AUDIT REPORT CONCORD HOUSING AUTHORITY CONCORD, NEW HAMPSHIRE 2002-BO-1002 MARCH 29, 2002 OFFICE OF AUDIT, NEW ENGLAND BOSTON, MASSACHUSETTS Issue Date March 29, 2002 Audit Case Number 2002-BO-1002 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 directives. We determined that the CHA needs to: Audit Results Ø Follow proper procurement procedures in accordance with HUD regulations and its own policies and procedures. 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 PHDEP. 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 Program. 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 cover. Page v 2002-BO-1002 Executive Summary THIS PAGE LEFT BLANK INTENTIONALLY 2002-BO-1002 Page vi Table of Contents Management Memorandum i Executive Summary iii Introduction 1 Findings 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 Appendices A Schedule of Ineligible and Unsupported Costs 41 B Auditee Comments 43 C Distribution 61 Page vii 2002-BO-1002 Table of Contents Abbreviations 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 Introduction 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 economically; 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 meetings. 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 Introduction 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 records. 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 reviewed. 2002-BO-1002 Page 2 Introduction 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 Introduction THIS PAGE LEFT BLANK INTENTIONALLY 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 proposals.” 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 (d)(3)(i). 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 (d)(3)(iii). 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 $155,381. 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 estimation. 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 THIS PAGE LEFT BLANK INTENTIONALLY 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 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 85.20(b)(3)). 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 actions. 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 purchase. 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 monthly. 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 statements. 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 condition. 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 condition. 5. Fixed Assets not Properly Recorded CHA’s reported corrective action is adequate for this condition. 6. Bank Accounts not Reconciled Timely CHA’s reported corrective action is adequate for this condition. 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 reconciled. 2B. Submit job descriptions for your staff’s review and approval. 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 performed. 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 independently. 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 vouchers. 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 982.405) 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 housing. 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 Inspections 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 HUD. 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 achieved. 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: Controls 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 THIS PAGE LEFT BLANK INTENTIONALLY 2002-BO-1002 Page 40 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 THIS PAGE LEFT BLANK INTENTIONALLY 2002-BO-1002 Page 42 Appendix B Auditee Comments Page 43 2002-BO-1002 Appendix B 2002-BO-1002 Page 44 Appendix B Page 45 2002-BO-1002 Appendix B 2002-BO-1002 Page 46 Appendix B Page 47 2002-BO-1002 Appendix B 2002-BO-1002 Page 48 Appendix B Page 49 2002-BO-1002 Appendix B 2002-BO-1002 Page 50 Appendix B Page 51 2002-BO-1002 Appendix B 2002-BO-1002 Page 52 Appendix B Page 53 2002-BO-1002 Appendix B 2002-BO-1002 Page 54 Appendix B Page 55 2002-BO-1002 Appendix B 2002-BO-1002 Page 56 Appendix B Page 57 2002-BO-1002 Appendix B 2002-BO-1002 Page 58 Appendix B Page 59 2002-BO-1002 Appendix B THIS PAGE LEFT BLANK INTENTIONALLY 2002-BO-1002 Page 60 Appendix C Distribution 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 Auditee 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 20515 Clinton C. Jones, Senior Counsel, Committee on Financial Services, U.S. House of Representatives, B303 Rayburn H.O.B., Washington, DC 20515 2002-BO-1002 Page 62 Filename: ig211002.PDF Directory: D: Template: C:\WINNT\Profiles\caroliv\Application Data\Microsoft\Templates\Normal.dot Title: The following audit report content requirements are presented herein to better illustrate the required audit report format Subject: Author: HUDware IIa Test User Keywords: Comments: Creation Date: 3/29/02 1:22 PM Change Number: 3 Last Saved On: 3/29/02 1:44 PM Last Saved By: Vincenta Carolina Total Editing Time: 16 Minutes Last Printed On: 3/29/02 1:45 PM As of Last Complete Printing Number of Pages: 72 Number of Words: 11,203 (approx.) Number of Characters: 63,860 (approx.)
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)