oversight

Housing Authority of the City of Evansville Hotline Complaint Evansville, Indiana

Published by the Department of Housing and Urban Development, Office of Inspector General on 2002-01-29.

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

                                               U.S. Department of Housing and Urban Development
                                               Office of Inspector General for Audit, Midwest
                                               77 West Jackson Boulevard, Room 2646
                                               Chicago, Illinois 60604-3507

                                               Phone (312) 353-7832 Fax (312) 353-8866
                                               Internet http//www.hud.gov/oig/oigindex.html




                                                                               AUDIT MEMORANDUM
                                                                                       2002-CH-1801

January 29, 2002

MEMORANDUM FOR: Thomas S. Marshall, Director of Public Housing Hub, Cleveland
                   Area Office



FROM: Heath Wolfe, District Inspector General for Audit, Midwest

SUBJECT: Housing Authority Of The City Of Evansville
          Hotline Complaint
          Evansville, Indiana

We completed a review of the Housing Authority of the City of Evansville. The review resulted from an
anonymous complaint to our Hotline. The objectives of our audit were to determine whether the
complainant’s allegations were substantiated and whether HUD’s rules and regulations were followed.

The complainant’s specific allegations were: (1) the Housing Authority’s former Chief Executive Officer
committed racial and sexual discrimination, and harassment against the Authority’s residents and
employees, and minority owned businesses; (2) the Authority’s Board of Commissioners and its former
Chief Executive Officer conducted a smear campaign against members of the Evansville community with
the intent to slander and diminish the financial opportunities available to the members; (3) the Authority’s
Interim Director of Section 8 and Staff Attorney violated community members’ and Authority
employees’ civil rights; (4) the Authority and its corporations failed to follow applicable procurement
requirements in the award of contracts for the demolition of Lincoln Gardens, development of Lincoln
Estates, and the cleaning of the Authority’s housing units; and (5) the Authority improperly established
corporations. The complainant also alleged that the Authority misused funds by allowing the: (1)
abandonment of the renovation to the Authority’s former offices, and the purchase and renovation of
property located at 500 Court Street for the Authority’s new offices; (2) Authority’s former Chief
Executive Officer to live in the penthouse apartment located at 500 Court Street and to utilize the
Authority’s basement for his own personal use; (3) demolition of Lincoln Gardens when financing for the
construction of Lincoln Estates was not determined; (4) sale of the property where Lincoln Gardens

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                                                                           Management Memorandum


was located to one of the Authority’s corporations; (5) residence located at 620 Washington Avenue,
which was planned to provide housing for people with AID’s, not to be established after the property
was purchased and allowed stained glass windows to be removed from the property at the request of
the Authority’s former Chief Executive Officer and a Commissioner; (6) the Authority’s playground
equipment to be moved to a school where one of the Authority’s Commissioners was principal, rather
than to a church who requested the equipment; (7) threat of eminent domain to purchase property for a
community shopping center; and (8) the Authority’s former Chief Executive Officer and Interim Director
of Section 8 to receive pay raises that were excessive.

The Housing Authority was established under the laws of the State of Indiana. A seven member Board
of Commissioners governs the Housing Authority. The former Chairman of the Board is Jack Buttrum.
His term expired on December 31, 2001. The Authority’s Board has not elected a new Chairman as of
January 23, 2002. The Board’s Vice Chairman is Lu Porter. During our audit, the Authority’s former
Chief Executive Officer John W. Collier resigned effective February 2, 2001. The Authority’s current
Executive Director is Paul L. Fletcher. The Authority’s books and records are located at 500 Court
Street, Evansville, Indiana.

As of October 17, 2001, the Housing Authority operated seven HUD programs: (1) a Public Housing
Program consisting of 1,049 units; (2) a Section 8 Program consisting of 1,612 units; (3) a
Comprehensive Grant Program; (4) a Public Housing Drug Elimination Grant Program; (5) an Economic
Development and Supportive Services Grant Program; (6) a Resident Opportunities for Self Sufficiency
Grant Program; and (7) a Homebuyers Program. The Authority also operated six non-HUD programs:
(1) a Subsidized Housing Program; (2) a Development Fund Program; (3) a Youth Sport Grant
Program; (4) a Substance Abuse Council Grant Program; (5) an Arts Grant Program; and (6) the
Washington Court Program.

To accomplish our audit objectives, we interviewed: HUD’s staff; State of Indiana and City of
Evansville officials; the Authority’s current and former Commissioners, current and former employees,
and contractors; and members of the Evansville community. We analyzed the Authority’s: audited
financial statements for the periods ending December 31, 1998 and December 31, 1999; meeting
minutes of its Board of Commissioners; By-Laws; Articles of Incorporation; Certificates of Limited
Partnership; Agreements of Limited Partnership; cancelled checks; purchase orders; vendor and
contractor files; Accounts Payable Invoice History Listings; Accounts Payable Listings; bank
statements; journal entries; Section 8 Program tenant files; Annual Statement/Performance and
Evaluation Report on Replacement Reserve and Five-Year Action Plan for the Comprehensive Grant
Program; the HOPE I Program files; personnel files; Fiscal Year 2000 cost allocation plan; and policies
and procedures.

We also reviewed: HUD’s files for the Authority; Parts 24, 85, 963, and 968 of Title 24 of the Code of
Federal Regulations; Office of Management and Budget Circular A-87; the Consolidated Annual
Contributions Contract between HUD and the Authority; the Section 8 Annual Contributions Contract
for the Rental Certificate and Rental Voucher Programs between HUD and the Authority; the
November 1990 Public Housing Agency Commissioners Program Integrity Bulletin; HUD Handbook

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1378.0; HOPE I Implementation Grant Agreement between HUD and the Authority; and Title 36 of the
Indiana Code. We judgmentally selected 11 of the Housing Authority’s employees whose salaries were
charged to the Authority’s various programs to determine the time they spent related to the programs.

We did not address three of the complainant’s allegations since they related to issues that are not in the
scope of our authority. The three allegations were: the Housing Authority’s former Chief Executive
Officer committed racial and sexual discrimination, and harassment against the Authority’s residents and
employees, and minority owned businesses; the Authority’s Board of Commissioners and its former
Chief Executive Officer conducted a smear campaign against members of the Evansville community with
the intent to slander and diminish the financial opportunities available to the members; and the
Authority’s Interim Director of Section 8 and Staff Attorney violated community members’ and
Authority employees’ civil rights.

We found that the Housing Authority’s former and current management staff, and its Board of
Commissioners did not sufficiently exercise their responsibilities to effectively manage the Authority.
Specifically, the Housing Authority’s management staff and/or its Commissioners: (1) misused $911,283
in funds (HOPE I sales proceeds and Comprehensive Grant Program) to purchase and renovate its
administration building; (2) improperly awarded three consulting contracts worth over $70,000 and
$10,368 in fringe benefits to its former Chief Executive Officer; (3) awarded five cleaning contracts that
totaled $199,605 without full and open competition and/or when conflicts of interest existed; (4)
inappropriately acquired, developed, and disposed of property for the Emporia Project; (5) did not
exercise sound management practices over steel purchased for construction work; and (6) did not
establish an acceptable cost allocation plan to support the allocation of costs among the Authority’s
programs. As a result, HUD lacks assurance that the Housing Authority’s resources were used to the
maximum extent to benefit low and moderate income tenants.

We presented our draft findings to the Housing Authority’s current Executive Director and HUD’s staff
during the audit. We held an exit conference with the Authority’s Executive Director and former
Chairman of the Board on November 2, 2001. The Authority provided written comments to our
findings. The Authority agreed with all of the draft findings. The complete text of the Housing
Authority’s comments is in Appendix B with the exception of eight attachments/exhibits that were not
necessary for understanding the Authority’s comments. A complete copy of the Authority’s responses
with the attachments/exhibits was provided to HUD’s Director of the Cleveland Area Office of Public
Housing Hub. A copy of this memorandum was provided to the Authority’s Executive Director and
Vice Chairman of the Board.

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

Should you or your staff have any questions, please have them contact me at (312) 353-7832.


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                                                                                       Finding 1


   The Housing Authority Was Not Operated
     According To Program Requirements
The Housing Authority of the City of Evansville’s former and current management staff, and its
Board of Commissioners did not sufficiently exercise their responsibilities to effectively manage
the Housing Authority. Specifically, the Housing Authority’s management staff and/or its
Commissioners: (1) misused $911,283 in funds (HOPE I sales proceeds and Comprehensive
Grant Program) to purchase and renovate its administration building; (2) improperly awarded
consulting contracts and fringe benefits to its former Chief Executive Officer; (3) awarded five
cleaning contracts without full and open competition and/or when conflicts of interest existed;
(4) inappropriately acquired, developed, and disposed of property for the Emporia Project; (5)
did not exercise sound management practices over steel purchased for construction work; and
(6) did not establish an acceptable cost allocation plan to support the allocation of costs among
the Authority’s programs. The Housing Authority’s former and current management staff, and
its Board of Commissioners were not aware of Federal requirements, State of Indiana law, and
the Housing Authority’s policies to ensure the Authority was operated according to program
requirements. As a result, HUD lacks assurance that the Housing Authority’s resources were
used to the maximum extent to benefit low and moderate income tenants.


                                        24 CFR Part 24.110 permits HUD to take
 HUD’s Regulations                      administrative sanctions against employees and board
                                        members of recipients under HUD assistance
                                        agreements that violate HUD’s requirements. The
                                        sanctions include debarment, suspension, or limited
                                        denial of participation and are authorized by 24 CFR
                                        Parts 24.300, 24.400, or 24.700, respectively. HUD
                                        may impose administrative sanctions based upon the
                                        following conditions:

                                            •   Failure to honor contractual obligations or to
                                                proceed in accordance with contract
                                                specifications or HUD regulations (limited
                                                denial of participation);
                                            •   Violation of any law, regulation, or procedure
                                                relating to the application for financial
                                                assistance, insurance or guarantee, or to the
                                                performance of obligations incurred pursuant to
                                                a grant of financial assistance or pursuant to a
                                                conditional or final commitment to insure or
                                                guarantee (limited denial of participation);

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                                                                               Finding 1


                                  •   Violation of the terms of a public agreement or
                                      transaction so serious as to affect the integrity of
                                      an agency program such as a history of failure
                                      to perform or unsatisfactory performance of
                                      one or more public agreements or transactions
                                      (debarment);
                                  •   Any other cause so serious or compelling in
                                      nature that it affects the present responsibility of
                                      a person (debarment); or
                                  •   Material violation of a statutory or regulatory
                                      provision or program requirements applicable
                                      to a public agreement or transaction including
                                      applications for grants, financial assistance,
                                      insurance or guarantees, or to the performance
                                      of requirements under a grant, assistance
                                      award, or conditional or final commitment to
                                      insure or guarantee (debarment).

                               Public Housing Authority Commissioners have a
 Responsibilities Of Board     responsibility to HUD to ensure national housing
 Of Commissioners And          policies are carried out, and to the Authority’s
 Management Staff              management staff and employees to provide sound and
                               manageable directives.       The Commissioners are
                               accountable to their locality and best serve it by
                               monitoring operations to be certain that housing
                               programs are carried out in an efficient and economical
                               manner.

                               The responsibility for carrying out the Commissioners'
                               policies and managing the Housing Authority's day-to-
                               day operations rests with the Authority’s principal
                               management staff. In particular, the management staff
                               must maintain the Housing Authority's overall
                               compliance with its policies and procedures and
                               Federal, State, and local laws.

                               The Housing Authority’s former Chief Executive Officer
 Funds Were Misspent To        and former Director of Operations did not follow the
 Purchase And Renovate         HOPE I Implementation Grant Agreement, HUD’s
 The Administration Building   regulations, and the Consolidated Annual Contributions
                               Contract regarding the use of funds for the Authority’s
                               administration building.     The Housing Authority
                               improperly used HOPE I sales proceeds to purchase

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                                                                             Finding 1


                               the building located at 500 Court Street for its
                               administration offices. The Authority also misused
                               Comprehensive Grant Program funds to renovate the
                               building after it was purchased (See Finding 2).

                               The Housing Authority’s Board of Commissioners
 The Authority’s Former        failed to ensure that HUD’s regulations, Office of
 Chief Executive Officer       Management and Budget Circular A-87, the
 Inappropriately Received      Consolidated Annual Contributions Contract, the
 Consulting Contracts And      Section 8 Annual Contributions Contract, State of
 Fringe Benefits               Indiana law, and/or the Authority’s policies were
                               followed regarding contracts with and payments to its
                               former Chief Executive Officer. Specifically, the
                               Housing      Authority    and     Washington     Court
                               Redevelopment Corporation, a non-profit organization
                               established by the Authority to provide housing to low
                               and moderate income individuals, improperly awarded
                               consulting contracts to the Authority’s former Chief
                               Executive Officer. The Housing Authority also paid its
                               former Chief Executive Officer $10,368 for monetized
                               vacation time, sick leave, and personal leave. The
                               payment of the monetized time and leave was not
                               reasonable and necessary to the Housing Authority’s
                               operations (See Finding 3).

                               The Housing Authority’s former Chief Executive
 The Authority’s Contracting   Officer, current Director of Asset Management, and a
 Process Needs To Be           current Commissioner did not ensure that the Authority
 Improved                      followed HUD’s regulations, the Consolidated Annual
                               Contributions Contract, State of Indiana law, and the
                               Authority’s Procurement Policy regarding the award of
                               cleaning services for its housing units and offices. The
                               Housing Authority awarded two contracts for cleaning
                               services when conflicts of interest existed. The Housing
                               Authority also did not competitively award three
                               cleaning contracts to a resident-owned business (See
                               Finding 4).

                               The Housing Authority’s former Chief Executive Officer
 The Authority’s Actions       and the current Interim Director of Section 8 did not
 Regarding The Emporia         follow HUD’s regulations, the Consolidated Annual
 Project Were Improper         Contributions Contract, and/or HUD Handbook
                               1378.0 regarding the acquisition, development, and

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                                                                                Finding 1


                               disposition of property for the Emporia Project.
                               Specifically, the Housing Authority: improperly used
                               HUD funds to acquire, develop, and dispose of
                               property; misused its eminent domain authority related
                               to the purchase of property; and failed to publicly solicit
                               bids when it disposed of the property. The Housing
                               Authority also failed to obtain HUD’s approval to
                               acquire and sell the property (See Finding 5).

                               The Housing Authority’s former Chief Executive Officer
 Sound Management              and its current Director of Special Programs did not
 Practices Were Not            follow HUD’s regulation, Office of Management and
 Exercised By The Authority    Budget Circular A-87, and the Consolidated Annual
 Over Its Construction Steel   Contributions Contract regarding steel purchased for
                               construction work. Specifically, the Housing Authority
                               used $17,278 in Comprehensive Grant Program funds
                               to purchase the steel for construction work on its
                               former administration offices located at 411 South East
                               8th Street. The Housing Authority stopped the work
                               because it purchased a building located at 500 Court
                               Street for its offices. As of July 2001, the Housing
                               Authority had not made a decision regarding the unused
                               steel. In addition, $1,730 in steel decking rusted and
                               was discarded because it was not fit for use (See
                               Finding 6).

                               The Housing Authority’s former Chief Executive Officer
 A Cost Allocation Plan Was    and its current Director of Finance did not follow
 Not Established To            HUD’s regulation and Office of Management and
 Sufficiently Allocate Costs   Budget Circular A-87 regarding the establishment of an
 To The Authority’s Various    acceptable cost allocation plan to support the allocation
 Programs                      of costs among the Authority’s programs. Specifically,
                               the Housing Authority did not charge employees’
                               salaries and fringe benefits to all of the Authority’s
                               programs that received their services. The Authority
                               also failed to allocate non-salary costs to its various
                               programs (See Finding 7).

                               The Housing Authority’s former and current
 The Authority’s Staff And     management staff, and its Board of Commissioners
 Board Were Not Aware Of       lacked procedures and controls over its programs to
 Program Requirements          ensure that they were operated according to Federal
                               requirements, State of Indiana law, and the Authority’s

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                                                                      Finding 1


                     policies. The management staff included the Housing
                     Authority’s: former Chief Executive Officer who
                     consults to various public housing authorities; the former
                     Director of Operations who is now Deputy Executive
                     Director of the Rochester Housing Authority in
                     Rochester, New York; the current Director of Asset
                     Management; the current Interim Director of Section 8;
                     the current Director of Special Programs; and the
                     current Director of Finance. In these capacities, the
                     current and former management staff controls a
                     substantial portion of or can influence the use of HUD
                     funds. As a result of the actions or inactions by the
                     Housing Authority’s former and current management
                     staff and its Board of Commissioners, HUD lacks
                     assurance that the Housing Authority’s resources were
                     used to the maximum extent to benefit low and
                     moderate income tenants.


  Auditee Comments   [Excerpts paraphrased from the Housing Authority’s
                     comments on our draft finding follow. Appendix B,
                     pages 48 and 49, contains the complete text of the
                     comments.]

                     The Housing Authority agrees that its former and
                     current management staff did not sufficiently exercise
                     their responsibilities to effectively manage the Authority.
                     The Housing Authority also agrees that tis Board of
                     Commissioners did not effectively monitor the
                     operations of the Authority’s staff. Therefore, the
                     Housing Authority will obtain training for: its current
                     management staff regarding Federal requirements, State
                     of Indiana law, and the Authority’s policies so that its
                     programs are operated correctly; and its Board of
                     Commissioners regarding their roles and responsibilities
                     in monitoring the Authority’s operations.

                     The Housing Authority supports the OIG’s
                     recommendation that HUD consider taking appropriate
                     administrative action against the Authority’s former
                     Chief Executive Officer and former Director of
                     Operations.



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                                                                      Finding 1



  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should improve its management staff and
                      Board of Commissioners’ administration of the
                      Authority’s programs.


  Recommendations     We recommend that the Director of the Cleveland Area
                      Office of Public Housing Hub assure that the Housing
                      Authority of the City of Evansville:

                      1A.      Obtains training for its current management staff
                               regarding Federal requirements, State of
                               Indiana law, and the Authority’s policies so that
                               its programs are operated correctly.

                      1B.      Obtains training for its Board of Commissioners
                               regarding their roles and responsibilities in
                               monitoring the Authority’s operations. If the
                               Commissioners fail to improve their monitoring
                               efforts, HUD should consider taking
                               administrative sanctions against the applicable
                               Commissioners as permitted by 24 CFR Part
                               24.

                      We also recommend that the Director of the Cleveland
                      Area Office of Public Housing Hub:

                      1C.      Take appropriate administrative action against
                               the Housing Authority’s former Chief Executive
                               Officer and former Director of Operations as
                               permitted by 24 CFR Part 24.

                      .




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                                                                                        Finding 2


  The Authority Misspent Funds To Purchase
  And Renovate Its Administration Building
The Housing Authority of the City of Evansville did not follow Federal requirements regarding
the use of funds for its administration building. Specifically, the Housing Authority improperly
used $750,000 in HOPE I sales proceeds to purchase the building located at 500 Court Street
for its administration offices. The Authority also misused $161,283 in Comprehensive Grant
Program funds to renovate the building after it was purchased. According to the Housing
Authority’s former Chief Executive Officer and the former Director of Operations, they were
not aware that the Authority was prohibited from using HOPE I sales proceeds and
Comprehensive Grant Program funds to purchase or renovate the building. As a result, funds
were not used in an efficient and effective manner.


                                       The HOPE I Implementation Grant Agreement,
 Federal Requirements                  between HUD and the Housing Authority of the City of
                                       Evansville, required the Housing Authority to use sales
                                       proceeds from the initial sale of units to eligible families
                                       for the cost of a homeownership program. The costs
                                       include operating expenses, improvements to the
                                       project, business opportunities for low-income families,
                                       supportive services related to the homeownership
                                       program, additional homeownership opportunities, and
                                       other activities approved by HUD, either as part of the
                                       approved application or as subsequently approved by
                                       HUD.

                                       24 CFR Part 968.125 requires that after HUD
                                       approves a public housing authority’s modernization
                                       program and enters into an Annual Contributions
                                       Contract amendment with the authority, the authority
                                       will under take the modernization activities and
                                       expenditures set forth in its Comprehensive Grant
                                       Program Annual Statement/Five-Year Action Plan.

                                       24 CFR Part 968.105 defines a modernization project
                                       as the improvement of one or more existing public
                                       housing developments under a unique number
                                       designated for that modernization program. For each
                                       modernization project, HUD and the public housing
                                       authority will enter into an Annual Contributions

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                                                                       Finding 2


                          Contract amendment requiring low-income use of the
                          housing for not less than 20 years from the date of the
                          amendment.

                          Section 9(C)(1) of the Annual Contributions Contract,
                          between HUD and the Housing Authority of the City of
                          Evansville, says the Authority may withdraw funds from
                          the General Fund only for the payment of the costs of
                          development and operation of the projects under
                          Contract with HUD.

                          Contrary to the HOPE I Grant Agreement, the Housing
 The Authority Misspent   Authority used sales proceeds to purchase its
 $750,000 In HOPE I       administration building located 500 Court Street.
 Proceeds
                          In October 1994, HUD awarded a $348,381 HOPE I
                          Grant to the Housing Authority. The Grant was
                          awarded to provide affordable homeownership to
                          residents of the Authority. To increase resident
                          homeownership, the Authority sold 15 Public Housing
                          units between January 1995 and December 1995.

                          The Housing Authority received $819,049 in HOPE I
                          sales proceeds from the sale of the 15 units. The
                          $819,049 consisted of $721,830 in mortgage proceeds
                          and $97,219 in HOPE I funds to reimburse the
                          Authority for closing costs. In January 1997, the
                          Authority used $750,000 of the HOPE I sales
                          proceeds to purchase its administration building.
                          However, the HOPE I Grant Agreement limited the
                          Housing Authority’s use of the sales proceeds to
                          funding the Authority’s homeownership initiatives.

                          The Housing Authority’s former Chief Executive Officer
                          and the former Director of Operations said they were
                          not aware that the Authority was prohibited from using
                          HOPE I sales proceeds to purchase the administration
                          building. The former Director of Operations said HUD
                          was aware that the Authority used the sales proceeds to
                          fund the purchase. However, the former Director did
                          not notify HUD of the purchase until December 1997,
                          11 months after the purchase was completed. The
                          Housing Authority’s notification to HUD’s Indianapolis

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                                                                           Finding 2


                            Public Housing Program Center occurred after the
                            Center requested information from the Authority
                            regarding the use of the HOPE I sales proceeds to
                            purchase the building.

                            HUD’s Indianapolis Public Housing Program Center
                            conducted a review of the Housing Authority in May
                            1999. The purpose of the review was to determine
                            whether the Housing Authority’s use of the HOPE I
                            sales proceeds was proper and to follow-up on a
                            citizen complaint against the Authority.      HUD’s
                            Coordinator of the Indianapolis Public Housing
                            Program Center said his Office concluded that the
                            Housing Authority improperly used the sales proceeds
                            to purchase the building. However, he said his Office
                            did not issue the results of the 1999 review because
                            OIG planned to conduct an audit of the Housing
                            Authority.

                            The Coordinator of HUD’s Indianapolis Public Housing
                            Program Center said his Office did not approve the
                            purchase of the building. He also said his Office would
                            not have approved the use of the HOPE I sales
                            proceeds to purchase the building if the Authority had
                            requested HUD’s approval. HUD closed out the
                            Authority’s HOPE I Grant in April 1997. As a result,
                            HOPE I sales proceeds were not used in an efficient
                            and effective manner. The Authority also has fewer
                            funds to promote resident homeownership.

                            Contrary to HUD’s regulation and the Annual
 The Authority Improperly   Contributions Contract, the Housing Authority used
 Used Comprehensive Grant   Comprehensive Grant Program funds to renovate its
 Funds To Renovate Its      administration building after the building was purchased.
 Administration Building
                            As previously mentioned, the Housing Authority
                            purchased a building located at 500 Court Street to
                            house its administration offices. The purchase was
                            completed in January 1997. Since the building was
                            previously a funeral home, the Authority decided to
                            renovate the building.



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                                                                     Finding 2


                     The Housing Authority’s renovation work to the
                     administration building was not included in its Five-Year
                     Comprehensive Grant Action Plan dated June 20,
                     1996. The Housing Authority’s Action Plan included
                     such items as new computer software and renovation
                     work of bathrooms and kitchens at the Authority’s
                     Buckner Towers. All of the items in the Action Plan
                     were completed.

                     The renovation work of the Housing Authority’s
                     administration building occurred between February
                     1997 and June 1997. The Authority’s maintenance
                     staff and contractors performed the work. The
                     Authority used $161,283 in Comprehensive Grant
                     Program funds to pay for the work. However, the
                     Housing Authority was not permitted to use Grant funds
                     to pay for the work since the building was not under the
                     Annual Contributions Contract with HUD.

                     HUD’s regulation and the Annual Contributions
                     Contract require the Housing Authority to use
                     Comprehensive Grant Program funds to pay for
                     expenses of projects covered by the Contract. The
                     Authority’s former Director of Operations said he was
                     not aware that the Authority was prohibited from using
                     Grant funds to renovate the administration building. As
                     a result, the Authority did not use its Grant funds in an
                     efficient and effective manner.


  Auditee Comments   [Excerpts paraphrased from the Housing Authority’s
                     comments on our draft finding follow. Appendix B,
                     pages 51 and 52, contains the complete text of the
                     comments.]

                     The Housing Authority agrees that its former Chief
                     Executive Officer and former Director of Operations
                     misspent funds to purchase and renovate its
                     administration building.       Therefore, the Housing
                     Authority will: reimburse HUD from non-Federal funds
                     for the improper use of the HOPE I sales proceeds to
                     purchase its administration building or the Authority will
                     implement a HUD approved plan that will outline the

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                                                                     Finding 2


                      use of the non-Federal funds to promote resident
                      homeownership; reimburse its Comprehensive Grant
                      Program from non-Federal funds for the improper use
                      of Grant funds to renovate the administration building;
                      and (3) implement procedures and controls to ensure
                      the Authority follows Federal requirements when
                      purchasing and renovating property.

                      Additionally, the Housing Authority is seeking to fully
                      utilize its administration offices. Should the Housing
                      Authority discover that its more cost effective to
                      relocate to another facility, the Authority will follow
                      appropriate procedures and request HUD’s approval
                      prior to any relocation. The Housing Authority will also:
                      follow appropriate procedures and promptly request
                      HUD’s approval prior to any sale or lease of its
                      administration building; institute a procedure whereby
                      future property purchases and/or major renovations will
                      be presented to and reviewed by a three person
                      committee comprised of the Authority’s Board; and
                      submit proposed purchases to HUD for final review
                      and/or approval.


  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should improve its procedures and
                      controls to ensure the Authority follows Federal
                      requirements when purchasing and renovating property.


   Recommendations    We recommend that the Director of the Cleveland Area
                      Office of Public Housing Hub assure that the Housing
                      Authority of the City of Evansville:

                      2A.     Reimburses HUD $750,000 from non-Federal
                              funds for the improper use of HOPE I sales
                              proceeds to purchase its administration building
                              or implements a plan acceptable to HUD that
                              outlines the use of the $750,000 in non-Federal
                              funds to promote resident homeownership.

                      2B.     Reimburses its Comprehensive Grant Program
                              $161,283 from non-Federal funds for the

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                                                Finding 2


             improper use of Grant funds to renovate the
             Authority’s administration building.

       2C.   Implements procedures and controls to ensure
             the Authority follows Federal requirements
             when purchasing and renovating property.




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                                                                                      Finding 3


     The Former Chief Executive Officer
   Improperly Received Consulting Contracts
             And Fringe Benefits
Contrary to Federal requirements, State of Indiana law, and/or the Housing Authority of the
City of Evansville’s requirements, the Housing Authority’s former Chief Executive Officer
received consulting contracts and fringe benefits. Specifically, the Housing Authority and
Washington Court Redevelopment Corporation awarded professional services contracts to the
Authority’s former Chief Executive Officer when a conflict of interest existed. Washington
Court Redevelopment Corporation is a non-profit entity established by the Housing Authority
and receives Section 8 rental assistance for low-income housing under contracts with the
Authority. The Housing Authority also used $10,368 in HUD funds (Public Housing and
Section 8 Administrative Fees) for unnecessary and unreasonable fringe benefits. The problems
occurred because the Housing Authority lacked procedures and controls to ensure that contract
awards and/or fringe benefits expenses met Federal requirements, State law, and/or the
Authority’s requirements. As a result, HUD funds were not efficiently and effectively used.
HUD and the Housing Authority also lack assurance that contract awards were subject to full
and open competition.


                                      24 CFR Part 85.36(b)(3) states no employee or officer
 Federal Requirements                 of a grantee will participate in the selection, or in the
                                      award or administration of a contract supported by
                                      Federal funds if a conflict of interest, real or apparent,
                                      would be involved. Such a conflict would arise when
                                      the employee or officer has a financial or other interest
                                      in the firm selected for award. Grantee’s officers or
                                      employees are prohibited from accepting anything of
                                      monetary value from its contractors.

                                      24 CFR Part 85.36(b)(9) requires grantees and
                                      subgrantees to maintain records sufficient to detail the
                                      significant history of a procurement, such as the
                                      rationale for the method of procurement and the basis
                                      for the contract price. Part 85.36(c)(1) requires that all
                                      procurement transactions be conducted in a manner
                                      providing full and open competition.

                                      24 CFR Part 85.36(d)(4) states procurement by
                                      noncompetitive proposals may be used only when the

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                                                                         Finding 3


                        award of a contract is not feasible under small purchase
                        procedures, sealed bids, or competitive proposals. In
                        addition, noncompetitive proposals may only be used
                        after solicitation of a number of sources and competition
                        is determined to be insufficient.

                        Section 19 of Part A of the Consolidated Annual
                        Contributions Contract, between HUD and the Housing
                        Authority of the City of Evansville, states the Housing
                        Authority may not enter into any contract in connection
                        with a project under this Contract in which any
                        employee or officer has an interest, direct or indirect,
                        during his or her tenure or for one year thereafter.

                        Section 2.13 of the Section 8 Annual Contributions
                        Contract, between HUD and the Housing Authority of
                        the City of Evansville, states that neither the Housing
                        Authority nor any of its contractors may enter into any
                        contract or arrangement in connection with the Program
                        in which an employee of the Authority, who formulates
                        policy or who influences decisions with respect to the
                        Program, has an interest, direct or indirect, during his or
                        her tenure or for one year thereafter.

                        24 CFR Part 85.22(b) requires that State, local, and
                        Indian tribal governments follow Office of Management
                        and Budget Circular A-87, Cost Principles for State,
                        Local, and Indian Tribal Governments. 24 CFR Part
                        85.3 defines a local government to include any public
                        housing agency.

                        Office of Management and Budget Circular A-87,
                        Attachment A, paragraph C(1)(a), requires that all
                        costs be necessary and reasonable for proper and
                        efficient performance and administration of Federal
                        awards.

                        Section 36-7-18-11 of the Indiana Code states an
 State Of Indiana Law   employee of a housing authority may not have any
                        direct or indirect interest in a contract for services to be
                        furnished or used in connection with any housing
                        project.


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                                                                            Finding 3


                            Section 1.4(C) of the Housing Authority’s October 21,
 Authority’s Requirements   1999 Procurement Policy requires that procurements
                            other than small purchases (less than $25,000) will be
                            publicly solicited, an adequate time period will be
                            provided for the preparation and submission of bids or
                            proposals, and notice of contract awards will be made
                            to the public. Section 1.4(D) requires that the Housing
                            Authority’s solicitations be made in accordance with 24
                            CFR Part 85.36 and State of Indiana law. Section 1.7
                            requires the Authority to seek full and open competition
                            in all of its procurement transactions.

                            Section 2.4(A) of the Housing Authority’s October
                            1999 Procurement Policy requires procurements to be
                            conducted competitively to the maximum extent
                            possible. Procurements by noncompetitive proposals
                            may be used only when the award of a contract is not
                            feasible using small purchase procedures, sealed bids,
                            or competitive proposals, and one of the following
                            applies:

                                •   The item is available only from a single source,
                                    based on a good faith review of available
                                    sources;
                                •   An emergency exists that seriously threatens the
                                    public health, welfare, or safety; endangers
                                    property; or would otherwise cause serious
                                    injury to the Housing Authority;
                                •   HUD authorizes the use of noncompetitive
                                    proposals; or
                                •   After solicitation of a number of sources,
                                    competition is determined to be inadequate.

                            Section 2.4(B) of the Authority’s October 1999
                            Procurement Policy states procurements based on
                            noncompetitive proposals will be supported by a
                            written justification.       Section 2.4(C) states the
                            reasonableness of the price for all procurements based
                            on noncompetitive proposals will be determined by
                            performing a cost analysis. Section 6.2 requires the
                            Authority’s officers and employees to avoid any conflict
                            of interest in the selection or award of any contract, and
                            avoid any financial or other conflict of interest.

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                                                                                  Finding 3


                                 Section 18 of Part A of the Housing Assistance
                                 Payments Contracts for Section 8 Tenant-Based
                                 Assistance through HUD’s Rental Voucher Program,
                                 between the Housing Authority of the City of Evansville
                                 and Washington Court Redevelopment Corporation,
                                 prohibits any employee of the Housing Authority who
                                 formulates policy or who influences decisions with
                                 respect to the program from having any direct of
                                 indirect interest in the contract or in any benefits or
                                 payments under the contract, during the employee’s
                                 tenure or for one year thereafter.

                                 The Housing Authority’s 1997 Personnel Manual
                                 provides the necessary guidance to the Authority’s
                                 officials, supervisors, and employees so that everyone
                                 clearly understands what is expected of them. Page
                                 2.17 of the Manual states that sick leave accrued in
                                 excess of 120 days will not be paid. Any sick leave
                                 that is unused at the date of termination of employment
                                 will not be paid. Page 2.18 of the Manual states that an
                                 employee who resigns or is discharged prior to
                                 receiving his earned vacation time will receive pay in lieu
                                 of his vacation. Vacation time may be accumulated
                                 from year to year, but the accumulated vacation time
                                 may not exceed 30 days (240 hours).

                                 Contrary to Federal requirements, State of Indiana law,
 Conflicts Of Interest Existed   and the Housing Authority’s requirements, the
 In Contracts Awarded To         Authority’s former Chief Executive Officer was
 The Former Chief Executive      awarded consulting contracts. The Housing Authority
 Officer                         and/or Washington Court Redevelopment Corporation
                                 awarded professional services contracts to the
                                 Authority’s former Chief Executive Officer between
                                 October 17, 2000 and February 5, 2001. Washington
                                 Court Redevelopment Corporation is a non-profit entity
                                 established by the Housing Authority and receives
                                 Section 8 rental assistance for low-income housing
                                 under contracts with the Authority. A conflict of
                                 interest existed with the former Chief Executive Officer
                                 at the time of the awards since he was an employee or a
                                 former employee of the Housing Authority.



Exit                              Page 19                                      2002-CH-1801
                                                        Finding 3


       The Housing Authority executed an October 17, 2000
       contract with the former Chief Executive Officer to
       retain him as a consultant effective January 1, 2001 or
       at the actual hire date of a new Chief Executive Officer
       for the Authority. The contract states that the former
       Chief Executive Officer will be available on a call as
       needed basis for consultation and advice for such
       matters as a planned 24 unit senior complex and various
       entrepreneurial activities currently underway at the
       Authority. Per the contract, the former Chief Executive
       Officer was to receive $30,000 for services provided
       through December 31, 2001. The contract did not
       indicate a specific number of hours to be worked by the
       former Chief Executive Officer. As of October 12,
       2001, the Authority had not paid the former Chief
       Executive Officer for consulting services.

       The Housing Authority’s former Chief Executive Officer
       resigned from the Authority effective February 2, 2001.
       The Authority executed another consulting services
       contract with the former Chief Executive Officer
       effective February 5, 2001 to serve as the Interim Chief
       Executive Officer until a new Chief Executive Officer
       was obtained. The contract states that the former Chief
       Executive Officer will be responsible for the overall
       operations of the Authority. The contract also specifies
       that the former Chief Executive Officer will receive
       $1,500 to work a minimum of 20 hours per week. As
       of October 12, 2001, the Housing Authority had paid
       the former Chief Executive Officer $4,500 ($3,375
       from Public Housing and $1,125 from Section 8
       Administrative Fees) for consulting services under the
       February 2001 contract.

       Washington Court Redevelopment Corporation
       executed a December 18, 2000 contract with the
       former Chief Executive Officer to retain him as a
       consultant effective February 1, 2001. The contract
       states that the former Chief Executive Officer’s duties
       will include: establishing the Corporation’s offices; hiring
       and firing of staff; overseeing the Corporation’s general
       business; and providing other consulting services. Per
       the contract, the former Chief Executive Officer was to

Exit    Page 20                                      2002-CH-1801
                                                                             Finding 3


                             receive $40,000 per year, all expenses, and a
                             management incentive of two percent of any new grants
                             or financing received by the Corporation. The contract
                             did not indicate a specific number of hours to be
                             worked by the former Chief Executive Officer. As of
                             October 12, 2001, the Corporation had paid the
                             former Chief Executive Officer $18,620 for consulting
                             services and expenses.

                             The Housing Authority and Washington Court
                             Redevelopment Corporation did not: competitively
                             award the consulting contracts; prepare a cost analysis
                             of the services; maintain records sufficient to detail the
                             significant history of the procurement; or maintain
                             documentation to support the justification of the
                             noncompetitive awards. The Housing Authority and the
                             Corporation initiated action in September 2001 to
                             terminate the contracts and recapture any funds paid to
                             the former Chief Executive Officer after we questioned
                             the appropriateness of the contracts. As of October
                             31, 2001, the former Chief Executive Officer had not
                             repaid the Housing Authority or the Corporation for the
                             consulting fees received.

                             The Housing Authority paid $10,368 in HUD funds
 HUD Funds Were              (Public Housing and Section 8 Administrative Fees) to
 Inappropriately Used To     the former Chief Executive Officer for 596 hours of
 Benefit The Former Chief    excessive vacation, sick, and personal leave time. The
 Executive Officer           payment of the monetized leave time was not
                             reasonable and necessary low-income housing expense,
                             and was not available to be used for other low-income
                             housing purposes as required by HUD’s regulation and
                             Office of Management and Budget Circular A-87. The
                             payment was also not permitted by the Authority’s
                             Personnel Manual.

                             The Housing Authority lacked procedures and controls
 The Authority’s Board Was   to ensure that contract awards and/or fringe benefits
 Not Aware Of                expenses met Federal requirements, State of Indiana
 Requirements                law, and/or the Authority’s requirements. The Housing
                             Authority’s Chairman of the Board said the Board was
                             not aware of the Federal, State, and the Authority’s
                             conflict of interest requirements. The Authority’s

Exit                          Page 21                                     2002-CH-1801
                                                                     Finding 3


                     Chairman also said he was not aware that the
                     Authority’s Personnel Manual prohibited the payment
                     of unused sick time and limited the payment of vacation
                     time to employees. As a result, HUD funds were not
                     efficiently and effectively used. HUD and the Housing
                     Authority also lack assurance that contract awards
                     were subject to full and open competition.



  Auditee Comments   [Excerpts paraphrased from the Housing Authority’s
                     comments on our draft finding follow. Appendix B,
                     pages 53 to 55, contains the complete text of the
                     comments.]

                     The Housing Authority agrees that contrary to Federal
                     requirements, State of Indiana law, and/or its
                     requirements, the Authority’s former Chief Executive
                     Officer received consulting contracts and fringe benefits.
                     Therefore, the Housing Authority will: take any and all
                     appropriate action to recapture the consulting fees that
                     were improperly paid to the former Chief Executive
                     Officer or the Authority will reimburse the improper
                     fees from non-Federal funds to the appropriate
                     programs; and implement procedures and controls to
                     ensure the Authority and its contractors follow Federal
                     requirements, State law, and/or the Authority’s
                     requirements when awarding contracts and paying
                     fringe benefits.

                     The Housing Authority made significant attempts to
                     recover and/or recapture the consulting fees that were
                     improperly paid to the former Chief Executive Officer.
                     The Authority was unsuccessful in its written demands
                     for repayment of the fees. Consequently, the Authority
                     and Washington Court Redevelopment Corporation
                     filed a lawsuit against the former Chief Executive
                     Officer. We requested the Vanderburgh Circuit Court
                     declare as void and unenforceable the consulting
                     contracts and order the former Chief Executive Officer
                     to repay any monies received under the contracts.
                     Subject to resolution of the lawsuit, any and all
                     appropriate repayments of the consulting fees will be
                     made at that time.

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                                                                   Finding 3


                      The Housing Authority reimbursed from non-Federal
                      funds the $10,368 in unnecessary and unreasonable
                      fringe benefits paid to the former Chief Executive
                      Officer on November 8, 2001. The Authority will
                      continue to work diligently to further implement
                      procedures and controls to ensure the Housing
                      Authority and its contractors follow Federal
                      requirements, State of Indiana law, and/or the
                      Authority’s requirements when awarding contracts and
                      paying fringe benefits.



  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should help ensure that the Housing
                      Authority and its contractors follow Federal
                      requirements, State of Indiana law, and/or the
                      Authority’s requirements when awarding contracts and
                      paying fringe benefits. Based upon the documentation
                      provided by the Housing Authority, we removed the
                      recommendation for the Authority to reimburse from
                      non-Federal funds for the unnecessary and
                      unreasonable fringe benefits paid to the former Chief
                      Executive Officer.


   Recommendations    We recommend that the Director of the Cleveland Area
                      Office of Public Housing Hub assure that the Housing
                      Authority of the City of Evansville:

                      3A.    Takes any and all appropriate action to
                             recapture the $23,120 ($4,500 from the
                             Housing Authority and $18,620 from
                             Washington         Court        Redevelopment
                             Corporation) for consulting services and/or
                             expenses that were improperly paid to the
                             former Chief Executive Officer. If the Housing
                             Authority is unable to recapture the money, the
                             Authority should reimburse the improper fees
                             from non-Federal funds to the appropriate
                             programs.

                      3B.    Implements procedures and controls to ensure
                             the Housing Authority and its contractors follow

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                                                Finding 3


            Federal requirements, State of Indiana law,
            and/or the Authority’s requirements when
            awarding contracts and paying fringe benefits.




Exit   Page 24                                2002-CH-1801
                                                                                       Finding 4


The Housing Authority Needs To Improve Its
           Contracting Process
The Housing Authority of the City of Evansville did not follow Federal requirements, State of
Indiana law, and/or the Authority’s Procurement Policy regarding the award of contracts for
cleaning services to its housing units and offices. In February 1997 and January 1998, the
Housing Authority awarded two contracts that totaled $45,154 in cleaning services when
conflicts of interest existed. The Housing Authority also did not competitively award three
cleaning contracts between January 1998 and May 1999 for $154,451 in services to a
resident-owned business. The Housing Authority lacked procedures and controls over its
contracting process. As a result, HUD funds were not efficiently and effectively used.


                                      24 CFR Part 85.36(b)(3) states no employee, officer,
 Federal Requirements                 or agent of a grantee will participate in the selection, or
                                      in the award or administration of a contract supported
                                      by Federal funds if a conflict of interest, real or
                                      apparent, would be involved. Such a conflict would
                                      arise when: the employee, officer, or agent, any member
                                      of his immediate family, his partner, or an organization
                                      which he is employed by, or is about to employ, has a
                                      financial or other interest in the firm selected for award.
                                      Grantee’s officers, employees, or agents are prohibited
                                      from accepting anything of monetary value from its
                                      contractors.

                                      24 CFR Part 85.36(b)(9) requires grantees and
                                      subgrantees to maintain records sufficient to detail the
                                      significant history of a procurement, such as the
                                      rationale for the method of procurement and the basis
                                      for the contract price. Part 85.36(c)(1) requires that all
                                      procurement transactions be conducted in a manner
                                      providing full and open competition.

                                      24 CFR Part 85.36(d)(2) requires that when the sealed
                                      bid method is used, a firm-fixed-price contract is
                                      awarded to the responsible bidder whose bid,
                                      conforming with all the material terms and conditions of
                                      the invitation for bids, is the lowest price. Part
                                      85.36(d)(4) states procurement by noncompetitive
                                      proposals may be used only when the award of a

Exit                                    Page 25                                     2002-CH-1801
                                                                            Finding 4


                           contract is not feasible under small purchase
                           procedures, sealed bids, or competitive proposals. In
                           addition, noncompetitive proposals may only be used
                           after solicitation of a number of sources and competition
                           is determined to be insufficient.

                           24 CFR Part 963.12(a) requires public housing
                           authorities to follow 24 CFR Part 85.36(b) and (d)
                           when awarding contracts to resident-owned businesses.
                           Authorities are permitted to limit solicitation to resident-
                           owned businesses. 24 CFR Part 963.12(b) states an
                           award will not be made to a resident-owned business if
                           the contract price exceeds the independent cost
                           estimate required by 24 CFR 85.36(f), and the price
                           normally paid for comparable services.

                           Section 19 of Part A of the Consolidated Annual
                           Contributions Contract, between HUD and the Housing
                           Authority of the City of Evansville, states the Housing
                           Authority may not enter into any contract in connection
                           with a project under this Contract in which any of the
                           following classes of people has an interest, direct or
                           indirect, during his or her tenure or for one year
                           thereafter: any present or former member or officer of
                           the governing body of the Authority, or any member of
                           the officer’s immediately family; and any public official
                           or member of the local governing body who exercises
                           functions or responsibilities with respect to the
                           project(s) or the Authority.

                           Section 36-7-18-11 of the Indiana Code states a
 State Of Indiana Law      commissioner of a housing authority may not have any
                           direct or indirect interest in a contract for services to be
                           furnished or used in connection with any housing
                           project.

                           Page 1 of the Housing Authority’s November 10, 1994
 Authority’s Procurement   Procurement Policy states that any procurement greater
 Policy                    than $2,500 requires advertisement for a minimum of
                           four times in at least two newspapers for two
                           consecutive weeks. Page 4 of the Housing Authority’s
                           1994 Policy requires that noncompetitive proposals
                           may only be used when: a contract award is not feasible

Exit                        Page 26                                      2002-CH-1801
                                                                          Finding 4


                            using small purchase procedures, sealed bids, or
                            competitive proposals; and insufficient competition is
                            found after the Authority has solicited from a number of
                            sources.     The Policy also states noncompetitive
                            proposals must be justified with written documentation.
                            Page 6 of the Housing Authority’s 1994 Policy requires
                            the Authority’s officers and employees to avoid any
                            conflict of interest in the selection or award of any
                            contract, and avoid any financial or other conflict of
                            interest.

                            Contrary to Federal requirements, State of Indiana law,
 The Authority Improperly   and the Housing Authority’s Procurement Policy, the
 Awarded Cleaning           Authority awarded two contracts to Clean-All for
 Contracts To A Company     $45,154 in cleaning services to its housing units. The
 Owned By A City            two contracts were awarded in February 1997 and
 Councilwoman               January 1998, and were paid from the Housing
                            Authority’s Public Housing Operating Program. Clean-
                            All was a subsidiary of HMR Corporation, which is
                            owned by a Councilwoman of the City of Evansville.
                            The City Councilwoman exercises functions related to
                            the Housing Authority, thus creating a conflict of
                            interest. Federal requirements, State law, and the
                            Housing Authority’s Policy prohibit the Authority to
                            award contracts when a conflict of interest exists.

                            The Councilwoman’s functions include being a member
                            of the Board of Directors of RESPECT, Inc. since
                            1995. RESPECT, Inc. is a non-profit entity established
                            by the Housing Authority to provide its residents with
                            such services as training and educational opportunities
                            to improve their quality of life. In addition, the
                            Councilwoman voted to approve the City of
                            Evansville’s Ordinances F-96-7 and F-97-12 in June
                            1996 and September 1997, respectively.             The
                            Ordinances provided the Housing Authority with over
                            $100,000 in HOME funds from the City.

                            The Housing Authority also improperly split the
                            February 1997 contract award between Clean-All and
                            M&W Cleaning Services. The Housing Authority
                            solicited bids until January 29, 1997 for cleaning
                            services to the Authority’s housing units. The bid

Exit                         Page 27                                   2002-CH-1801
                                                    Finding 4


       solicitation did not provide for the splitting of the
       contract award. Clean-All, M&W, and Partners-N-
       Grime submitted bids to the Authority. On January 29,
       1997, the Housing Authority held a meeting to open the
       three bids.

       The bid meeting was attended by: the Housing
       Authority’s Director of Asset Management and a
       Commissioner; the City Councilwoman; and
       representatives of M&W and Partners-N-Grime.
       M&W was the lowest responsible bidder; however, the
       Housing Authority’s Director of Asset Management
       said the Authority’s former Chief Executive Officer
       instructed him to split the contract award between
       Clean-All and M&W. He also said the former Chief
       Executive Officer told him that M&W lacked the
       capacity to perform the cleaning services. The Housing
       Authority’s Director of Asset Management and the
       owner of M&W Cleaning Services said that M&W had
       the capacity to perform the services. The Housing
       Authority’s files lacked documentation to support that
       M&W’s capacity was insufficient. Since the Housing
       Authority split the 1997 cleaning contract between
       Clean-All and M&W, the Authority incurred $2,970 in
       additional cleaning expenses.

       The Housing Authority improperly awarded the two
       cleaning contracts to Clean-All because a conflict of
       interest also existed with one of the Authority’s
       Commissioners.      The Commissioner’s two sons
       worked on the two contracts for Clean-All. In
       addition, the Commissioner was paid by the City
       Councilwoman to work on her 1999 reelection
       campaign.

       As previously mentioned, the Housing Authority’s
       Commissioner attended the January 1997 bid meeting.
       The Commissioner said she attended the meeting after
       receiving complaints that minority contractors were not
       awarded contracts from the Housing Authority. She
       said she did not provide the complaint to the Housing
       Authority’s former Chief Executive Officer or any
       members of the Authority’s Board. The Commissioner

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                                                                           Finding 4


                            said she had not attended a bid opening prior to or
                            subsequent to the January 1997 meeting.

                            Contrary to HUD’s regulations and the Housing
 The Authority Did Not      Authority’s Procurement Policy, the Authority awarded
 Competitively Award        contracts to Sutton Commercial Maintenance Services.
 Contracts To A Resident-   The Housing Authority did not competitively award the
 Owned Business             contracts to Sutton nor did the Authority’s files include
                            documentation to support that a noncompetitive award
                            was justified. Therefore, the Housing Authority’s
                            award of the contracts was not subject to full and open
                            competition.

                            The Housing Authority awarded three contracts to
                            Sutton Commercial Maintenance Services for
                            $154,451 in cleaning services to the Authority’s housing
                            units and/or offices. The three contracts were awarded
                            between January 1998 and May 1999, and were paid
                            from the Housing Authority’s Public Housing Operating
                            Program. Sutton Commercial Maintenance Services is
                            owned by a resident of the Housing Authority.

                            For the January 1, 1998 contract, the Housing
                            Authority improperly split the contract award between
                            Sutton Commercial Maintenance Services and Clean-
                            All. The Housing Authority solicited bids for cleaning
                            services to the Authority’s housing units. The bid
                            solicitation did not provide for the splitting of the
                            contract award. The Housing Authority received five
                            bids. A bid opening was held on December 8, 1997,
                            and Clean-All was the lowest bidder. However, the
                            Housing Authority’s former Chief Executive Officer
                            awarded part of the cleaning services to Sutton at the
                            same price quoted by Clean-All.

                            The Housing Authority also awarded Sutton
                            Commercial Cleaning Services a second contract in
                            January 1998. The contract included cleaning services
                            to the Housing Authority’s offices, and was effective
                            January 12, 1998. The Housing Authority did not
                            advertise a bid solicitation nor did it attempt to obtain
                            price quotations from contractors. Therefore, the


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                                                                              Finding 4


                             contract was not awarded through full and open
                             competition.

                             To determine whether the costs of the cleaning services
                             paid to Sutton Commercial was reasonable, we
                             attempted to get price quotations from two cleaning
                             vendors in the City of Evansville. Only one vendor
                             provided us a price quote. The costs charged by
                             Sutton appear within an acceptable range when
                             compared to the one vendor’s quote.

                             The Housing Authority awarded Sutton Commercial
                             Cleaning Services a third contract in May 1999. The
                             third contract was for cleaning services to the Housing
                             Authority’s housing units. The Housing Authority
                             advertised a bid solicitation and received three bids.
                             On January 28, 1999, the Housing Authority held a
                             meeting to open the three bids. Dilbeck’s Carpet and
                             Janitorial Cleaning Services was the lowest responsible
                             bidder. However, the Housing Authority’s former
                             Chief Executive Officer said he decided to award the
                             contract to Sutton at a higher rate than Dilbeck’s bid to
                             support resident-owned businesses. As a result, the
                             Housing Authority paid Sutton $1,547 for excessive
                             cleaning services.

                             The Housing Authority’s former Chief Executive Officer
                             said Sutton Commercial Cleaning Services was the only
                             resident-owned cleaning business.          However, the
                             Authority lacked documentation to this claim. The
                             Housing Authority also lacked an organized and
                             concerted effort to determine whether other resident-
                             owned businesses existed to perform the cleaning
                             services. An organized and concerted effort would
                             include such actions as advertising, distributing fliers, or
                             holding meetings concerning the cleaning services.

                             The Housing Authority lacked procedures and controls
 The Authority’s Staff Was   over its contracting process to ensure that they met
 Not Aware Of Federal        Federal requirements, State of Indiana law, and the
 Requirements                Authority’s Procurement Policy.        The Housing
                             Authority’s Director of Asset Management, the former
                             Chief Executive Officer, and the Commissioner involved

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                                                                    Finding 4


                      with the Clean-All contracts said they were not aware
                      of the Federal, State, and the Authority’s conflict of
                      interest requirements. The Authority’s former Chief
                      Executive Officer also said he was not aware of HUD’s
                      and the Authority’s requirements regarding the award of
                      contracts to resident-owned businesses. As a result,
                      HUD funds were not efficiently and effectively used.


  Auditee Comments    [Excerpts paraphrased from the Housing Authority’s
                      comments on our draft finding follow. Appendix B,
                      pages 56 and 57, contains the complete text of the
                      comments.]

                      The Housing Authority agrees that it did not follow
                      Federal requirements, State of Indiana law, and/or the
                      Authority’s Procurement Policy regarding the award of
                      contracts for cleaning services to its housing units and
                      offices.     Therefore, the Housing Authority will
                      implement procedures and controls to ensure that it
                      follows Federal requirements, State law, and the
                      Authority’s Procurement Policy when awarding
                      contracts. The Authority reimbursed its Public Housing
                      Program $4,517 ($2,970 plus $1,547) from non-
                      Federal funds for the additional cleaning costs incurred
                      by awarding the contracts to Clean-All and Sutton
                      Commercial Maintenance Services.

                      The Housing Authority will continue to utilize the
                      services of its Special Programs Department for all
                      contracting subject to review by the Authority’s legal
                      counsel and approval by the Executive Director. The
                      Authority anticipates creating a Capital Improvement
                      and Procurement Department for Fiscal Year 2003.
                      The Department will serve as a safeguard whereby all
                      future contracting would be brought to this Department
                      to be bid out in accordance with regulatory
                      requirements.


  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should help ensure that the Housing
                      Authority follows Federal requirements, State of

Exit                   Page 31                                   2002-CH-1801
                                                               Finding 4


                    Indiana law, and the Authority’s Procurement Policy
                    when awarding contracts.         Based upon the
                    documentation provided by the Housing Authority, we
                    removed the recommendation for the Authority to
                    reimburse $4,517 from non-Federal funds for the
                    excessive cleaning costs incurred by awarding the
                    contracts to Clean-All and Sutton Commercial
                    Maintenance Services.


   Recommendation   We recommend that the Director of the Cleveland Area
                    Office of Public Housing Hub assure that the Housing
                    Authority of the City of Evansville:

                    4A.    Implements procedures and controls to ensure
                           the Housing Authority follows Federal
                           requirements, State of Indiana law, and the
                           Authority’s Procurement Policy when awarding
                           contracts.




Exit                 Page 32                                2002-CH-1801
                                                                                      Finding 5


       The Authority’s Actions Regarding The
          Emporia Project Were Improper
The Housing Authority of the City of Evansville did not follow Federal requirements regarding
the acquisition, development, and disposition of property for the Emporia Project. Specifically,
the Housing Authority: (1) improperly used $4,203 in HUD funds (Public Housing Operating
Program and Comprehensive Grant Program) to acquire, develop, and dispose of 17 parcels of
property; (2) misused its eminent domain authority related to the purchase of five parcels of
property; and (3) failed to publicly solicit bids when it disposed of the property. The Housing
Authority also failed to obtain HUD’s approval to acquire and sell the property. The Authority
lacked procedures and controls to ensure HUD funds were properly used and the acquisition,
development, and disposition of property met Federal requirements. As a result, HUD funds
were not used in an efficient and effective manner. HUD also lacks assurance that the Housing
Authority’s property transactions were carried out in a fair and equitable manner.


                                       24 CFR Part 970.9(a) requires a public housing
 Federal Requirements                  authority to obtain HUD’s approval when disposing of
                                       real property and the disposition should be done by
                                       public solicitation of bids for not less than fair market
                                       value, unless HUD authorizes the negotiated sale for
                                       reasons found to be in the best interest of the authority
                                       or the Federal government.

                                       24 CFR Part 968.125 requires that after HUD
                                       approves a public housing authority’s modernization
                                       program and enters into an Annual Contributions
                                       Contract amendment with the authority, the authority
                                       will undertake the modernization activities and
                                       expenditures set forth in its Comprehensive Grant
                                       Program Annual Statement/Five-Year Action Plan.

                                       24 CFR Part 968.105 defines a modernization project
                                       as the improvement of one or more existing public
                                       housing developments under a unique number
                                       designated for that modernization program. For each
                                       modernization project, HUD and the public housing
                                       authority will enter into an Annual Contributions
                                       Contract amendment requiring low-income use of the
                                       housing for not less than 20 years from the date of the
                                       amendment.

Exit                                     Page 33                                   2002-CH-1801
                                                                            Finding 5


                            Section 9(C)(1) of the Annual Contributions Contract
                            between HUD and the Housing Authority of the City of
                            Evansville says the Authority may withdraw funds from
                            the General Fund only for the payment of the costs of
                            development and operation of the projects under
                            Contract with HUD. Section 1 of the Contract
                            prohibits the Housing Authority from acquiring real
                            property without HUD’s approval.

                            HUD Handbook 1378.0, Tenant Assistance,
                            Relocation, and Real Property Acquisition, page 5-5,
                            prohibits housing authorities from advancing the time of
                            condemnation, deferring negotiations or condemnation,
                            or taking coercive action in order to induce an
                            agreement on the price to be paid for the property.
                            Page 5-6 of the Handbook states if a housing authority
                            intends to acquire any interest in real property by
                            exercise of the power of eminent domain, it will institute
                            formal condemnation proceedings.

                            Contrary to HUD’s regulations and the Annual
 The Authority Improperly   Contributions Contract, the Housing Authority used
 Used HUD Funds To          HUD funds to purchase, develop, and dispose of
 Purchase, Develop, And     parcels of property for the Emporia Project. The
 Sell Property For The      Housing Authority did not obtain HUD’s approval to
 Emporia Project            purchase or sell the property for the Project. The
                            Authority also failed to publicly solicit bids when it
                            disposed of the property.

                            The Housing Authority purchased 14 parcels of
                            property between May 1997 and June 1998. Three
                            additional parcels of property were donated to the
                            Housing Authority in January 1995. The three donated
                            parcels were adjacent to the 14 parcels. The Housing
                            Authority did not request HUD’s approval to purchase
                            the 14 parcels of property.

                            The 17 parcels of property (14 purchased and three
                            donated) are located near Lincoln Estates, a former
                            public housing site previously known as Lincoln
                            Gardens. Lincoln Estates currently receives Section 8
                            rental assistance from the Housing Authority. Emporia
                            Incorporated, the purchaser of the property from the

Exit                         Page 34                                     2002-CH-1801
                                                       Finding 5


       Housing Authority, built a grocery store and a discount
       store to serve the residents of Lincoln Estates and the
       surrounding community.

       The Housing Authority used $247,776 ($238,785 in
       Section 8 Administrative Fees, $5,900 in Public
       Housing Operating Program, and $3,091 in
       Comprehensive Grant Program) to acquire, develop,
       and/or dispose of the 17 parcels of property for the
       Emporia Project. The development cost of the
       property included such items as the demolition of
       buildings, removal of underground gas tanks, and the
       rezoning of the property to commercial use. In
       February 1999, the Authority reimbursed its Public
       Housing      Operating      Program   $2,663     and
       Comprehensive Grant Program $2,125 with monies
       from its Section 8 Administrative Fees for non-salary
       costs associated with the Project.

       The acquisition, development, and/or disposition cost
       included time spent by three of the Housing Authority’s
       employees who were paid with HUD funds to work on
       the Project. The three employees were the Housing
       Authority’s former Chief Executive Officer, current
       Interim Section 8 Director, and its Staff Attorney. The
       Authority used $4,203 in HUD funds ($3,237 in Public
       Housing Operating Program and $966 in
       Comprehensive Grant Program) to pay the three
       employees’ salaries and fringe benefits while they
       worked on the Project. As of August 2001, the
       Housing Authority had not reimbursed its Public
       Housing Operating Program and the Comprehensive
       Grant Program for the employees’ time spent on the
       Project.

       The Housing Authority sold the 17 parcels of property
       to Emporia Incorporated in June 1999. The Housing
       Authority did not request HUD’s approval to sell the 17
       parcels of property nor did the Authority publicly solicit
       bids when it disposed of the property.

       While the Housing Authority was permitted to use
       Section 8 Administrative Fee monies on the Emporia

Exit    Page 35                                     2002-CH-1801
                                                                           Finding 5


                             Project, the Authority was not permitted to use Public
                             Housing Operating or Comprehensive Grant Program
                             funds to pay for the acquisition, development, and/or
                             disposition of the property since the property was not
                             under the Annual Contributions Contract with HUD.
                             HUD’s requirements also required the Housing
                             Authority to publicly solicit bids when it disposes of
                             property, and to obtain HUD’s approval to acquire and
                             sell property.

                             Contrary to HUD Handbook 1378.0, the Housing
 The Authority Misused Its   Authority threatened to use its eminent domain authority
 Eminent Domain Authority    to purchase property for the Emporia Project. The
 To Acquire Property         Housing Authority had not initiated formal
                             condemnation proceedings declaring that it was
                             necessary to acquire the property using eminent
                             domain.

                             In December 1997, the Housing Authority started
                             purchasing property for the Emporia Project. The
                             Housing Authority sent letters to the property owners
                             requesting them to sell their property to the Authority.
                             Three owners did not respond to the Housing
                             Authority’s request. The three owners owned five
                             parcels of property located at 513, 515, 517, and 521
                             Lincoln Avenue and 609 South Garvin Street.

                             The Housing Authority sent letters to the three owners
                             in March 1998 that the Authority was prepared to
                             exercise its eminent domain authority to obtain the five
                             parcels of property.

                             The Housing Authority’s current Interim Director of
                             Section 8 said the Authority’s former Chief Executive
                             Officer requested him to use the power of eminent
                             domain to obtain the five parcels. In March 1998, the
                             Housing Authority sent letters to the three owners
                             informing them that the Authority had improperly
                             threatened its eminent domain authority. The Housing
                             Authority withdrew its intent to use eminent domain
                             because the owners and the local media expressed
                             concern about the Authority’s ability to exercise its
                             eminent domain authority.

Exit                          Page 36                                   2002-CH-1801
                                                                            Finding 5


                             The Housing Authority did not initiate formal
                             condemnation proceedings declaring that it was
                             necessary to acquire the property using eminent domain
                             prior to notifying the three owners. HUD Handbook
                             1378.0 requires the Housing Authority to institute
                             formal condemnation proceedings if it intends to acquire
                             any interest in real property by exercise of the power of
                             eminent domain.

                             The Authority lacked procedures and controls to ensure
 The Authority’s Staff Was   HUD funds were properly used and the acquisition,
 Not Aware Of Federal        development, and disposition of property met Federal
 Requirements                requirements. The Authority’s former Chief Executive
                             Officer and the current Interim Director of Section 8
                             said they were not aware of Federal requirements
                             regarding the acquisition, development, and disposition
                             of property. As a result, HUD funds were not used in
                             an efficient and effective manner. HUD also lacks
                             assurance that the Housing Authority’s property
                             transactions were carried out in a fair and equitable
                             manner.


  Auditee Comments           [Excerpts paraphrased from the Housing Authority’s
                             comments on our draft finding follow. Appendix B,
                             pages 58 and 59, contains the complete text of the
                             comments.]

                             The Housing Authority agrees that it did not follow
                             Federal requirements regarding the acquisition,
                             development, and disposition of property for the
                             Emporia Project. Therefore, the Housing Authority will
                             implement procedures and controls to ensure that it
                             follows the requirements when acquiring, developing,
                             and/or disposing of property.           The Authority
                             reimbursed its Public Housing Operating Program
                             $3,237 and its Comprehensive Grant Program $966
                             from non-Federal funds for the cost of acquiring,
                             developing, and/or selling the 17 parcels of property for
                             the Emporia Project.

                             The Housing Authority agrees that it improperly
                             threatened its eminent domain authority to acquire

Exit                          Page 37                                    2002-CH-1801
                                                                     Finding 5


                      property for the Emporia Project. The Authority also
                      did not initiate or institute formal condemnation
                      proceedings declaring it necessary to acquire an interest
                      in the property using eminent domain as required in
                      HUD Handbook 1378.0.

                      The Housing Authority: intends to present its Board of
                      Commissioners a resolution at an upcoming Board
                      meeting stating that the Authority does not encourage
                      the use of eminent domain; will require that all matters
                      which contemplate the use of formal condemnation
                      proceedings by eminent domain be presented to its
                      Board for review and approval; and will continue to
                      readily implement and follow procedures by promptly
                      requesting HUD’s approval prior to the acquisition
                      and/or sale of any and all future property to better
                      ensure compliance with Federal requirements.


  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should help ensure that the Housing
                      Authority follows Federal requirements when acquiring,
                      developing, and/or disposing of property. Based upon
                      the documentation provided by the Housing Authority,
                      we removed the recommendation for the Authority to
                      reimburse $4,203 ($3,237 plus $966) from non-
                      Federal funds for the improper use of HUD funds to
                      acquire, develop, and dispose of 17 parcels of
                      property.


   Recommendation     We recommend that the Director of the Cleveland Area
                      Office of Public Housing Hub assure that the Housing
                      Authority of the City of Evansville:

                      5A.     Implements procedures and controls to ensure
                              the Authority follows Federal requirements
                              when acquiring, developing, and/or disposing of
                              property.




Exit                   Page 38                                    2002-CH-1801
                                                                                       Finding 6


  The Authority Did Not Exercise Sound
 Management Practices Over Its Construction
                  Steel
The Housing Authority of the City of Evansville did not exercise sound management practices
over steel purchased for construction work. In December 1996, the Housing Authority used
$17,278 in Comprehensive Grant Program funds to purchase the steel for construction work to
its former administration offices located at 411 South East 8th Street. The Housing Authority
stopped the work because it purchased a building located at 500 Court Street for its offices.
As of July 2001, the Housing Authority had not made a decision regarding the use of the steel.
In addition, $1,730 in steel decking rusted and was discarded because it was not fit for use.
The Housing Authority’s former and current management staff failed to decide whether to use
the steel in another project or scrap the steel for its fair market value. As a result, HUD funds
were not used in an efficient and effective manner.


                                        24 CFR Part 85.22(b) requires that State, local, and
 Federal Requirements                   Indian tribal governments follow Office of Management
                                        and Budget Circular A-87, Cost Principles for State,
                                        Local, and Indian Tribal Governments. 24 CFR Part
                                        85.3 defines a local government to include any public
                                        housing agency.

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

                                        Section 4 of the Consolidated Annual Contributions
                                        Contract, between HUD and the Housing Authority of
                                        the City of Evansville, requires the Authority to at all
                                        times develop and operate each project in a manner
                                        that promotes serviceability, economy, and efficiency.

                                        Contrary to Office of Management and Budget Circular
 The Authority’s                        A-87 and the Consolidated Annual Contributions
 Management Has Not                     Contract, the Housing Authority’s former and current
 Decided What Action To                 management staff failed to exercise sound management
 Take Regarding Its Steel


Exit                                      Page 39                                   2002-CH-1801
                                                      Finding 6


       practices regarding the efficient and effective use of
       steel purchased for construction work.

       In December 1996, the Housing Authority used
       $17,278 in Comprehensive Grant Program funds to
       purchase steel for construction work to its former
       administration offices located at 411 South East 8th
       Street. The steel was cut to meet the Housing
       Authority’s specifications and included such items as
       decking, bar joists, roof framing, and beams. The
       Housing Authority stopped the work because it
       purchased a building located at 500 Court Street for its
       offices.

       The Housing Authority’s former and current
       management staff has not decided whether to use the
       steel for another project or scrap the steel for its fair
       market value. The Housing Authority’s Director of
       Special Programs said the Authority plans to take
       possession of the steel from FabCon, the manufacturer
       of the steel, by the end of August 2001. However, she
       said the Authority has not decided how to use the steel.
       The Housing Authority’s former Chief Executive Officer
       said he was not aware of the steel until approximately
       March 1999. The former Chief Executive Officer did
       not make any decision regarding the use of the steel
       prior to his resignation from the Authority in February
       2001.

       FabCon informed the Housing Authority in 1998 that
       the steel decking rusted and was no longer fit for use.
       The Plant Manager for FabCon said the decking was
       discarded in 1998 since it did not have any salvage
       value. No one from the Housing Authority confirmed
       the condition of the decking or that it was discarded
       until March 2001. The steel decking cost $1,730. As
       previously mentioned, the Housing Authority used
       Comprehensive Grant funds to purchase the steel. As a
       result, HUD funds were not used in an efficient and
       effective manner.




Exit    Page 40                                    2002-CH-1801
                                                                      Finding 6



  Auditee Comments    [Excerpts paraphrased from the Housing Authority’s
                      comments on our draft finding follow. Appendix B,
                      pages 60 and 61, contains the complete text of the
                      comments.]

                      The Housing Authority agrees that it did not exercise
                      sound management practices over steel purchased for
                      construction work. Therefore, the Housing Authority
                      will: take appropriate and timely action to either use the
                      remaining steel for an Authority project or sell the steel
                      for its fair market value; reimburse its Comprehensive
                      Grant Program funds $1,730 from non-Federal funds
                      for the steel decking that rusted and was discarded; and
                      implement procedures and controls to ensure that it
                      follows Federal requirements when purchasing
                      construction steel for future projects.

                      The Housing Authority is scheduled to take possession
                      of the remaining steel on August 14, 2001. The
                      Authority’s    Director     of    Special   Programs
                      recommended that the steel be used in the construction
                      of a new multipurpose building at the Erie Homes
                      Project. In July 2000, the Housing Authority’s
                      Construction Department was reorganized to report
                      directly to the Authority’s Director of Special
                      Programs. This reorganization was implemented as a
                      safeguard to better ensure that the Housing Authority
                      follows Federal requirements when expending
                      Comprehensive Grant Program funds.


  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should help ensure that the Housing
                      Authority follows Federal requirements when
                      purchasing construction steel for future projects.


  Recommendations     We recommend that the Director of the Cleveland Area
                      Office of Public Housing Hub assure that the Housing
                      Authority of the City of Evansville:



Exit                   Page 41                                     2002-CH-1801
                                                       Finding 6


       6A.   Takes appropriate and timely action to either
             use the remaining steel for a Housing Authority
             project or sells the steel for its fair market value.

       6B.   Reimburses its Comprehensive Grant Program
             $1,730 from non-Federal funds for the steel
             decking that rusted and was discarded.

       6C.   Implements procedures and controls to ensure
             the Authority follows Federal requirements
             when purchasing construction steel for future
             projects.




Exit    Page 42                                     2002-CH-1801
                                                                                      Finding 7


 The Authority Did Not Sufficiently Allocate
       Costs To Its Various Programs
The Housing Authority of the City of Evansville did not have an acceptable cost allocation plan
to support the allocation of costs among its programs. Specifically, the Housing Authority did
not charge employees’ salaries and fringe benefits to all of the Authority’s programs that
received their services. The Authority also failed to allocate non-salary costs to its various
programs. Housing authorities must allocate costs to benefiting grant programs. The
Authority’s Director of Finance and the former Chief Executive Officer said they were not
aware that the cost allocation plan has to be supported with documentation to show the basis
for allocating employees’ salaries and fringe benefits, and non-salary costs to Federal awards.
As a result, neither HUD nor the Housing Authority had assurance that costs charged to the
Authority’s various programs were reasonable in relation to the benefits they received.


                                       24 CFR Part 85.22(b) requires that State, local, and
 Federal Requirements                  Indian tribal governments follow Office of Management
                                       and Budget Circular A-87, Cost Principles for State,
                                       Local, and Indian Tribal Governments. 24 CFR Part
                                       85.3 defines a local government to include any public
                                       housing agency.

                                       Office of Management and Budget Circular A-87,
                                       Attachment A, requires State, local, and Federally-
                                       recognized Indian tribal governments to establish
                                       principles to provide that Federal awards bear their fair
                                       share of costs. Attachment C of the Circular says
                                       governments need a process whereby costs can be
                                       assigned to benefited activities on a reasonable and
                                       consistent basis. The cost allocation plan provides that
                                       process. All cost and other data used to distribute the
                                       costs included in the plan should be supported by
                                       formal accounting and other records that support the
                                       propriety of the costs assigned to Federal awards.

                                       The Housing Authority did not have an acceptable cost
  The Authority Lacked An              allocation plan to support the costs among its programs.
  Acceptable Plan                      The Authority administered both HUD and non-HUD
                                       programs. The HUD funded programs include: Public
                                       Housing; Multifamily Housing; Homebuyers; Section 8;
                                       Comprehensive Grant; and Drug Elimination. The non-

Exit                                     Page 43                                   2002-CH-1801
                                                     Finding 7


       HUD funded programs include: Drug Free Indiana;
       Washington Court; and Scattered Site Housing.

       The Authority’s plan did not address the costs of its
       employees’ salaries and fringe benefits.

       According to the Housing Authority’s Director of
       Finance, employees’ salaries and fringe benefits were
       allocated during Fiscal Year 2000 based upon the
       availability of funding or based on estimates made by
       the Authority’s former Director of Operations. The
       Authority did not have documentation to support the
       former Director’s estimates. Allocating costs to
       Federal programs based upon the availability of funding
       among programs and unsupported estimates are not
       acceptable methods.         Housing authorities must
       document an acceptable cost allocation plan.

       We selected 11 of the Housing Authority’s employees
       whose salaries were charged to the Authority’s various
       programs to determine the time they spent related to the
       programs. Since the Housing Authority did not maintain
       documentation to support the employees’ time, we
       interviewed the 11 employees to determine the time
       they spent related to the Authority’s programs. Seven
       of the 11 employees said they spent either more or less
       time than the percentage the Authority charged to its
       various programs; three employees said they were
       unable to estimate how much time they spent on each
       program; one indicated that the percentage of her salary
       was properly allocated.

       The following table shows the estimated time spent on
       each program and the percentage of salary and fringe
       benefits allocated for four of the seven employees who
       said they spent either more or less time than the
       Authority charged to its various programs.




Exit    Page 44                                   2002-CH-1801
                                                                                           Finding 7

                                                                 Percentage Of Salary And Benefits
     Employee           Estimated Time Spent On Program(s)          Allocated To Each Program
  Director of Asset     •   100 Percent – Public Housing        •   89 Percent – Public Housing
    Management                                                  •   11 Percent – Comprehensive
                                                                    Grant
  Assistant to the      •   100 Percent – Public Housing        •   42 Percent – Public Housing
  Director of Asset                                             •   58 Percent – Comprehensive
    Management                                                      Grant
     Accountant         •   85 to 90 Percent – Public Housing   •   54 Percent – Public Housing
                        •   10 to 15 Percent – Comprehensive    •   22 Percent – Section 8
                            Grant                               •   24 Percent – Comprehensive
                                                                    Grant
  Former Director of    •   60 Percent – Non-HUD Programs       •   45 Percent – Public Housing
  Human Resources       •   20 Percent – Section 8              •   24 Percent – Section 8
  (currently Interim    •   10 Percent – Public Housing         •   26 Percent – Comprehensive
  Director of Section   •   10 Percent – Comprehensive Grant        Grant
          8)                                                    •   5 Percent – Non-HUD Programs


                                          The Authority also did not allocate non-salary costs
                                          such as electricity, water and sewage, trash collection,
                                          and property hazard insurance for its administrative
                                          office located at 500 Court Street to all of the benefiting
                                          programs. The Authority allocated all of the non-salary
                                          costs to the Public Housing Program. The Housing
                                          Authority’s administrative office housed the Authority’s
                                          employees that spent time working on both HUD
                                          funded and non-HUD funded Programs.

                                          The Authority’s Director of Finance and the former
                                          Chief Executive Officer said they were not aware that
                                          the cost allocation plan has to be supported with
                                          documentation to show the basis for allocating
                                          employees’ salaries and fringe benefits, and non-salary
                                          costs to Federal awards.

                                          As a result, the Housing Authority and HUD lacked
                                          assurance that costs charged to the Authority’s various
                                          programs were reasonable in relation to the benefits
                                          they derived.


  Auditee Comments                        [Excerpts paraphrased from the Housing Authority’s
                                          comments on our draft finding follow. Appendix B,
                                          pages 50 and 51, contains the complete text of the
                                          comments.]


Exit                                        Page 45                                     2002-CH-1801
                                                                     Finding 7


                      The Housing Authority agrees that its former Chief
                      Executive Officer did not properly allocate costs to its
                      various programs. Therefore, the Authority will:
                      develop a cost allocation plan in accordance with Office
                      of Management and Budget Circular A-87; reallocate
                      the indirect costs charged to the appropriate programs
                      for Fiscal Year 2000, once the cost allocation plan is
                      developed; and implement procedures and controls to
                      update its allocation plan as necessary.

                      The Housing Authority is actively reviewing its position
                      and job descriptions to better ensure accuracy and
                      completeness throughout the Authority. During this
                      review and audit process, percentage of time allocations
                      will be determined to more accurately reflect the
                      percentage of time an employee devotes to a particular
                      Housing Authority program. This information will be
                      utilized to coordinate with the Housing Authority’s
                      Finance Department to ensure that the Authority’s cost
                      allocations reflect the actual time spent by an employee
                      supporting a particular program. After the initial review
                      and audit are completed, the Housing Authority will
                      institute an ongoing three-year program to monitor these
                      compliance related issues. Likewise, all non-salary
                      costs will also be monitored and distributed in
                      conjunction with the appropriate benefiting program or
                      associated salary costs.

                      The Housing Authority intends to have a cost allocation
                      plan and remedial procedures in place by November
                      30, 2001.


  OIG Evaluation Of   The actions planned by the Housing Authority, if fully
  Auditee Comments    implemented, should help ensure that the Housing
                      Authority follows Office of Management and Budget
                      Circular A-87 regarding the allocation of costs.


   Recommendations    We recommend that the Director of the Cleveland Area
                      Office of Public Housing Hub assure that the Housing
                      Authority of the City of Evansville:


Exit                   Page 46                                    2002-CH-1801
                                                 Finding 7


       7A.   Develops a cost allocation plan in accordance
             with Office of Management and Budget
             Circular A-87.

       7B.   Reallocates the indirect costs charged to the
             appropriate programs for Fiscal Year 2000,
             once the cost allocation plan is developed.

       7C.   Implements procedures and controls to update
             its allocation plan as necessary.




Exit    Page 47                               2002-CH-1801
                                                                           Appendix A

Schedule Of Ineligible Costs

       Recommendation                          Ineligible
           Number                               Costs 1/


              2A                               $750,000
              2B                                161,283
              3A                                 23,120
              6B                                  1,730
             Total                             $936,133


1/     Ineligible costs are costs charged to a HUD program or activity that the auditor
       believes are not allowable by law, contract, or Federal, State, or local policies
       or regulations.




Exit                             Page 48                                   2002-CH-1801
                                                                                        Appendix B

Auditee Comments
                                                  December 3, 2001




Mr. Heath Wolfe
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
77 West Jackson Boulevard, Suite 2646
Ralph H. Metcalfe Federal Building
Chicago, IL 60604-3507

Re: Amended Response of the Housing Authority of the City of Evansville,
     Indiana, (Housing Authority) to the September 26, 2001 Draft Audit Report of
     the U.S. Department of Housing and Urban Development Inspector General
    (HUD)

Dear Mr. Wolfe:

        This letter amends and supersedes the Housing Authority’s initial response dated
October 12, 2001, in reference to your correspondence from the September 26, 2001 Draft
Audit Report concerning the HUD Proposed Finding “The Housing Authority Was Not
Operated According To Program Requirements”. I have reviewed the aforementioned Draft
Audit Finding of the Office of Inspector General for Audit, HUD (“Draft Audit Findings”)
submitted to me and provide the following comments on behalf of the Housing Authority. The
Housing Authority’s comments are set forth below:

                          HUD PROPOSED FINDING
  “The Housing Authority Was Not Operated According To Program Requirements”

RESPONSE- The Housing Authority agrees that its former and current management staff did
not sufficiently exercise their responsibilities to effectively manage the Housing Authority and that
its Board of Commissioners did not effectively monitor operations of the Housing Authority
staff. Accordingly, the Housing Authority will:

                         a. Take appropriate and timely action to ensure that training is
                            obtained for its current management staff regarding Federal
                            requirements, State of Indiana law, and the Housing Authority’s
                            policies so that its programs are operated correctly.



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                                              Page 49                                           2002-CH-1801
                                                                                   Appendix B


                         b. Take appropriate and timely action to ensure that training is
                            obtained for its Board of Commissioners regarding their roles and
                            responsibilities in monitoring the Housing Authority’s operations.

                         c. Supports the recommendation that the Director of the Cleveland
                            Area Office of Public Housing Hub consider taking appropriate
                            administrative action against the Housing Authority of the City of
                            Evansville’s former Chief Executive Officer and former Director of
                            Operations as permitted by 24 CFR Part 24.

         In particular, the Housing Authority has worked and will continue to work to improve
training practices for its current management staff regarding Federal requirements, State of
Indiana law, and the Housing Authority’s policies in light of HUD’s proposed findings that the
Housing Authority was not operated according to program requirements. Likewise, the
Housing Authority has worked and will continue to work to further its obligation to provide
training for its Board of Commissioners regarding their roles and responsibilities in monitoring
the Housing Authority’s operations. Furthermore, the Housing Authority will continue to work
diligently to provide assurances to HUD and the general public that its resources are and will
continue to be used to the maximum extent to benefit low and moderate income tenants.

         In closing, the Housing Authority would like to thank you and your staff for your
 diligence and professionalism in conducting this audit. While the Housing Authority is very
 proud of the work it has done and the services it has been providing, we remain open to
 suggestions for improvement to our programs and truly appreciate your assistance in further
 refining and improving our efforts.

       Sincerely,

       /signed/

       Paul L. Fletcher
       Executive Director


       PF/cs

       cc:        Brent Bowen, Auditor, Office of Inspector General, Ohio State Office




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                                    November 30, 2001




Mr. Heath Wolfe
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
77 West Jackson Boulevard, Suite 2646
Ralph H. Metcalfe Federal Building
Chicago, IL 60604-3507

Re: Amended Response of the Housing Authority of the City of Evansville,
     Indiana, (Housing Authority) to the June 18, 2001 Draft Audit Report of the
     U.S. Department of Housing and Urban Development Inspector General
    (HUD)

Dear Mr. Wolfe:

        This letter amends and supersedes the Housing Authority’s initial response dated July
27, 2001, in reference to your correspondence from the June 18, 2001 Draft Audit Report
concerning the HUD Proposed Findings “The Authority Did Not Sufficiently Allocate Costs To
Its Various Programs” and “The Authority Misspent Funds To Purchase and Renovate Its
Administration Building”. I have reviewed the aforementioned Draft Audit Findings of the
Office of Inspector General for Audit, HUD (“Draft Audit Findings”) submitted to me and
provide the following comments on behalf of the Housing Authority. The Housing Authority’s
comments are set forth below:

                             HUD PROPOSED FINDING
       “The Authority Did Not Sufficiently Allocate Costs To Its Various Programs”

RESPONSE- The Housing Authority agrees that its former Chief Executive Officer did not
properly allocate costs to its various programs. Accordingly, the Housing Authority will:
                          a.       Develop a cost allocation plan in accordance with Office of
                                   Management and Budget Circular A-87.

                       b.      Reallocate the indirect costs charged to the appropriate
                               programs for Fiscal Year 2000, once the cost allocation plan is
                               developed.

                       c.      Implement procedures and controls to update its allocation plan
                               as necessary.

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          In particular, the Housing Authority is actively reviewing its positions and job
descriptions to better ensure accuracy and completeness throughout the Housing Authority.
During this review and audit process, percentage of time allocations will be determined to more
accurately reflect the percentage of time an employee devotes to a particular Housing Authority
program. This information will then be utilized to coordinate with the Housing Authority’s
Finance Department to ensure that cost allocations derived reflect the actual time spent by an
employee supporting a particular Housing Authority program. In addition, after completion of
this initial review and audit, the Housing Authority will institute an ongoing three-year audit
program to monitor these compliance related issues. Likewise, all “non-salary” costs will also
be monitored and distributed in conjunction with the appropriate benefiting program or
associated salary costs.

                        d. The Housing Authority intends to have a cost allocation plan and
                           remedial procedures in-place with its review and audit to be
                           completed by November 30, 2001.

                          HUD PROPOSED FINDING
    “The Authority Misspent Funds To Purchase and Renovate Its Administration
                                   Building”

RESPONSE- The Housing Authority agrees that its former Chief Executive Officer and
former Director of Operations misspent funds to purchase and renovate its Administration
Building. Accordingly, the Housing Authority will:

                        a. Reimburse HUD $750,000 from non-Federal funds for the
                           improper use of HOPE I sales proceeds to purchase its
                           administration building or it will implement a HUD approved plan
                           that will outline the use of the $750,000 in non-Federal funds to
                           promote resident home-ownership.

                        b. Reimburse its Comprehensive Grant program fund $161,283 from
                           non-Federal funds for the improper use of Grant funds to renovate
                           the EHA’s administration building.

                        c. Implement procedures and controls to ensure the EHA follows
                           Federal requirements when purchasing and renovating property.

         In particular, the Housing Authority is additionally seeking to fully utilize its
administration offices located at 500 Court Street. However, should the Housing Authority
discover it to be more cost effective to relocate to another facility, the Housing Authority will
follow appropriate HUD procedures, and promptly request HUD approval prior to any office
relocation. Likewise, the Housing Authority will follow appropriate HUD procedures and
promptly request HUD approval prior to any sale or lease of its 500 Court Street building.

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Furthermore, the Housing Authority will institute a procedure whereby future property
purchases and/or major renovations will be presented to and reviewed by a three (3) person
committee comprised of Housing Authority Board members. Then a proposed purchase will be
submitted to HUD for final review and/or approval.
                       e. The Housing Authority intends to have these remedial procedures
                           in-place and its course of action completed by December 31, 2001.

In closing, the Housing Authority would like to thank you and your staff for your diligence and
professionalism in conducting this audit. While the Housing Authority is very proud of the work
it has done and the services it has been providing, we remain open to suggestions for
improvement to our programs and truly appreciate your assistance in further refining and
improving our efforts.

       Sincerely,

       /signed/

       Paul L. Fletcher
       Executive Director


       PF/cs

       cc:        Brent Bowen, Auditor, Office of Inspector General, Ohio State Office




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                                                                                    Appendix B




                                                November 30, 2001




Mr. Heath Wolfe
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
77 West Jackson Boulevard, Suite 2646
Ralph H. Metcalfe Federal Building
Chicago, IL 60604-3507

Re: Response of the Housing Authority of the City of Evansville, Indiana,
    (Housing Authority) to the October 31, 2001 Draft Audit Report of the U.S.
    Department of Housing and Urban Development Inspector General (HUD)

Dear Mr. Wolfe:

        This letter responds to your correspondence of October 31, 2001 Draft Audit Report
concerning the HUD Proposed Finding “The Former Chief Executive Officer Improperly
Received Consulting Contracts and Fringe Benefits”. I have reviewed the aforementioned Draft
Audit Finding of the Office of Inspector General for Audit, HUD (“Draft Audit Findings”)
submitted to me and provide the following comments on behalf of the Housing Authority. The
Housing Authority’s comments are set forth below:

                         HUD PROPOSED FINDING
“The Former Chief Executive Officer Improperly Received Consulting Contracts and
                                Fringe Benefits”

RESPONSE- The Housing Authority agrees that contrary to Federal requirements, State of
Indiana law, and/or the Housing Authority of the City of Evansville’s requirements, the Housing
Authority’s former Chief Executive Officer received consulting contracts and fringe benefits.
Accordingly, the Housing Authority will:

                        a.      Take any and all appropriate action to recapture the $23,120
                                ($4,500 from the Housing Authority and $18,620 from
                                Washington Court Redevelopment Corporation) in consulting
                                fees that were improperly paid to the former Chief Executive
                                Officer. Furthermore, if the Housing Authority is unable to


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                                 recapture the money, the Authority will reimburse the improper
                                 fees from non-Federal funds to the appropriate programs.
                         b.      Reimburse from non-Federal funds the $10,368 in unnecessary
                                 and unreasonable fringe benefits paid to the former Chief
                                 Executive Officer from the Public Housing ($5,184) and
                                 Section 8 Administrative Fees ($5,184) that did not meet
                                 HUD’s regulation, Office of Management and Budget Circular
                                 A-87, and the Housing Authority’s Personnel Manual.

                         c.      Implement procedures and controls to ensure the Housing
                                 Authority and its contractors follow Federal requirements, State
                                 of Indiana law, and/or the Authority’s requirements when
                                 awarding contracts and paying fringe benefits.

        In particular, prior to the Housing Authority initiating formal litigation against the former
Chief Executive Officer, the Housing Authority made significant attempts to recover and/or
recapture the $23,120 ($4,500 from the Housing Authority and $18,620 from Washington
Court Redevelopment Corporation) in consulting fees that were improperly paid to the former
Chief Executive Officer. Correspondences by the Housing Authority to its former Chief
Executive Officer addressed contracts the former Chief Executive Officer entered into with the
Housing Authority and Washington Court Redevelopment Corporation as void and
unenforceable, and further stated that any funds received by the former Chief Executive Officer
under any contract between him, the Housing Authority, Washington Court Redevelopment
Corporation, or any other subsidiary of the Housing Authority, either during the time he was the
Chief Executive Officer or during the following year, must be repaid immediately or legal action
would be initiated to recover same. (Attached hereto as Exhibits A, B, and C).

         The Housing Authority was unsuccessful in its written demands for repayment of the
aforementioned funds from the former Chief Executive Officer. Accordingly, the Housing
Authority and its subsidiary Washington Court Redevelopment Corporation then filed a lawsuit
against the former Chief Executive Officer requesting the Vanderburgh Circuit Court declare as
void and unenforceable the aforementioned consultant contracts, and order the former Chief
Executive Officer to repay any monies received under any and all consulting contracts.
(Attached hereto as Exhibits D and E). Therefore, subject to resolution of the aforementioned
lawsuit filed by the Housing Authority and Washington Court Redevelopment Corporation
against the former Chief Executive Officer, any and all appropriate repayments of the $23,120
will be made at that time. Additionally, the Housing Authority acknowledges that other monies
improperly paid in sick leave and personal time to its former Chief Executive Officer during
2001, specifically from January 1, 2001 to February 28, 2001, were inappropriate and intends
to recover and/or recapture these funds.

       Furthermore, please be advised that the following remedial actions have been taken by
the Housing Authority to reimburse from non-Federal funds the $10,368 in unnecessary and

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unreasonable fringe benefits paid to the former Chief Executive Officer from the Public Housing
($5,184) and Section 8 Administrative Fees ($5,184). In particular, on November 5, 2001, a
payment requisition form regarding said reimbursement was issued to the Finance Department at
the Housing Authority to formally initiate remedial measures. On November 8, 2001, the
Housing Authority issued Check Number 112068 in the amount of $10,368.00 to reimburse its
Public Housing Operating Program $5,184.00 and Section 8 Administrative Fees $5,184.00.
Likewise, on November 8, 2001, $10,368.00 was deposited into the Housing Authority
account at Fifth Third Bank as evidenced by deposit slip and further reflected in the Fifth Third
Bank’s posting date receipt of November 9, 2001. (Attached hereto as Exhibit F).

        Finally, the Housing Authority will continue to work diligently to further implement
procedures and controls to ensure the Housing Authority and its contractors follow Federal
requirements, State of Indiana law, and/or the Authority’s requirements when awarding
contracts and paying fringe benefits.

         In closing, the Housing Authority would like to thank you and your staff for your
diligence and professionalism in conducting this audit. While the Housing Authority is very
proud of the work it has done and the services it has been providing, we remain open to
suggestions for improvement to our programs and truly appreciate your assistance in further
refining and improving our efforts.

        Sincerely,

        /signed/

        Paul L. Fletcher
        Executive Director


        PF/cs

        cc:        Brent Bowen, Auditor, Office of Inspector General, Ohio State Office




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                                                                                      Appendix B



                                                 November 30, 2001


Mr. Heath Wolfe
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
77 West Jackson Boulevard, Suite 2646
Ralph H. Metcalfe Federal Building
Chicago, IL 60604-3507

Re: Amended Response of the Housing Authority of the City of Evansville,
    Indiana, (Housing Authority) to the September 24, 2001 Draft Audit Report of
    the U.S. Department of Housing and Urban Development Inspector General
    (HUD)

Dear Mr. Wolfe:

        This letter amends and supersedes the Housing Authority responses dated October 11,
2001, and October 25, 2001, respectively, in reference to your correspondence from the
September 24, 2001 Draft Audit Report concerning the HUD Proposed Finding “The Housing
Authority Needs To Improve Its Contracting Process.” I have reviewed the aforementioned
Draft Audit Finding of the Office of Inspector General for Audit, HUD (“Draft Audit Findings”)
submitted to me and provide the following comments on behalf of the Housing Authority. The
Housing Authority’s comments are set forth below:

                           HUD PROPOSED FINDING
          “The Housing Authority Needs To Improve Its Contracting Process”

RESPONSE- The Housing Authority agrees that it did not follow Federal requirements, State
of Indiana law, and/or the Authority’s Procurement Policy regarding the award of contracts for
cleaning services to its housing units and offices. Accordingly, the Housing Authority will:
                          a.      Reimburse its Public Housing Operating Program $4,517
                                  ($2,970 to Clean-All and $1,547 to Sutton) from non-Federal
                                  funds for the additional cleaning costs incurred by awarding the
                                  contracts to Clean-All and Sutton Commercial Maintenance
                                  Services.

                        b.       Implement procedures and controls to ensure the Housing
                                 Authority follows Federal requirements, State of Indiana law,
                                 and the Housing Authority’s Procurement Policy when
                                 awarding contracts.


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         In particular, please be advised that the following remedial actions have been taken by
the Housing Authority to reimburse its Public Housing Program $4,517 from non-Federal funds
for the additional cleaning costs incurred by awarding the contracts to Clean-All and Sutton
Commercial Maintenance Services. On October 12, 2001, the Housing Authority issued
Check Number 111059 to reimburse its Public Housing Operating Program $4,517. On
October 17, 2001, $4,517 was deposited into the Housing Authority’s Low Rent Program
account at Fifth Third Bank as evidenced by deposit slip, transaction print out and receipt dated
October 19, 2001, attached hereto.

         Furthermore, the Housing Authority will continue to utilize the services of the Special
 Programs Department for all contracting subject to review by legal counsel, with ultimate
 approval by the Executive Director who is the designated Contracting Officer for the Housing
 Authority. The Special Programs Department is currently responsible for the majority of
 contracting and has been actively assisting other Housing Authority Departments for the past
 two (2) years to better ensure that procurement requirements in contracting are met and that
 the Housing Authority follows Federal requirements, State of Indiana law, and its Procurement
 Policy when awarding contracts. Additionally, pursuant to developing a cost allocation plan in
 accordance with Office of Management and Budget Circular A-87, the Housing Authority will
 actively review its positions and anticipates creating a Capital Improvement and Procurement
 Department for Fiscal Year 2003. It is anticipated that the creation of a centralized Capital
 Improvement and Procurement Department will serve as a safeguard whereby all future
 contracting subject to procurement would be brought to this Department, specifically to the
 attention of the Director of Capital Improvement and Procurement, to then be bid out in
 accordance with regulatory requirements.

         In closing, the Housing Authority would like to thank you and your staff for your
diligence and professionalism in conducting this audit. While the Housing Authority is very
proud of the work it has done and the services it has been providing, we remain open to
suggestions for improvement to our programs and truly appreciate your assistance in further
refining and improving our efforts.

        Sincerely,

        /signed/

        Paul L. Fletcher
        Executive Director

        PF/cs

        cc:        Brent Bowen, Auditor, Office of Inspector General, Ohio State Office



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                                                                                     Appendix B



                                                November 30, 2001


Mr. Heath Wolfe
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
77 West Jackson Boulevard, Suite 2646
Ralph H. Metcalfe Federal Building
Chicago, IL 60604-3507

Re: Amended Response of the Housing Authority of the City of Evansville,
    Indiana, (Housing Authority) to the September 18, 2001 Draft Audit Report of
    the U.S. Department of Housing and Urban Development Inspector General
    (HUD)

Dear Mr. Wolfe:

        This letter amends and supersedes the Housing Authority responses dated October 10,
2001, and October 25, 2001, respectively, in reference to your correspondence from the
September 18, 2001 Draft Audit Report concerning the HUD Proposed Finding “The
Authority’s Actions Regarding The Emporia Project Were Improper.” I have reviewed the
aforementioned Draft Audit Finding of the Office of Inspector General for Audit, HUD (“Draft
Audit Findings”) submitted to me and provide the following comments on behalf of the Housing
Authority. The Housing Authority’s comments are set forth below:

                             HUD PROPOSED FINDING
       “The Authority’s Actions Regarding The Emporia Project Were Improper”

RESPONSE- The Housing Authority agrees that it did not follow Federal requirements
regarding the acquisition, development, and disposition of property for the Emporia Project.
Accordingly, the Housing Authority will:

                        a.      Reimburse its Public Housing Operating Program $3,237 and
                                its Comprehensive Grant Program $966 from non-Federal
                                funds for the cost of acquiring, developing, and/or selling the 17
                                parcels of property for the Emporia Project.

                        b.      Implement procedures and controls to ensure the Housing
                                Authority follows Federal requirements when acquiring,
                                developing, and/or disposing of property.



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        In particular, please be advised that the following remedial actions have been taken by
the Housing Authority to reimburse its Public Housing Operating Program $3,237 and its
Comprehensive Grant Program $966 from non-Federal funds for the cost of acquiring,
developing, and/or selling the 17 parcels of property for the Emporia Project. On October 12,
2001, the Housing Authority issued Check Number 111060 to reimburse its Public Housing
Operating Program $3,237. On October 17, 2001, $3,237 was deposited into the Housing
Authority’s Low Rent Program account at Fifth Third Bank as evidenced by deposit slip,
transaction print out and receipt dated October 19, 2001, attached hereto. Likewise, on
October 12, 2001, the Housing Authority issued Check Number 111058 to reimburse its
Comprehensive Grant Program $966. On October 16, 2001, $966 was deposited into the
Housing Authority’s Comprehensive Grant Program account at Fifth Third Bank as evidenced
by deposit slip, transaction print out and receipt dated October 19, 2001, attached hereto.

        Furthermore, the Housing Authority agrees that it improperly threatened its eminent
domain authority to acquire property in March, 1998 and did not initiate or institute formal
condemnation proceedings declaring it necessary to acquire an interest in real property using
eminent domain as required in HUD Handbook 1378.0. Accordingly, the Housing Authority
intends to present to its Board of Commissioners a Resolution at an upcoming Regular Board
Meeting stating that the Housing Authority does not encourage the use of eminent domain and
requires that all matters which contemplate the use of formal condemnation proceedings by
eminent domain be presented to the Board of Commissioners for review and approval.

        Additionally, the Housing Authority will continue to readily implement and follow
procedures by promptly requesting HUD approval prior to acquisition and/or sale of any and all
future property to better ensure compliance with Federal requirements when acquiring,
developing, and/or disposing of property.

         In closing, the Housing Authority would like to thank you and your staff for your
diligence and professionalism in conducting this audit. While the Housing Authority is very
proud of the work it has done and the services it has been providing, we remain open to
suggestions for improvement to our programs and truly appreciate your assistance in further
refining and improving our efforts.

        Sincerely,

        /signed/

        Paul L. Fletcher
        Executive Director

        PF/cs

        cc:        Brent Bowen, Auditor, Office of Inspector General, Ohio State Office

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                                                August 6, 2001




Mr. Heath Wolfe
Assistant District Inspector General for Audit
U.S. Department of Housing and Urban Development
77 West Jackson Boulevard, Suite 2646
Ralph H. Metcalfe Federal Building
Chicago, IL 60604-3507

Re: Response of the Housing Authority of the City of Evansville, Indiana,
    (Housing Authority) to the July 23, 2001 Draft Audit Report of the U.S.
    Department of Housing and Urban Development Inspector General (HUD)

Dear Mr. Wolfe:

        This letter responds to your correspondence of July 23, 2001 Draft Audit Report. I
have reviewed the third Draft Audit Finding of the Office of Inspector General for Audit, HUD
(“Draft Audit Findings”) submitted to me and provide the following comments on behalf of the
Housing Authority. The Housing Authority’s comments are set forth below:

                        HUD PROPOSED FINDING #3
“The Authority Did Not Exercise Sound Management Practices Over Its Construction
                                     Steel”

RESPONSE- The Housing Authority agrees that it did not exercise sound management
practices over steel purchased for construction work in December, 1996. Accordingly, the
Housing Authority will:

                       a.      Take appropriate and timely action to either use the remaining
                               steel for a Housing Authority project or sell the steel for its fair
                               market value.

                       b.      Reimburse its Comprehensive Grant Program funds $1,730
                               from non-Federal funds for the steel decking that rusted and
                               was discarded.

                       c.      Implement procedures and controls to ensure the Housing
                               Authority follows Federal requirements when purchasing
                               construction steel for future projects.

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         In particular, the Housing Authority is scheduled to take possession of the remaining
steel from FabCon, the manufacturer of the steel, on August 14, 2001. The Housing
Authority’s Director of Special Programs has confirmed that the remaining steel is to be
delivered on August 14, 2001 to a vacant lot area at the Erie Homes Housing Development.
This vacant lot is located at the corner of 10th and Oak Streets and will be secured by
construction fencing. The Housing Authority’s Director of Special Programs has further
recommended the steel be used in the construction of a new Multi-Purpose Building at the
renovated Erie Homes Housing Development. Furthermore, the Housing Authority first
attempted to utilize the steel in its new construction of a twenty-four unit senior citizen public
housing building, however its Director of Special Programs stated that the Project Architect said
it could not be used in the architectural design of this facility.

                          d.      The Housing Authority intends to continue to readily implement
                                  procedures and controls to ensure it follows Federal
                                  requirements when purchasing construction steel for future
                                  projects.

        Likewise, in July 2000, the Housing Authority’s Construction Manager and its
Construction Department/Staff were reorganized to report directly to the Director of Special
Programs. This reorganization was implemented as a safeguard to better ensure the Housing
Authority follows Federal requirements when expending Comprehensive Grant Program funds.

         In closing, the Housing Authority would like to thank you and your staff for your
diligence and professionalism in conducting this audit. While the Housing Authority is very
proud of the work it has done and the services it has been providing, we remain open to
suggestions for improvement to our programs and truly appreciate your assistance in further
refining and improving our efforts.

        Sincerely,

        /signed/

        Paul L. Fletcher
        Executive Director


        PF/cs

        cc:        Brent Bowen, Auditor, Office of Inspector General, Ohio State Office




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                                                                              Appendix C

Distribution
Regional Director, Midwest (2)
Senior Community Builder/State Coordinator, Indiana State Office
Director of Public Housing Hub, Cleveland Area Office (2)
Coordinator of Public Housing Program Center, Indiana State Office
Secretary, S (Room 10000)
Deputy Secretary, SD (Room 10100)
Senior Advisor to Deputy Secretary, SD (Room 10100)
Assistant to the Secretary for White House Liaison, S (Room 10216)
Press Secretary/Senior Communications Advisor to the Secretary, S (Room 10226)
Chief of Staff, S (Room 10000)
Acting Assistant Secretary for Administration, A (Room 10110)
Assistant Secretary for Congressional and Intergovernmental Relations, J (Room 10120)
Director of Departmental Equal Employment Opportunity, U (Room 2112)
Deputy Chief of Staff for Policy and Programs, S (Room 10226)
Deputy Chief of Staff for Intergovernmental Affairs, S (Room 10226)
Director of Center for Faith-Based and Community Initiatives, K (Room 10184)
Executive Officer for Administrative Operations and Management, S (Room 10220)
General Counsel, C (Room 10214)
Acting Assistant General Counsel, Midwest
Assistant Secretary for Housing-Federal Housing Commissioner, H (Room 9100)
General Deputy Assistant Secretary for Policy Development and Research, R (Room 8100)
Assistant Secretary for Community Planning and Development, D (Room 7100)
President of Government National Mortgage Association, T (Room 6100)
Acting Assistant Secretary for Fair Housing and Equal Opportunity, E (Room 5100)
Assistant Secretary for Public and Indian Housing, P (Room 4100)
General Deputy Assistant Secretary for Public and Indian Housing, P (Room 4100)
Acting Deputy Assistant Secretary for Public Housing Investments, PT (Room 4138)
Deputy Assistant CFO for Financial Management, FM (Room 2206)
Acting Deputy Assistant Secretary for Public and Assisted Housing Delivery, PH (Room 4202)
Deputy Assistant Secretary for Administration and Budget/CFO, PC (Room 4234)
Audit Liaison Officer for Public and Indian Housing, PF (Room 5156)
Chief Information Officer, Q (Room 8206)
Director of Departmental Operations and Coordination, I (Room 2124)
Chief Financial Officer, F (Room 2202)
Director of Audit Coordination/Departmental Audit Liaison Officer, FMA (Room 2206)
Director of Risk Management, FMR (Room 2214)
CFO Audit Liaison Officer, FMA (Room 2206)
Audit Liaison Officer, 3AFI (2)
Director of Enforcement Center, V (200 Portals Building)
Acting Director of Real Estate Assessment Center, X (1280 Maryland Avenue, SW,
        Suite 800)

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                                                                              Appendix C


Acting Director of Multifamily Assistance Restructuring, Y (4000 Portals Building)
Acquisitions Librarian, Library, AS (Room 8141)
Acting Director of Federal Housing Enterprise Oversight, O (Room 4011)
Director of Healthy Homes and Lead Hazard Control, L (3206 Portals Building)
Director of National Office of Labor Relations, SL (Room 7118)
Senior Advisor, Subcommittee on Criminal Justice, Drug Policy & Human Resources, B 373
        Rayburn House Office Building, Washington DC 20515
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 Building, United States Senate, Washington DC 20510
The Honorable Dan Burton, Chairman, Committee on Government Reform, 2185 Rayburn
        Building, United States House of Representatives, Washington DC 20515
The Honorable Henry A. Waxman, Ranking Member, Committee on Government Reform,
        2204 Rayburn Building, United States House of Representatives, Washington DC
        20515
Cindy Fogleman, Subcommittee on Oversight and Investigations, Room 212, O'Neil House
        Office Building, Washington DC 20515
Associate Director of Housing and Telecommunications Issues, United States General
        Accounting Office, 441 G Street N.W., Room 2T23, Washington DC 20548
Steve Redburn, Chief of Housing Branch, Office of Management and Budget, 725 17th Street,
        N.W., Room 9226, New Executive Office Building, Washington DC 20503
Andy Cochran, House Committee on Financial Services, 2129 Rayburn House Office Building,
        Washington DC 20515
Executive Director, Housing Authority of the City of Evansville (5)
Vice Chairman of the Board of Commissioners, Housing Authority of the City of Evansville




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