HAP Rent Roll
                            demonstrating that CHA is not updating and maintaining
                            their Section 8 waiting list. The CHA’s Director of
                            Housing has no knowledge of when the CHA last updated
                            its waiting list. The Section 8 waiting list should be
                            updated and purged on annual basis to avoid delays caused
                            when attempts are made to contact individuals who should
                            not be on the list.

                            HUD regulations require financial management systems of
Administration              grantees to provide effective control and accountability for
Requirements                all grant funds, real and personal property, and other assets.
                            (24 CFR Part 85.20 (b)(3)).

                            Office of Management and Budget (OMB) Circular A-87,
                            states that housing authorities are responsible for the
                            efficient and effective administration of federal awards
                            through the application of sound management practices
                            (Attachment A, paragraph A(2)(a)(1)).

                                Page 35                                     2002-BO-1002
Finding 4

                             The CHA was paying two landlords who were no longer
 Section 8 Landlords         active in the Section 8 program. In addition, the CHA was
 Overpaid                    paying two other landlords for the same tenant who was
                             documented in two separate Section 8 programs. Also,
                             there were three landlords who received duplicate
                             payments. As a result, the CHA overpaid landlords a total
                             of $6,545. The Director of Housing agreed that the CHA
                             made overpayments and duplicate payments to landlords
                             totaling $6,545, and indicated that the funds would be
                             recovered. As of July 17, 2001, $437 had been recovered,
                             with $6,108 remaining.

                             The Section 8 Management Assessment Program (SEMAP)
 Utilization Requirements    is a management assessment system that HUD uses to
                             measure the annual performance of Public Housing
                             Authorities (PHAs) that administer the Section 8 tenant-
                             based certificate and voucher programs. One indicator
                             under SEMAP used to measure the performance of PHAs is
                             the “Lease-up” rate. Ratings are based upon the percentage
                             of units leased. PHAs receive a zero rating for occupancy
                             percentages under 95 percent.

                             The CHA’s lease up rate for Section 8 vouchers and
 Certificates not Utilized   certificates was below the required lease-up rate of 95
                             percent for fiscal years 1999 through 2001. As of October
                             1, 1999, CHA records indicate that the utilization rate was
                             86 percent for certificates and 88 percent for vouchers. In
                             fiscal year 2000, the percentages decreased significantly for
                             both certificates and vouchers to 81 percent. The CHA did
                             improve its utilization rates to 91 percent for certificates
                             and 88 percent for vouchers in fiscal year 2001; however,
                             the CHA is still below the required percentage. The CHA’s
                             failure to maintain an acceptable level of utilization has
                             limited affordable housing opportunities for low-income
                             families on the CHA’s waiting list.

                             CHA management has been aware of their low Section 8
 Corrective Action not       utilization for a few years, through its annual self-
 Implemented                 certification process (PHMAP and SEMAP) but has not
                             implemented any corrective action. The Director of
                             Housing for Section 8 stated that one of the most pressing
                             problems involved the low Fair Market Rents.

2002-BO-1002                     Page 36
                                                                    Finding 4

Auditee Comments   1. Recertifications, Unit Inspections and Supervisory

                      The CHA stated that they had conducted all of the
                      overdue recertifications and all are current as of March
                      20, 2002. The CHA also stated that the City of
                      Concord’s Building Department was assisting in
                      conducting the overdue HQS inspections, that 33
                      remain to be completed, and they should be completed
                      by May 31, 2002. The CHA further stated that the
                      CHA’s Director of Maintenance randomly inspected
                      five percent of the occupied units and is now routinely
                      conducting quality control inspections on one of every
                      twenty units.

                   2. Reasonable Rent Requirements

                      The CHA stated that they developed procedures for
                      determining rent reasonableness that included
                      contacting landlords throughout the City of Concord.
                      The CHA gathered data regarding the bedroom size,
                      unit location, amenities and utilities as well as any
                      services provided. The CHA also stated that they had
                      developed new rent reasonableness certification forms
                      that were now being used.

                   3. Waiting List Requirements

                      The CHA stated that the Section 8 waiting list was
                      updated in November 2001 and that an annual update of
                      the waiting list will be conducted every May.

                   4. Overpayments to Section 8 Landlords

                      The CHA advised that they had collected $5,666 of the
                      $6,108 in overpayments to landlords and that a small
                      claims court action was being initiated to collect the
                      balance of $442.

                   5. Utilization of Section 8 Vouchers

                      The CHA stated that they concurred with the
                      recommendation and that a corrective action plan to

                       Page 37                                   2002-BO-1002
Finding 4

                          achieve a 95 percent utilization rate will be developed
                          no later than June 15, 2002 along with a request to
                          increase the Fair Market Rents. The CHA also stated
                          that they would submit status reports as required by

OIG Evaluation of   The CHA concurred with all of our recommendations and
Auditee Comments    had initiated adequate corrective actions to close two of the
                    recommendations in our draft report concerning rent
                    reasonableness procedures and updating of the Section 8
                    waiting list. We also revised two other recommendations.
                    The CHA had conducted the overdue annual
                    recertifications and the required supervisory control
                    inspections. We therefore deleted these items from our
                    draft recommendations. As of March 20, 2002, the CHA
                    also collected $5,666 out of the $6,108 of overpayments to
                    landlords. We therefore reduced the amount to be
                    recovered to $442.          The CHA should provide
                    documentation in support of the $5,666 to HUD.

Recommendations     We recommend that you require the CHA to:

                    4A.      Provide assurance that HQS inspections are
                             performed timely.

                    4B.      Provide documentation to your staff in support of
                             the $5666 collected, and to recover the remaining
                             overpayments of $442.

                    4C.      Develop and submit a corrective action plan, for
                             your review and approval, to achieve at least 95
                             percent utilization rate for certificates and vouchers.

                    4D.      Submit status reports to your staff on progress on
                             increasing the utilization rate until 95 percent is

2002-BO-1002              Page 38
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
used by the Concord Housing Authority (CHA) that were relevant to our audit objectives. We
reviewed the CHA’s management control systems to determine our auditing procedures and not to
provide assurance on management controls.

Management controls consist of a plan of organization and methods and procedures adopted by
management to ensure that resource use is consistent with laws, regulations, and policies; that
resources are safeguarded against waste, loss, and misuse; and that reliable data is obtained,
maintained, and fairly disclosed in reports.

                                    We determined that the following management control
Relevant Management                 areas were relevant to our audit objective:
                                    Ø   General Administration and Accounting
                                    Ø   Safeguards over assets and records
                                    Ø   Tenants Accounts Receivable
                                    Ø   Section 8
                                    Ø   Cash Receipts and Disbursements
                                    Ø   Procurement and Contracting
                                    Ø   Public Housing Drug Elimination Program

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

                                    Our review identified significant weaknesses in all of the
 Significant Weaknesses             management control areas we assessed. Specific control
                                    weaknesses applicable to HUD programs are as shown in
                                    Finding 1, (Procurement), Finding 3, (PHDEP), and
                                    Finding 4, (Section 8). Control weaknesses applicable to
                                    administrative and financial functions were summarized
                                    and presented in Finding 2.

                                        Page 39                                   2002-BO-1002
Management Controls

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                                                                                     Appendix A

Schedule of Ineligible and Unsupported Costs

                                                         Ineligible           Unsupported
Findings                                                 Costs 1/              Costs 2/

   3.      Baseline services not identified                                      $58,160

   4.      Duplicate landlord payments                     $6,108

    1/        Ineligible costs are those costs that are questioned because of an alleged violation
              of a provision of law, regulation, contract, grant, cooperative agreement, or other
              agreement or document governing the expenditure of funds.

    2/        Unsupported Costs are those costs whose eligibility cannot be clearly determined
              because they were not supported by adequate documentation.

                                         Page 41                                     2002-BO-1002
Appendix A

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                             Appendix B

Auditee Comments

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          Appendix B

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          Appendix B

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          Appendix B

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          Appendix B

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Appendix B


2002-BO-1002               Page 60
                                                                               Appendix C

Inspector General, G
Deputy Assistant Inspector General for Audit, GA
Assistant Inspector General for Audit, GA
Assistant Inspector General for Investigation, GI
Director, Program Research and Planning Division, GAP
Director, Information Systems Audit Division, GAA
Counsel to the Inspector General, GC
Central Records, GF
Semi-Annual Report Coordinator, GF
Assistant Inspector General, Office of Management & Policy, GF
Director of Internal Affairs, GF
Secretary, S
Deputy Secretary, S
Chief of Staff, S
Deputy Chief of Staff for Policy & Programs, S
Deputy Chief of Staff for Intergovernmental Affairs, S
Senior Advisor to Deputy Secretary, S
Assistant to the Secretary for White House Liaison, F
Press Secretary/Senior Communications Advisor to the Secretary, W
Chief Executive Officer for Administrative Operations and Management, S
Assistant Deputy Secretary for Field Policy and Management, SFD
Chief Information Officer, Q
Chief Financial Officer, F
General Counsel, C
Special Counsel, C
President, Ginnie Mae, T
Assistant Secretary for Congressional and Intergovernmental Relations, J.
Assistant Secretary for Housing/Federal Housing Commissioner, H
Assistant Secretary for Community Planning and Development, 1AHMLAP
Assistant Secretary for Public and Indian Housing, P
Deputy Director, Center for Faith-Based and Community Initiatives, AK
Director, Office of Departmental Equal Employment Opportunity, U
Director, Office of Departmental Operations and Coordination, I
Director, Office of Federal Housing Enterprise Oversight, L
Director, Office of Healthy Homes and Lead Hazard Control, L
General Deputy Assistant Secretary for Policy Development and Research, H
General Deputy Assistant Secretary for Fair Housing and Equal Opportunity, E
General Deputy Assistant Secretary for Administration, AA
Special Agent-In-Charge, 1AGI
Primary Field Audit Liaison Officer, 3AFI
Departmental Audit Liaison Officer, FMA
Acquisitions Librarian, Library, AS
District Inspector General (2-11)

                                        Page 61                                2002-BO-1002
Appendix C

Regional Directors
Stanely Czerwinski, Director, Housing and Telecommunications Issues, United States General
Accounting Office, 441 G Street, NW, Room 2T23, Washington, DC 20548

Steve Redburn, Chief, Housing Brach, Office of Management & Budget, 725 17th Street, NW,
Room 9226, New Executive Office Building, Washington, DC 20503

The Honorable Fred Thompson, Ranking Member, Committee on Governmental Affairs, 340
Dirksen Senate Office Building, United States Senate, Washington, DC 20510

The Honorable Joseph Lieberman, Chairman, Committee on Governmental Affairs, 706 Hart
Senate Office Bldg., United States Senate, Washington, DC 20510

The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn Bldg.,
House of Representatives, Washington, DC 20515

The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform, 2204
Rayburn Bldg., House of representatives, Washington, DC 20515

Andy Cochran, House Committee on Financial Services, 2129 Rayburn H.O.B., Washington, DC

Clinton C. Jones, Senior Counsel, Committee on Financial Services, U.S. House of
Representatives, B303 Rayburn H.O.B., Washington, DC 20515

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