oversight

Jackson State University Historically Black Colleges and Universities Grant, Jackson, Mississippi

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-02-18.

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

    AUDIT REPORT




 JACKSON STATE UNIVERSITY

HISTORICALLY BLACK COLLEGES

  AND UNIVERSITIES GRANTS

    JACKSON, MISSISSIPPI

         2004-AT-1002

     FEBRUARY 18, 2004
    OFFICE OF AUDIT, REGION 4
       ATLANTA, GEORGIA
                                                                  Issue Date
                                                                          February 18, 2004
                                                                 Audit Case Number
                                                                          2004-AT-1002




TO:            Armand W. Carriere, Deputy Director, Policy Development and Research,
                  Office of University Partnerships, RU




FROM:          Sonya D. Lucas
               Acting Regional Inspector General for Audit, 4AGA

SUBJECT:       Jackson State University
               Historically Black Colleges and Universities Grant
               Jackson, Mississippi

We completed an audit of Jackson State University’s (University) Historically Black Colleges
and Universities (HBCU) grants. The audit was initiated in response to a request from the
Department of Housing and Urban Development’s (HUD) Office of University Partnerships,
regarding the results of an April 2002 monitoring report concerning inadequate controls over the
University’s grant administration. Our audit objectives were to determine whether the
University complied with Federal laws, HUD’s regulations and other requirements; and had
adequate controls to assure efficient, effective, and economical administration of its grant
activities. Our report includes two findings.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without management decisions, a status report on: (1) the corrective action taken;
(2) proposed corrective action and the date to be completed; or (3) why action is considered
unnecessary. Additional status reports are required at 90 days and 120 days after report issuance for
any recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the audit.

Should you or your staff have any questions, please contact me at (404) 331-3369.
Management Memorandum




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2004-AT-1002              Page ii
Executive Summary
We completed an audit of the University's Historically Black Colleges and Universities grants. We
began the audit in response to a request from HUD's Office of University Partnerships, regarding the
results of an April 2002 monitoring report concerning inadequate controls over the University’s
grant administration. Our audit objectives were to determine whether University complied with
Federal laws, HUD’s regulations and other requirements; and had adequate controls to assure
efficient, effective, and economical administration of its grant activities.

Our assessment showed that the University did not achieve its goal of increasing homeownership
opportunities for low-and-moderate-income individuals, a primary goal of its HBCU grants, and
did not have adequate controls over its procurement and contracting activities.



                                       The University did not achieve the goal of its
 Our audit disclosed                  Homeownership Program to increase homeownership
                                      opportunities for low-and-moderate-income individuals in
                                      the area surrounding the University. The University spent
                                      over $1.36 million or 60 percent of its $2.26 million grants.
                                      Only 4 of the 30 houses proposed were completely
                                      rehabilitated. The University did not perform adequate
                                      analytical reviews to determine the feasibility to acquire
                                      and rehabilitate the properties or the financial viability of
                                      proposed projects. The University did not consider cost
                                      estimates or select the most cost effective projects for
                                      acquisition and rehabilitation. As a result, the funding may
                                      not have best served the interest of low-and-moderate-
                                      income persons as intended. Grant funds totaling $10,300
                                      were ineligible and $129,683 were unsupported. HUD
                                      needs to recapture the fund balance of $898,235.

                                      The University's procurement practices did not comply
                                      with Federal procurement and contracting requirements, or
                                      State requirements. The University improperly procured
                                      $765,084 of goods and services without adequately
                                      documenting the procurements, or having a contract
                                      administration system. The contract deficiencies included:
                                      (1) improperly soliciting and awarding contracts;
                                      (2) awarding sole source procurements; and (3) not
                                      adequately performing cost and price analyses. The
                                      deficiencies occurred because University officials were not
                                      fully aware of Federal requirements; relied on State
                                      guidelines, which did not meet Federal requirements; and
                                      did not have adequate written procedures for its grant
                                      programs. As a result, HUD lacked assurance that the



                                          Page iii                                     2004-AT-1002
Executive Summary


                    University obtained goods and services at the most
                    advantageous terms.

Recommendations     We recommend you suspend disbursements and disallow
                    the use of grant funds until the University can demonstrate
                    accountability and compliance with the grant agreements.
                    We also recommend that you require the University to
                    reimburse HUD for ineligible costs of $10,300, determine
                    the eligibility of $894,767 in unsupported costs, and
                    recapture the remaining grant balance of $898,235.

                    We presented our results to the University and to HUD
                    officials during the audit. We provided a copy of the draft
                    report to the University and to HUD's Office of University
                    Partnerships on November 7, 2003, for their comments.
                    We discussed the report with the officials at the exit
                    conference on December 4, 2003. The University provided
                    written comments on February 5, 2004. The University's
                    comments are summarized in the findings and included in
                    their entirety as Appendix B. The attachments are
                    available upon request.




2004-AT-1002            Page iv
Table of Contents
Management Memorandum                                                      i



Executive Summary                                                        iii



Introduction                                                              1



Findings

1.    Jackson State University Did Not Achieve its Goal of Increasing
      Homeownership Opportunities                                        5


2.    Jackson State University Did Not Follow Proper Procurement
      Requirements                                                      13




Management Controls                                                     19



Follow-Up On Prior Audits                                               21



Appendices
     A. Schedule of Questioned Costs and Funds Put to Better Use        23

     B. Auditee Comments                                                25




                               Page v                          2004-AT-1002
Table of Contents


Abbreviations

CFR            Code of Federal Regulations
EBC            Education Building Corporation
HBCU           Historically Black Colleges and Universities
HOOP           Home Ownership Opportunities Program
HUD            U.S. Department of Housing and Urban Development
University     Jackson State University




2004-AT-1002                          Page vi
Introduction
The HBCU Grant Program was established by Title I of the Housing and Community
Development Act of 1974. The program provides grants to HBCUs to expand their role and
effectiveness in addressing community development needs including neighborhood
revitalization, and housing and economic development in their localities.

To be eligible for funding, every HBCU funded activity must meet one of the Community
Development Block Grant Program’s three national objectives. Every activity, except program
administration and planning, must either:

•      Benefit low and moderate income persons; or
•      Aid in preventing or eliminating slums or blight; or
•      Address a need with a particular urgency because existing conditions pose a serious and
       immediate threat to the health or welfare of the community.

The deteriorated condition of the University community has made it susceptible to crime and
drugs. The dilapidation and housing abandonment has lead to commercial and economic
decline. The need for the community to increase home ownership, reduce the extent of
substandard housing, eliminate excessive abandoned and vacant housing, provide a greater
supply of affordable housing, improve neighborhood infrastructure, eliminate blight, and reverse
the community’s decline were high priority objectives of the City of Jackson community
organizations. The University operated a project called the Home Ownership Opportunities
Program (Project HOOP), which addressed local housing and economic development needs.
The HOOP was a collaborative community development and revitalization project to address the
housing rehabilitation and homeownership issues for low-and-moderate-income families. The
primary goal of the project was to increase homeownership opportunities for low-and-moderate-
income individuals, families, and the homeless.        Also, a Revolving Acquisition and
Rehabilitation Fund would be established and the proceeds from the sales of the homes
renovated would replenish the account and make it possible to acquire and rehabilitate 10 to 15
homes annually.

From 1995 to 2001, the University was awarded grant funds for Project HOOP as follows:


                       Grant Year                      Awarded
                           1995                      $ 500,000
                           1996                         300,000
                           1997                         400,000
                           1998                         365,897
                           2000                         200,000
                           2001                         500,000
                           Total                    $ 2,265,897




                                         Page 1                                    2004-AT-1002
Introduction


A Board of Trustees governs the University, and the University's President administers the
University. The Dean of the School of Business served as Project Administrator for Project
HOOP and had overall responsibility for ensuring that project goals and objective were achieved.
The day-to-day implementation of the project was the responsibility of the Project Coordinator.
The University’s books and records are maintained at 1400 J.R. Lynch Street, Jackson,
Mississippi.

HUD’s Policy Development and Research, Office of University Partnerships, is responsible for
overseeing the University’s administration of the grants.



                                    Our audit objectives were to determine whether the
 Audit Objectives, Scope            University complied with Federal laws, HUD’s regulations
 and Methodology                    and other requirements; and had adequate controls to assure
                                    efficient, effective, and economical administration of its
                                    grant activities.

                                    To accomplish the objectives, we tested for compliance
                                    with program requirements. We tested the University's
                                    established controls for effective and efficient
                                    administration of $2.26 million of HBCU funds granted
                                    from 1995 to 2001. We interviewed HUD’s Office of
                                    University Partnership and Community Planning and
                                    Development Division officials and current and former
                                    University staff. We reviewed University files and records;
                                    related HUD files; regulations governing the program; the
                                    controls and procedures over the contracts awarded from
                                    January 1995 through May 2003; and the University’s
                                    general controls, including lines of responsibility, duties,
                                    accounting system, and procedures.

                                    Since the University did not maintain a listing of its HOOP
                                    properties, we requested the University prepare a list of the
                                    properties acquired by program year. The listing identified
                                    the status (rehabilitation completed, under rehabilitation,
                                    occupied, vacant, vandalized, or demolished) of each of the
                                    19 properties acquired with HUD grant funds for 1995 to
                                    1998. We reviewed property records and made site visits
                                    to 16 of the 19 properties, located in Jackson, Mississippi
                                    that the University acquired; and performed detailed
                                    inspections of 2 of the 4 houses that were completely
                                    rehabilitated. The property records were reviewed, and site
                                    visits and inspections of properties were performed to
                                    determine compliance with grant program requirements,
                                    and to assess the progress of the grant activities. We also

2004-AT-1002                             Page 2
                                               Introduction


performed site visits to verify the status of the properties
and observe the exterior conditions of the properties. We
selected the two houses for inspection that had the most
recent rehabilitation work completed.

The University did not maintain a contract administration
system that readily identified contracting activities, or
obligations per contractual agreements. We requested the
University compile a summary of the contracts let from
October 1995 to July 2003. The University awarded 10
contracts valuing $580,437, and had started work on 8 of
the contracts which had a total value of $435,237. To test
for procurement compliance, we selected and reviewed 8 of
10 contracts awarded over $15,000 between January 1995
and May 2003, and transactions paid to one legal firm
without a contract totaling $184,647. The results of our
tests apply only to the items selected and cannot be
projected to the universe or population.

Our review generally covered the period January 1995
through December 2002. We extended the period as
necessary. We performed our on-site work between March
and July 2003. We conducted our audit in accordance
with generally accepted government auditing standards.




    Page 3                                     2004-AT-1002
Introduction




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2004-AT-1002      Page 4
                                                                                          Finding 1


   Jackson State University Did Not Achieve its
       Goal of Increasing Homeownership
                  Opportunities
The University did not achieve the goal of its Homeownership Program to increase
homeownership opportunities for low-and-moderate-income individuals in the area surrounding
the University. The University spent over $1.36 million or 60 percent of its $2.26 million grants.
Only 4 of the 30 houses proposed were completely rehabilitated. The University did not perform
adequate analytical reviews to determine the feasibility to acquire and rehabilitate the properties
or the financial viability of proposed projects. The University did not consider cost estimates or
select the most cost effective projects for acquisition and rehabilitation. As a result, the funding
may not have best served the interest of low-and-moderate-income persons as intended. Grant
funds totaling $10,300 were ineligible and $129,683 were unsupported. HUD needs to recapture
the fund balance of $898,235.



                                      The HBCU Program Grant Agreements for 1995 to 2001
 Criteria                             state that the goal of the Jackson State University
                                      Homeownership Program is to increase homeownership in
                                      the area surrounding the University. The rehabilitated
                                      properties will be sold to low-and-moderate-income
                                      individuals. The University will select vacant units for
                                      rehabilitation based on the following criteria: (1) standard,
                                      but requiring minimum repairs; (2) deteriorated, but can be
                                      rehabilitated; (3) can be easily upgraded to meet HUD's
                                      Minimum Property Standards; (4) currently in compliance
                                      with the national environmental policies; and               (5)
                                      adherence to HUD's Uniform Relocation and Acquisition
                                      Guidelines. The units that preliminary appraisals and cost
                                      estimates indicate are the most cost effective will be selected
                                      for rehabilitation.

                                      The HBCU Program Grant Agreement Provisions, revised
                                      November 2001, provide in the scope of work section that
                                      the grantee is required to furnish necessary personnel,
                                      materials, services, equipment, facilities (except as
                                      otherwise specified in the award document) and do all
                                      things necessary or incidental to the performance of the
                                      work established in the Project Management Work Plan.
                                      The grantee shall not be reimbursed for costs incurred in
                                      the performance of work in excess of that award amount.


                                           Page 5                                      2004-AT-1002
Finding 1


                            In the event grantee incurs costs in excess of the prescribed
                            amount, the excess shall be borne entirely by the grantee.

                            Title 24 Code of Federal Regulations (CFR), Part 84.62
                            provides that HUD can impose on the recipient corrective
                            and remedial actions for failure to comply with the terms
                            and conditions of an award. HUD may take one or more of
                            the following actions, as appropriate in the circumstances:
                            (1) temporarily withhold cash payments pending correction
                            of the deficiency by the recipient or more severe
                            enforcement action by HUD; (2) disallow (deny both use of
                            funds and any applicable matching credit for) all or part of
                            the cost of the activity or action not in compliance;
                            (3) wholly or partly suspend or terminate the current
                            award; (4) withhold further awards for the project or
                            program; and (5) take other remedies that may be legally
                            available.

                            The University did not fulfill its grant requirements of
 Jackson State University
                            increasing homeownership in the area surrounding the
 did not achieve its
                            university by acquiring, rehabilitating, and selling
 homeownership goal
                            properties to low-and-moderate-income individuals. Under
                            the original grant agreements, the University planned to
                            acquire and rehabilitate 38 houses; however the agreements
                            were amended, due to legal complications with titles, heirs,
                            and easements for properties selected. Therefore, the
                            number of houses planned was reduced to 30 as shown
                            below.

                             Grant        Houses          Houses           Houses
                             Year         Planned        Acquired        Rehabilitated
                             1995             8              9                4
                             1996             4              4                0
                             1997             4              4                0
                             1998             4              2                0
                             2000             4              0                0
                             2001             6              0                0
                             Totals          30             19                4

                            From the $1.36 million of grant funds disbursed, the
                            University only acquired 19 houses, and only completely
                            rehabilitated 4 houses. The University did not sell or
                            identify eligible potential buyers for the houses that were
                            rehabilitated. Renters occupied 3 of the rehabilitated
                            houses while 12 were vacant and boarded up, and the
                            remaining 4 houses were demolished by the City of

2004-AT-1002                    Page 6
                                                    Finding 1


Jackson because of the slum and blighted condition of the
properties. However, the grant agreement required the
purchase of properties for rehabilitation not demolition.
Therefore, $10,300 of the HUD 1995 grant funds disbursed
for the properties demolished resulted in ineligible grant
costs.

The University will not have adequate funds to acquire and
rehabilitate the number of houses required for each grant
year. The University did not complete the rehabilitation on
all houses acquired from 1995 to 1998, although all HUD
grant funds from 1995 to 1996 were spent as shown below.

 Grant          Amount           Amount          Amount
 Year          Budgeted         Expended         Available
 1995            $500,000         $500,000         $      0
 1996             300,000          300,000                0
 1997             400,000          223,731          176,269
 1998             365,897          214,248         151,649
 2000             200,000           21,286          178,713
 2001             500,000          108,397          391,603
 Totals        $2,265,897       $1,367,662        $898,234

Additionally, the University disbursed $21,286 and
$108,397 from 2000 and 2001 HUD grant funds
respectively, but did not acquire or rehabilitate any
properties for those years. As a result, HUD grant funds of
$129,683 for 2000 and 2001 was unsupported. The
remaining $898,235 for the 1997 to 2001 HUD grants was
not disbursed. The additional HUD grant costs for 1995 to
1998 (excluding the costs questioned in Finding 2) were
used for expenses related to the grants, such as salaries,
fringe benefits, travel, indirect costs, etc., and we
determined the costs were adequately supported.

The University did not perform analytical reviews to
determine whether it was feasible to acquire and
rehabilitate the properties, or whether proposed projects
were financially viable. The University officials did not
use the recommendations of its rehabilitation/construction
analysts or use its technical staff when selecting properties.
The Rehabilitation Specialist informed the HOOP Director
that certain houses selected were too dilapidated for
rehabilitation and some should have been demolished
instead of rehabilitated. However, University officials
wanted the HUD grant funds spent on houses in the

    Page 7                                      2004-AT-1002
Finding 1


               surrounding community, even though the Rehabilitation
               Specialist pointed out that rehabilitation would be too
               costly.     The Associate Professor of Construction
               Management was included on the grant application as the
               Rehabilitation Coordinator for the HOOP project, but he
               was not used or asked to participate in the HOOP project.
               Additionally, the University did not perform cost estimates
               and select the most cost effective projects for acquisition
               and rehabilitation. Instead of applying cost effectiveness
               and other selection criteria specified in the grant
               agreements, all properties selected by the HOOP Director
               required substantial rehabilitation. The HOOP Director
               stated that all of the houses in the neighborhood were
               deteriorated and they had no choice but to select properties
               that required costly substantial rehabilitation.        The
               University’s files did not support why they selected
               properties requiring substantial rehabilitation.

               As a result, the University did not significantly increase
               home ownership opportunities for low-to-moderate-income
               individuals in the targeted area around the University.
               Since it selected the most costly projects for rehabilitation,
               the University did not have sufficient funds to rehabilitate
               as many properties as was proposed by its grants. Also,
               because the market value of the completed houses was far
               less than the cost of acquiring and rehabilitating them, each
               house if sold would be sold at a substantial loss. For
               example 1437 Everett Street appraised for $47,000 after the
               University paid a total of $71,818 acquiring ($4,900) and
               rehabilitating ($66,918) the property. The HOOP Director
               stated that the selling price would possibly be reduced
               below $47,000 depending on the debt to income ratio of
               any potential buyer. According to the Rehabilitation
               Specialist, except for the appraised value of the HOOP
               houses, the highest appraised value for the houses in the
               targeted community was $28,000. The HOOP Director’s
               justification for continuing to acquire and rehabilitate
               houses for greater costs was because the neighborhood
               would eventually stabilize and economic development
               would be attracted to the area.

               Due to the lack of sales, funds were not available for the
               Revolving Acquisition and Rehabilitation Fund, as proposed.
               With only four houses available for sale, it appears unlikely
               that the University will generate an adequate fund to
               permanently fund the acquisition and rehabilitation of 10 to

2004-AT-1002       Page 8
                                                                      Finding 1


                   15 homes annually that was anticipated. Further, because the
                   University was not timely rehabilitating and selling the
                   houses it was acquiring, the University was maintaining an
                   inventory of vacant and boarded up houses that may have
                   contributed to, instead of eliminating, the crime and vagrancy
                   in the area. The photo below is an example of two boarded
                   up houses in the inventory.




                          1606/8 and 1602/4 Cox Street



Auditee Comments   Excerpts from the University’s comments on our draft
                   finding follow. Appendix B contains the complete text of
                   the comments.

                   “HUD should continue disbursements and allow the use of
                   remaining grants funds to complete the goals of program
                   years 1997, 1998, 2000, and 2001 for the following
                   reasons: 1. We are formulating a draft “Work Out” Plan to
                   be completed by April 1, 2004 to guide and facilitate the
                   effective and efficient achievement of the goals of Project
                   HOOP. The “Work Out’ Plan would provide the structure
                   to monitor our administrative and construction activities on
                   a monthly basis. 2. We have moved the administration of
                   the project to the Office of EDGA…. 3. The primary
                   focus of Project HOOP for the remaining grants will be
                   changed to housing rehab/reconstruction….




                       Page 9                                      2004-AT-1002
Finding 1


                    “All HUD Funds Used Were For Allowable, Eligible
                    activities under the terms of the grants. Even though cease
                    work orders were devastating to completing construction
                    goals. Project HOOP nevertheless continued to build
                    partnerships and to conduct homeownership education
                    classes. We were never advised to stop or cease other
                    program       activities   for     which     we     incurred
                    administrative and operational costs… Throughout the
                    project, JSU utilized several strategies to achieve the goal
                    of creating home ownership opportunities. The strategies
                    consisted of five distinct tasks…. It should be noted:
                    “Rehabilitate Houses” is only one of the five tasks. The
                    point is, “…increasing homeownership opportunities”
                    involves a variety of activities clearly spelled out in all of
                    Project HOOP’s proposals….

                    “JSU should be allowed to move forward and utilize the
                    remaining balance of $898,235 from the 1997, 1998, 2000,
                    and 2001 grants for the reasons: 1. New Management
                    Structure. Project HOOP has been transferred to the
                    Office of EDGA under the leadership of Dr. Roy DeBerry
                    who reports directly to the President…. 2. Work Out
                    Plan. We will recommend a “Work Out” Plan in
                    consultation with HUD/HQ to facilitate timely and accurate
                    completion goals…. The neighborhood needs Project
                    Hoop. Some of the oldest housing units in Jackson are
                    located in the target area….

                    “Jackson State University is accountable…. In the past,
                    HOOP was administered by the newly formed Jackson
                    State Educational Building Corporation. Protocol for the
                    University, past and present, is for the Office of Grants and
                    Contracts to administer all grants.             The present
                    administration will insure that protocol is followed….We
                    are also working closely with our General Counsel to
                    insure that program activities remain inside federal
                    guidelines while we measure, report, and monitor program
                    performance.”



OIG Evaluation of   The University presented a willingness to work with HUD
Auditee Comments    to resolve the deficiencies, and documented constructive
                    improvements in its program management that were made
                    or planned for implementation.


2004-AT-1002            Page 10
                                                                    Finding 1


                  The University’s proposal to use the remaining grant funds
                  to complete houses already acquired violates the terms of
                  the grant agreements. The grant agreements required that a
                  specific number of houses be rehabilitated and made
                  available for sale. Each grant agreement required that all
                  costs incurred by the University, in excess of the amount
                  prescribed by the grant agreement, be paid entirely by the
                  University. The proposed “Work Out” Plan would, in part,
                  allow the University to use funds from grant years 2000
                  and 2001 for costs that should be paid by the University. In
                  addition, the proposal would allow the University to use
                  remaining HUD grant funds to complete activities required
                  for grants years where funds have been spent without
                  completing the houses required for those grant years.
                  Therefore, the proposal would violate the terms of the grant
                  agreements and places additional HUD funds at risk, rather
                  than curing the violations discussed in the findings. Unless
                  the University can demonstrate to HUD that it can comply
                  with the terms and conditions of the grants, HUD should
                  suspend and disallow the use of grant funds as
                  recommended.

                  The University did not adequately support the eligibility of
                  the $129,683. The University did not demonstrate why it
                  was necessary and reasonable to spend most of the grant
                  funds on administrative activities related to increasing
                  homeownership opportunities, rather than rehabilitating
                  houses and making them available for sale. The University
                  needs to demonstrate that the $129,683 was expended for
                  necessary and reasonable grant purposes.



Recommendations   We recommend that HUD:

                  1A.      Suspend disbursements and disallow the use of grant
                           funds, pursuant to Title 24 CFR 84.62.

                  1B.      Require the University to reimburse HUD $10,300 of
                           the grant funds, for the demolished houses.




                        Page 11                                  2004-AT-1002
Finding 1


               1C.      Require the University to determine the eligibility of
                        the $129,683, consisting of $21,286 disbursed from
                        the 2000 grant funds and $108,397 disbursed from the
                        2001 grant funds, then reimburse HUD any ineligible
                        costs.

               1D.      Recapture the remaining balance of $898,235 from
                        the 1997, 1998, 2000, and 2001 grants.

               1E.      Work with the University to develop a plan for the
                        houses acquired. If the project continues, the
                        University must provide funds for the necessary
                        personnel, materials, services, equipment, and
                        facilities for the performance of the work set forth in
                        the Project Management Work Plans to complete the
                        required houses for the 1995 and 1996 grants.

               1F.      Require the University to demonstrate accountability
                        and compliance with the grant agreements for any
                        grant awards.




2004-AT-1002         Page 12
                                                                                       Finding 2




Jackson State University Did Not Follow Proper
          Procurement Requirements
The University's procurement practices did not comply with Federal procurement and
contracting requirements, or State requirements. The University improperly procured $765,084
of goods and services without adequately documenting the procurements, or having a contract
administration system. The contract deficiencies included: (1) improperly soliciting and
awarding contracts; (2) awarding sole source procurements; and (3) not adequately performing
cost and price analyses. The deficiencies occurred because University officials were not fully
aware of Federal requirements; relied on State guidelines, which did not meet Federal
requirements; and did not have adequate written procedures for its grant programs. As a result,
HUD lacked assurance that the University obtained goods and services at the most advantageous
terms.



                                    Title 24 CFR 85.36 Section (b)(1) states that grantees and
 Procurement requirements           subgrantees should use their own procurement procedures
                                    that reflect applicable State and local laws and regulation,
                                    provided that procurements conform to applicable Federal
                                    law. Section (b)(2) states that grantees and sub-grantees
                                    will maintain a contract administration system that ensures
                                    contractors perform in accordance with the terms,
                                    conditions, and specifications of their contracts or purchase
                                    orders. Section (c)(1) requires that all procurement
                                    transactions be conducted in a manner providing full and
                                    open competition, including prohibitions against placing
                                    unreasonable requirements on firms in order for them to
                                    qualify to do business and any arbitrary action in the
                                    procurement process. Section (b)(9) requires the grantee to
                                    maintain sufficient records to show the significant history
                                    of the procurement. The records shall document the
                                    rationale for the method of procurement, selection of
                                    contract type, contractor selection or rejection. Section
                                    (f)(1) states that grantees and subgrantees must perform a
                                    cost or price analysis in connection with every procurement
                                    action.

                                    Office of Management and Budget Circular A-110,
                                    Uniform Administrative Requirements for Grants and
                                    Agreements with Institutions of Higher Education,
                                    Hospitals, and Other Non-profit Organizations, Subpart C,
                                    paragraph 45 requires some form of cost or price analysis

                                        Page 13                                     2004-AT-1002
Finding 2


                          shall be made and documented in the procurement files in
                          connection with every procurement action. Price analysis
                          may be accomplished in various ways, including the
                          comparison of price quotations submitted, market prices
                          and similar indicia, together with discounts. Cost analysis
                          is the review and evaluation of each element of cost to
                          determine reasonableness, allocability, and allowability.
                          Paragraph 46 states that procurement records and files for
                          purchases in excess of the small purchase threshold shall
                          include the following at a minimum: (a) basis for contractor
                          selection, (b) justification for lack of competition when
                          competitive bids or offers are not obtained, and (c) basis for
                          award cost or price. Paragraph 47 states a system for
                          contract administration shall be maintained to ensure
                          contractor conformance with the terms, conditions and
                          specifications of the contract and to ensure adequate and
                          timely follow up of all purchases. Recipients shall evaluate
                          contractor performance and document, as appropriate,
                          whether contractors have met the terms, conditions and
                          specifications of the contract.

                          The Mississippi State Code of 1972 requires that purchases
                          over $15,000 (exclusive of freight and shipping charges)
                          may be made to the lowest and best bidder after advertising
                          for competitive sealed bids once each week for two (2)
                          consecutive weeks in a regular newspaper published in the
                          county or municipality in which such agency or governing
                          authority is located.

                          The University created the Education Building Corporation
 Competitive procedures
                          (EBC) to acquire and rehabilitate housing units for use in
 were not followed or
                          the Home Ownership Opportunities Program.            EBC
 documented
                          contracted services totaling $765,084, which included
                          rehabilitation construction ($580,437) and legal
                          ($184,647), without soliciting bids, or performing or
                          documenting cost or price analysis for the contracts.
                          Further, the legal services procurement was sole source
                          without competitive prices or proposals. The University
                          did not maintain a contract register or a management
                          information system to track contract activities, contract
                          amounts, or obligations per contractual agreement. As a
                          result, the University and its EBC disregarded the
                          procurement procedures and incorrectly obtained goods
                          and services without full and open competition.



2004-AT-1002                  Page 14
                                                    Finding 2


EBC used four contractors for eight rehabilitation contracts
that were awarded from October 1995 to July 2003. EBC
procured the rehabilitation contracts by soliciting bids from
a small group of contractors that were on its approved
contractors list, instead of advertising for bids, as required
by the Mississippi State Code. The University’s policy
required that a contractor be placed on the inactive bidders
list if they failed to respond to three consecutive invitations
to bid. If the contractor remained inactive for 60 days then
the contractor would be removed from the bidders list. The
policy restricted outside contractors from bidding and
limited the list to 16 contractors, of which 7 were solicited
for bids.

The University did not have case files for the properties
detailing the complete history of each rehabilitated
property. The Project Director, from various sources where
records were filed by subject area, compiled the requested
case files. Also, at our request, the HOOP Director
prepared a table summarizing the information for contracts
let from October 1995 to July 2003. EBC spent $151,600
acquiring 19 substandard properties that it planned to
rehabilitate. From 1995 to 1997, the University and EBC
entered into rehabilitation contracts totaling $580,437 to
rehabilitate 10 of the 19 properties. Payments totaling
$315,171 were made from the 1995 to 1997 HUD grant
funds for 8 of the 10 rehabilitation contracts.

We reviewed the bid tabulations for 7 of the 8
rehabilitation contracts EBC made payments on. We could
not locate the bid tabulation for the remaining contract.
The 8 contracts totaled $396,680. Change orders were
added to the contracts increasing the total to $435,237. Of
the 7 bid tabulations examined, two contracts valued at
$120,178, were not awarded to the lowest bidders. Also, in
these two instances the contract amounts differed from the
bid amounts. Further, we determined that amounts were
added to the contracts using change orders for items
already included in contracts.

At our request, HUD’s Community Planning and
Development Jackson Office Rehabilitation Specialist
inspected two houses on which EBC had performed its
final inspections. Rehabilitation was completed on the
houses in 2001. We inspected the houses using HUD’s
Housing Quality Standards manual and the initial work

    Page 15                                      2004-AT-1002
Finding 2


               write-ups, which itemized the work to be performed. Work
               write-ups for each property did not provide specific details
               on work to be completed. There were several change
               orders to the work specifications.     Some of the change
               orders were for work that was included in the initial work
               write-ups. For example, 1437 Everett Street had a change
               order for the rehabilitation, framing, and foundation work
               totaling $3,740; however the work was included in the
               initial work write-up. Therefore, the University was
               making duplicate payments for work items. Although work
               write-ups did not provide specific details, all of the work
               included in the contract was completed by the contractors
               and was acceptable.

               In addition, EBC did not follow procurement requirements
               for legal services contracts awarded sole source. Payments
               totaling $184,647 were made from the 1995 to May 2002
               HUD grant funds to a legal firm without an executed
               written contract. We noted that the legal firm's payments
               included $151,600 for the purchase of 19 properties for
               rehabilitation. Since there was not a contract between the
               University and the legal firm, we could not determine what
               services were to be provided and the charges for the
               services. The University and EBC used the same firm
               for its legal services from October 1995 to July 2003.

               Overall, EBC did not use a cost or price analysis for the
               contracts to support the price reasonableness or justify
               awarding the contracts without competition. Also, due to
               the lack of documentation identifying the costs involved
               with each property, the records were not readily auditable.
               Further, the program was not carried out economically due
               to the excessive use of change orders. The EBC did not
               have written procurement procedures for its grant
               programs. The Vice President for Finance stated that the
               EBC did not establish written procurement procedures but
               relied solely on State requirements to procure goods and
               services. However, the requirements were vague and did
               not contain the necessary provisions required under Federal
               procurement regulations such as professional service
               procurement policies.        Senior University officials
               mistakenly believed that rehabilitation contractors were
               being procured competitively, in accordance with
               applicable State law, which required formal competitive
               bidding for contracts over $15,000. However, bids were
               only solicited from contractors that were on the active

2004-AT-1002       Page 16
                                                                       Finding 2


                    approved bidders list, without any advertising. The HOOP
                    Director said that one of the reasons she did not advertise
                    for bids was because grant funds were not available for
                    advertising. As a result of the University and EBC
                    disregarding procurement requirements, it incorrectly
                    obtained services without full and open competition and
                    limited qualified contractors an equal opportunity to
                    provide goods and services.



Auditee Comments    Excerpts from the University’s comments on our draft
                    finding follow. Appendix B contains the complete text of
                    the comments.

                    “All HUD grant funds received by the University have
                    been accounted for and were used for the activities outlined
                    in the grants. Presently, we are utilizing JSU policies, State
                    of Mississippi Laws and HUD regulations, whichever is
                    most restrictive, to award contracts….

                    “Contrary to the OIG’s finding, the University did not
                    expend $184,687 in legal fees. Although checks were
                    written to the law firm that amounted to $184,687, only
                    $50,959.48 were actually for legal fees for the period
                    between 1995 and 2003…. Going forward, all Project
                    HOOP contracts for legal services will go through our
                    University’s General Counsel for approval.

                    “JSU utilizes established state and federal policies and
                    procedures for procurement…. Going forward, we are
                    operating the program according to HUD regulations by
                    utilizing State of Mississippi and University (whichever are
                    applicable, i.e., most restrictive).”




OIG Evaluation of   The University did not provide documentation to support
Auditee Comments    the reasonableness of the $580,437 of rehabilitation
                    contracts that were awarded noncompetitively.




                        Page 17                                     2004-AT-1002
Finding 2


                  The University indicated that it had improved its controls
                  over legal fees. However, the University did not provide
                  documentation to justify the necessity and reasonableness
                  of the $184,647 paid to the legal firm, or explain why it did
                  not have a contract with the legal firm for the services.

                  Although the University utilizes established state and
                  federal policies and procedures for procurement, the
                  University needs to establish and implement additional
                  procurement and contract procedures to ensure compliance
                  with 24 CFR 85.36 and other HUD requirements.



Recommendations   We recommend that HUD require the University to:

                  2A.      Provide documentation to justify the reasonableness
                           of the $580,437 for the 1995 to 1997 rehabilitation
                           contracts and the eligibility of the payments disbursed
                           on the contracts. Reimburse HUD the unsupported
                           expenditures.

                  2B.      Provide documentation to justify the reasonableness
                           of the $184,647 for the legal services from October
                           1995 to May 2002, and reimburse HUD the
                           unsupported expenditures.

                  2C.      Establish and implement policies and procedures for
                           procurement and contact administration to ensure
                           compliance with 24 CFR 85.36 and other HUD
                           requirements. At a minimum the policies and
                           procedures should ensure that: (1) sealed bidding is
                           used when appropriate; (2) the lowest responsible
                           bidder is selected; (3) full and open competition is
                           promoted; (4) sole source procurements are not
                           awarded; and (5) contract administration system is
                           maintained.




2004-AT-1002            Page 18
Management Controls
In planning and performing our audit, we considered the University’s management controls to
determine our audit procedures and not to provide assurance on the controls. Management is
responsible for establishing effective management controls to ensure that its goals are met.
Management controls include the plan of organization, methods, and procedures adopted by
management to ensure that its goals are met. Management controls include the processes for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



                                   We determined the following management controls were
 Relevant Management
                                   relevant to our audit objectives:
 Controls

                                        Effectiveness and efficiency of program operations.

                                        Eligibility with program requirements.

                                        Compliance with applicable laws and regulations and
                                        provisions of contracts or grant agreements.

                                        Procurement and contracting procedures.

                                        Housing rehabilitation procedures.

                                   We assessed the relevant controls identified above by:

                                        Reviewing the regulations governing the program and
                                        University’s policies and procedures;

                                        Interviewing HUD officials and current and former
                                        University staff;

                                        Reviewing the University’s program files and controls;
                                        and

                                        Inspecting rehabilitated houses and making site visits
                                        to properties.




                                       Page 19                                     2004-AT-1002
Management Controls


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

                        Based on our audit, we identified significant weaknesses in
                        all relevant control areas. See Findings 1 and 2.




2004-AT-1002                Page 20
Follow-Up On Prior Audits
This is the first Office of Inspector General audit of Jackson State University’s Historically
Black Colleges and Universities Grants Program.

Banks, Finley, White and Co. completed the most recent Independent Auditor’s audit report for the
fiscal year ended June 30, 2002. The HUD grants, which included the HBCU grants, were not
selected for testing. Therefore, the report did not contain any findings pertaining to the HBCU
Grants.




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Follow-Up On Prior Audits




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                                                                                    Appendix A

Schedule of Questioned Costs
and Funds Put to Better Use

                                                                               Funds Put to
                                               1                        2
     Recommendation Number           Ineligible          Unsupported            Better Use3
              1B                       $ 10,300
              1C                                            $ 129,683
              1D                                                                 $ 898,235
              2A                                              580,437
              2B                                              184,647
             Total                     $ 10,300             $ 894,767            $ 898,235




1/     Ineligible costs are not allowable by law, contract or Federal, State or local policies or
       regulations.

2/     Unsupported costs are not clearly eligible or ineligible but warrant being contested
       because of the lack of documentation supporting the need to incur such costs.

3/     Funds Put to Better Use are costs that will not be expended in the future if our
       recommendations are implemented. These funds include costs not incurred, and
       de-obligation of funds.




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Appendix A




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                             Appendix B

Auditee Comments




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          Appendix B




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          Appendix B




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          Appendix B




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          Appendix B




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