oversight

Allegheny County Housing Authority Public Housing Drug Elimination Grant Program, Pittsburgh, Pennsylvania

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-01-16.

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

        AUDIT REPORT




ALLEGHENY COUNTY HOUSING AUTHORITY
  PUBLIC HOUSING DRUG ELIMINATION
          GRANT PROGRAM
     PITTSBURGH, PENNSYLVANIA

              2004-PH-1002

           JANUARY 16, 2004



       OFFICE OF AUDIT, MID-ATLANTIC
       PHILADELPHIA, PENNSYLVANIA
                                                                Issue Date
                                                                        January 16, 2004
                                                                Audit Case Number
                                                                        2004-PH-1002




TO: James Cassidy, Director of Public Housing, Pittsburgh Area Office, 3EPH



FROM: Daniel G. Temme, Regional Inspector General for Audit, 3AGA

SUBJECT: Allegheny County Housing Authority
         Public Housing Drug Elimination Grant Program
         Pittsburgh, Pennsylvania


In response to an anonymous complaint, we performed a review of the Public Housing Drug
Elimination Program (Grant Program) grant funds awarded to the Allegheny County Housing
Authority (Authority) for Fiscal Years 1996 through 2000. The complaint alleged the Authority
was misspending Grant Program funds on various ineligible expenditures.

We found the allegation relating to the Authority misspending the Grant Program funds had
merit. In addition, we noted the Authority’s administration of the Grant Program does not meet
HUD’s requirements to ensure the Grant Program is operating efficiently and effectively. We
also found the Authority did not properly award a number of service contracts related to
obtaining computer and workplace training for its residents. This report contains two findings
and applicable recommendations to recover ineligible and unsupported Program expenditures
and improve the Authority’s operations.

In accordance with HUD Handbook 2000.06 REV-3, within 60 days please provide us, for each
recommendation without a management decision, 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. Additional status reports are required at 90 days and 110 days after
report issuance for any recommendation without a management decision. Also, please furnish us
copies of any correspondence or directives issued as a result of the audit.

We appreciate the cooperation extended to us during the audit by the staff at the Authority and the
local Pittsburgh Field Office. Should you or your staff have any questions, please contact Ms.
Christine Begola, Assistant Regional Inspector General for Audit, at (410) 962-2520.
Management Memorandum




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2004-PH-1002              Page ii
Executive Summary
In response to an anonymous complaint, we performed a review of the Public Housing Drug
Elimination Program (Grant Program) grant funds awarded to the Allegheny County Housing
Authority (Authority) for Fiscal Years 1996 through 2000. The complaint alleged the Authority
was misspending Grant Program funds on various ineligible expenditures, such as payments to
consultants, a $19,914 wood chipper and entertainment activities. The primary objective of the
audit was to determine whether the complainant’s allegations had merit. Specifically, we wanted
to determine if the Authority spent its Grant Program funds in accordance with the applicable
HUD rules and regulations.

To accomplish our audit objective, we reviewed all grant expenditures for the period January 1,
1998 through September 30, 20011 to determine if the expenditures were properly supported and
eligible under the Grant Program. The grant expenditures subject to our review totaled
$3,641,718. The results of our review are summarized below, and detailed in the Finding
sections of this report.



    Weak Program                          The Authority did not administer its Drug Elimination
    Administration Resulted               Program according to its grant agreements with HUD and
    In Ineligible And                     the applicable HUD rules and regulations. Specifically, the
    Unsupported Payments                  Authority did not always ensure program expenditures
                                          were eligible and properly supported and it did not properly
                                          follow Federal procurement requirements when it awarded
                                          a number of service contracts. As such, the complainant’s
                                          allegations that the Authority misspent grant funds had
                                          merit. These problems occurred because the Authority did
                                          not have the proper controls in place to enable management
                                          to detect and prevent these weaknesses from occurring
                                          within the administration of its Grant Program. As a result,
                                          the Authority spent $615,636 on ineligible expenditures
                                          and drew down another $761,950 of grant funds for
                                          expenditures that were not properly supported.

    Recommendations                       We made a number of recommendations to HUD’s Office
                                          of Public and Indian Housing to improve the Authority’s
                                          management of the grant funds. We requested HUD's
                                          Director of the Pittsburgh Area Office of Public Housing
                                          ensure the Authority reimburse HUD for the ineligible and
                                          questioned costs it cannot properly support, and develop
                                          and implement appropriate management controls to correct
                                          the weaknesses cited in this report.



1
 Grant funds can be expended up to two years after the issuance of the grant. During our review we looked at
documentation through September 30, 2001, which would include only one year of the FY 2000 grant expenditures.

                                               Page iii                                        2004-PH-1002
Executive Summary

Auditee Comments    We provided a draft of this report to HUD staff and to the
                    Authority’s Executive Director on August 1, 2003, and
                    discussed the findings and recommendations with all
                    parties at an exit conference on August 8, 2003. After the
                    exit conference the Authority provided additional
                    information. We reviewed this information and made
                    appropriate changes to the report as necessary. A second
                    draft report was provided to the Authority on October 6,
                    2003 for comment. On November 10, 2003, we received
                    the Authority’s response. Altogether, the response
                    contained 157 pages consisting of a 3-page summary letter,
                    45-page narrative section and 12 attachments totaling over
                    109 pages.

                    Generally, the Authority agreed with our recommendations
                    on improving their management processes, however, they
                    strongly disagreed with our findings and recommendations
                    concerning the ineligible and unsupported expenditures,
                    and disagreed with our conclusions that they improperly
                    awarded a number of service contracts. At the end of each
                    finding we summarized the Authority’s comments and
                    provided our evaluation of those comments. Further, we
                    included statements relating to their comments throughout
                    the report. However, due to the overall volume of the
                    Authority’s response, we only included the three-page
                    summary of the response as an attachment. The full
                    response will be made available upon request.




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



Executive Summary                                                     iii



Introduction                                                           1



Findings

1.   The Authority Did Not Administer Its Drug Elimination             5
     Grant Program In Accordance With HUD Requirements

2.   The Authority Improperly Awarded Service Contracts               19



Management Controls                                                   29



Follow Up On Prior Audits                                             31



Appendices
A.   Schedule of Questioned Costs                                     33

B.   Auditee Comments                                                 35




                             Page v                          2004-PH-1002
Table of Contents


Abbreviations

Authority       Allegheny County Housing Authority
CFR             Code of Federal Regulations
LOCCS           Line of Credit and Control System
NOFA            Notice of Funding Availability
OMB             Office of Management and Budget
PHDEP           Public Housing Drug Elimination Program




2004-PH-1002                            Page vi
Introduction
The Allegheny County Housing Authority (Authority) was established under Commonwealth of
Pennsylvania law to provide decent, safe, and sanitary housing for its tenants in the most
efficient and economical manner, as defined by its Annual Contributions Contract with HUD.
The Authority is governed by a Board of Directors, which is comprised of five members
appointed by the County Executive with the approval of the County Council of Allegheny
County. The Board's Chairperson is Michelle Pagano Heck. The Board appoints an Executive
Director to administer the affairs of the Authority. The Authority's Executive Director is Frank
Aggazio. The Authority's books and records are located at 625 Stanwix Street, Pittsburgh, PA
15222.

The regulatory requirements for the Public Housing Drug Elimination Program are published
under Title 24 Code of Federal Regulations (CFR) Part 761. The purpose of the Grant Program
is to provide funding to help owners of Federally assisted housing properties develop and carry
out plans to eliminate drug-related crimes and the problems associated with those crimes, in and
around the Federally assisted properties. As of FY 2002, the Drug Elimination Program is no
longer funded as a separate set aside. Instead, Congress provided for an increase in the FY 2002
public housing operating fund account to reflect the merger of the funds previously provided for
under the Drug Elimination Program.

Prior to October 14, 1999, funding under the Drug Elimination Program was a competitive
process. An Authority would submit an application for the grant under the Notice of Funding
Availability (NOFA) published in the Federal Register. To be competitive, the Authority had to
demonstrate among other things, how the funds would be used to eliminate drug-related crimes
and activity around the premises of the Federally assisted housing properties. Each NOFA
provided a description of the types of activities that would be considered eligible under the Drug
Elimination Program. Examples of eligible activities include the employment of security
personnel; physical improvements which are specifically designed to enhance security; programs
designed to reduce the use of drugs in and around public housing projects; and sports programs
and sports activities that are operated in conjunction with an organized program or plan designed
to reduce or eliminate drugs and drug-related problems in and around such projects.

For the 1996 through 20002 grant years (grant years), HUD awarded the Authority $4,194,158
in Drug Elimination grants. Typically a recipient has two years to spend the funding awarded,
however, HUD can extend the time period for an additional six months. The Authority draws
funds periodically from the HUD Line of Credit and Control System (LOCCS). HUD records
show the following authorization and draw down of funds for the Authority's grant years as of
September 30, 2001:




2
 For this report, when we discuss the funds received by the Authority, the reader can assume this includes all five
grant years (1996, 1997, 1998, 1999 and 2000) unless it is otherwise annotated in the report.

                                                 Page 1                                             2004-PH-1002
Introduction



                                             Total Amount           Balance
                                             Disbursed to        Remaining as of
    Grant Year          Authorized              9/30/01             9/30/01             Expiration Date
         1996           $   976,327             $ 976,327                $0                      5/01/99
         1997           $   495,903             $ 412,695            $ 83,2083                  11/20/00
         1998           $   968,393             $ 953,238            $ 15,1553                  11/20/00
                                                                                4
         1999           $   858,648             $ 679,266            $179,382                    1/17/02
         2000           $   894,887             $ 651,029            $243,8584                  11/09/02
        Total            $4,194,158             $3,672,555            $521,603



    Audit Objective                         The primary objective of our review was to determine
                                            whether the complainant’s allegation had merit.
                                            Specifically, we wanted to determine if the Authority was
                                            spending the Grant Program funds in accordance with the
                                            HUD rules and regulations. To accomplish our audit
                                            objective, we reviewed all grant expenditures for the period
                                            January 1, 1998 through September 30, 2001 to determine
                                            if the expenditures were properly supported and eligible
                                            under the Grant Program.

    Audit Scope And                         To achieve our objective we:
    Methodology
                                            •    Interviewed HUD staff and various Housing Authority
                                                 staff, including staff from the security, resident
                                                 services, finance, management information system, and
                                                 procurement departments during our review.

                                            •    Reviewed the appropriate Federal requirements,
                                                 Authority’s grant applications for Fiscal Years 1997 –
                                                 1999 and its Fiscal Year 2000 annual plan, Board
                                                 Minutes, and Authority’s policies and procedures used
                                                 over the Grant Program.

                                            •    Used audit related software to analyze all of the
                                                 expenditures for the period January 1, 1998 through
                                                 September 30, 2001, totaling $3,641,718, to determine

3
    Grant funds were not drawn down from LOCCS and used by the Authority before they expired.
4
    Grant funds were drawn down by expiration date.

2004-PH-1002                                      Page 2
                                              Introduction


    if the expenditures were properly supported and were
    eligible under the Grant Program.

•   Reviewed the Authority’s accounting records including
    source documentation used to support the expenditures
    for the Grant Program.

The audit generally covered the period January 1, 1998
through September 30, 2001, but was expanded when
necessary to include other periods. We conducted the audit
in accordance with Generally Accepted Government
Auditing Standards.




    Page 3                                   2004-PH-1002
Introduction




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2004-PH-1002     Page 4
                                                                                         Finding 1


  The Authority Did Not Administer Its Drug
Elimination Grant Program In Accordance With
             HUD Requirements
The Authority did not administer its Grant Program in accordance with its grant agreements nor
with HUD’s applicable rules and regulations. Specifically, we found the Authority did not
always ensure:

   •    Program expenditures were eligible, properly supported, allocated and accounted for; and

   •    Service contracts were awarded according to the applicable Federal procurement
        regulations (Finding 2).

This occurred because the Authority lacked the necessary internal controls to ensure the staff
assigned to work on the Grant Program were familiar with the administrative requirements for
the program, which include the specific restrictions on what types of costs are eligible under the
Grant Program. As a result, the Authority charged the Grant Program $595,430 and $532,545 in
ineligible and unsupported costs, respectively. These costs represent 31% of the $3.6 million we
reviewed for the grant years 1996 through 2000.

The table below summarizes the ineligible and unsupported costs we identified from our review
of 140 LOCCS payment vouchers totaling $3,641,718.


                        Description                                Ineligible       Unsupported
Construction Costs                                                 $330,000
Same Supporting Documentation Used More Than Once                  $134,638
Miscellaneous Expenditures                                         $130,792          $ 54,567
LOCCS Draws                                                                          $ 37,516
Salaries for Investigative and Administrative Staff                                  $241,909
LOCCS Draws for Payroll Expenses                                                     $ 15,248
Use of Other Federal Funds to Pay for Grant Expenditures                             $ 183,305
Total                                                              $595,430          $532,545

Following is a detailed explanation for the various questioned costs by category.




                                            Page 5                                     2004-PH-1002
Finding 1


                           The Authority Used Grant Funds to Pay Ineligible
                           Expenditures Totaling $595,430

                           From our review of the $3,641,718 in payment vouchers
                           charged to the Grant Program, we identified $595,430 of
                           ineligible expenses. This included $330,000 of ineligible
                           construction costs, $134,638 of expenses that were used to
                           draw down program funds more than once, and $130,792 of
                           miscellaneous ineligible expenses. A more detailed discussion
                           of these expenditures follows.

 Authority Used Grant      During the review of the FY 1998 grant, we found the
 Funds To Pay For          Authority inappropriately requested Grant Program funds to
 Ineligible Construction   pay for the construction of the community building located at
 Costs                     its Hays Manor property. The NOFA specifically states
                           funding is not permitted for the costs of construction of any
                           facility space in a building or unit; however, funding is
                           permitted to modify an existing building space for eligible
                           activities, such as: community policing mini-station,
                           adult/youth education and employment training facilities.

                           On October 17, 2000, the Authority requested HUD revise its
                           FY 1998 grant budget to allow for the preparation of a
                           daycare facility at Hawkins Village. Specifically, the
                           Authority requested $330,000 of its FY 1998 grant be
                           accounted for under their budget as physical improvements so
                           they could obtain the funding via LOCCS. On November 9,
                           2000, the Authority drew down the full $330,000 from the
                           LOCCS payment system. When HUD contacted (via
                           telephone) the Authority to discuss the $330,000 funding, the
                           Grants Administrator confirmed the funds were drawn down
                           for expenses incurred at its Hawkins Village and Hays Manor
                           properties for the purchase of equipment, computers,
                           educational items, and the preparation of the facilities to
                           implement the after school programs and training programs.

                           However, our review of the supporting documentation, which
                           included copies of a journal voucher and copies of
                           construction contract payment schedules for this LOCCS
                           draw, showed the Authority had actually requested the funds
                           to reimburse itself for extraordinary contract costs it had
                           previously paid for the construction of the Community
                           Building at Hays Manor, and not for the preparation of a
                           daycare facility at Hawkins Village . The supporting



2004-PH-1002                   Page 6
                                                                              Finding 1


                          construction contract payment schedules totaled $1,130,752
                          and listed expenditures consistent with those necessary for the
                          construction of a facility, such as: demolition, excavation,
                          concrete, foundations, roofing, drywall, etc. The Grants
                          Administrator annotated on each schedule how much of the
                          extraordinary contract costs were to be charged to the Drug
                          Elimination Program. These annotations totaled to the
                          $330,000 that was later drawn down from LOCCS. As
                          discussed previously, construction costs are not considered an
                          eligible activity under the grant and thus we are requesting
                          the full $330,000 be paid back to HUD.

Authority Used The Same   Our review of all of the documentation the Authority used to
Documentation More        support the LOCCS draws during our audit period showed
Than Once To Draw         the Authority often used the same documentation (purchase
Down Grant Funds          orders, vouchers, invoices, etc.) more than once to draw down
                          an extra $134,638 in HUD funds for grant years 1997 through
                          2000. This situation occurred because the Authority lacked
                          the internal controls necessary to prevent staff from using the
                          same records to draw down funds from LOCCS on multiple
                          occasions.

                          The Director of Budget and Revenue concurred with our
                          finding. He stated he was not aware they had used the
                          same documentation to draw down grant funds more than
                          once, but believed it was an honest mistake. Since grant
                          funds must be requested before the end of the grant term to
                          avoid losing the funds, the Director of Budget and Revenue
                          admitted they often “scrambled” to find support for the
                          LOCCS draws to avoid losing the grant funds. We believe
                          this contributed to the problem.

                          By requesting grant funds without an actual need at the
                          time of the LOCCS draw, the Authority violated the
                          requirements of its grant agreement. The grant agreement
                          states that HUD funds are only to be made available based
                          on actual need at the time the grantee plans to make
                          payment of costs. If the Authority had the proper internal
                          controls in place, such as utilizing original documentation
                          as support instead of copies, and completing a
                          reconciliation between expenditures and reimbursements,
                          this problem would likely have been prevented. Since the
                          Authority violated the requirements of their grant
                          agreement and used the same supporting documentation
                          more than once as support, we consider the $134,638


                              Page 7                                       2004-PH-1002
Finding 1


                                    ineligible and recommend the Authority reimburse HUD
                                    the full amount.

 Authority Paid For                 As noted earlier, the purpose of the Drug Elimination
 Miscellaneous Ineligible           Program is to reduce or eliminate drug-related crime in
 Expenditures                       public housing developments. According to the NOFAs,
                                    an eligible drug prevention program activity must correlate
                                    to the overall purpose of the Grant Program. Eligible
                                    activities under a drug prevention program include
                                    educational opportunities, youth services, and economic
                                    and educational opportunities for resident adult and youth
                                    activities.

                                    We found the Authority violated the requirements of the
                                    NOFAs and its grant agreements by requesting $130,792 in
                                    Grant Program funds that was used to pay for ineligible
                                    miscellaneous expenditures. The table below summarizes
                                    the ineligible expenditures and is followed with a more
                                    detailed discussion of several of the more pertinent
                                    categories.


                                                                      Total Charged to
            Miscellaneous Ineligible Expenditure                    the Program Grants
Interior Decorations and Designer’s Fees                                  $ 49,163
Cooks’ Wages and Food                                                     $ 29,353
Maintenance Expenses                                                      $ 25,596
Amusement, Entertainment, and Transportation Expenses                     $   9,256
Community Celebrations                                                    $   8,297
Expenditures Supported with Voided Checks                                 $   2,472
Transportation for Non-Program Residents                                  $   2,250
Gift Cards and Merchandise, Centerpieces for Tables, Petty
Cash, Cell Phone, and Kitchen Supplies                                    $   2,196
Expenditures Paid Prior to Effective Date of Grant                        $   1,689
Masseuse Services and Gift Certificates                                   $    520
Total                                                                     $130,792




2004-PH-1002                               Page 8
                                                    Finding 1



Interior Design Fees

The Authority charged the Grant Program $49,163 for the
services of an interior designer and an artist for artwork.
This included $15,913 for interior designer services and
artwork for its Hays Manor Community Building and
$33,250 for interior designer services and artwork for its
Millvue Acres Community Center. The Authority staff
confirmed these charges were related to the construction of
the new Community Building at Hays Manor and the
rehabilitation of the Arsenal Children’s Center at its
Millvue Acres property. The Authority explained that these
buildings house after school programs designed to keep
children occupied through a number of cultural and
recreational activities. However, these types of
extraordinary construction costs are specifically cited in the
NOFA as ineligible costs.

Cooks’ Wages and Food

We found the Authority used $29,353 in grant funds, as
part of it’s after school program to pay for cooks’ wages
and food. The Authority explained that the purpose of the
program was to provide the children a safe place to go to
after school and to provide a dinner and evening snack.
These expenditures, although they may be well intended,
are not eligible for payment with the grant funds.

The NOFAs state funding is permitted for reasonable,
necessary and justified program costs, such as meals and
beverages incurred only for training, education and
employment activities, and youth services directly related
to reducing drugs and drug-related crime for groups
composed of young people ages 16 through 18.

Routine Maintenance Expenses

Routine maintenance expenses are ineligible under the
Grant Program. However, in our review we identified
$25,596 of such expenditures. These expenses included:
$19,914 for a wood chipper, $1,959 for flats and
containers of flowers, $1,383 for cleaning supplies, and
$2,340 other miscellaneous maintenance expenses.



    Page 9                                       2004-PH-1002
Finding 1

               Amusement and Entertainment Expenses

               One of the main goals of the Drug Elimination Program is
               to provide the youth of the low-income housing properties
               alternatives to drugs and drug-related criminal activity. To
               assist in this goal, the Grant Program allows for certain
               youth activities to be paid with grant funds. According to
               the NOFAs, eligible youth service activities for a drug
               prevention program may include: youth sports, youth
               leadership skills training, and cultural and recreational
               activities.

               We found the Authority used Grant Program funds to pay
               for ineligible expenditures while claiming they were for
               educational, cultural, and recreational activities for its
               youth services drug prevention program. Specifically,
               these ineligible expenditures included amusement and
               entertainment activities totaling $9,256.



                        Ineligible Amusement and Entertainment
                                     Expenditures
                Transportation Costs                       $2,883
                Kennywood Park                             $2,804
                Movies                                     $1,703
                Pittsburgh Zoo                             $ 623
                Circus                                     $ 528
                Just Ducky Tours                           $ 375
                Harlem Globetrotters                       $ 340
                Total                                      $9,256


               The NOFAs state that funding is not permitted for the costs
               of entertainment, amusements, or social activities and for
               the expenses of items such as meals, beverages, lodging,
               rentals, transportation, and gratuities related to these
               ineligible activities.




2004-PH-1002       Page 10
                                                                            Finding 1

                         Community Celebrations

                         The Authority requested and received $8,297 in grant
                         funds to pay for community celebrations. The NOFAs
                         identify community celebrations as an ineligible expense.
                         The majority of these expenses included payments for food
                         and other miscellaneous items to support community day
                         celebrations and holiday parties, such as Halloween and
                         Christmas. For example, on July 14, 2000, the Authority
                         requested $419 in grant funds to pay for the rental of a
                         cotton candy machine, candy floss, set-up charges, etc.
                         Also, on July 26, 2001, the Authority requested and
                         received reimbursement in grant funds for $618 in
                         expenses incurred for the rental of 300 folding chairs, a
                         helium tank, sound system, delivery, and carpet floor
                         lectern. The Authority incurred these expenditures to
                         facilitate celebrations, not eligible drug prevention program
                         activities.

                         The Authority Could Not Adequately Support $532,545
                         of Program Expenditures

                         The Authority could not adequately support $532,545 of
                         the $3,641,718 of Grant Program expenditures we
                         reviewed. Specifically, the Authority did not maintain the
                         required documentation to fully support a number of
                         LOCCS draws, miscellaneous Grant Program expenditures,
                         and payroll activities. These unsupported Grant Program
                         expenditures are discussed below.

LOCCS Draws Were Not     We reviewed the supporting documentation for each of the
Sufficiently Supported   140 LOCCS payment requests (draws) the Authority made
                         from January 1, 1998 through September 30, 2001. These
                         LOCCS draws totaled $3,641,718. We found the Authority
                         did not have sufficient documentation to support 13 of the
                         LOCCS Draws which totaled $37,516.

                         HUD regulations require the Authority to maintain
                         adequate documentation to support each draw from
                         LOCCS for audit purposes. Further, this requirement is
                         reinforced by the authorized personnel’s certification on
                         each LOCCS voucher that the data reported and funds
                         requested are correct and the amount requested is not in
                         excess of immediate disbursement needs for the Grant
                         Program.


                             Page 11                                     2004-PH-1002
Finding 1

     Investigative And                          We found the Authority did not follow Office of
     Administrative Staff                       Management and Budget (OMB) Circular A-87 guidance
     Salaries Were Not                          when maintaining their support for the compensation for
     Adequately Supported                       personal services charged to the grants. The Authority
                                                charged $241,909 to the Grant Program based upon
                                                predetermined allocation rates for certain salaries. The
                                                Grants Administrator established these percentages before
                                                staff ever worked under the Grant Program. Thus, the
                                                Authority could not support or justify some of the payroll
                                                allocations. The table below summarizes the unsupported
                                                payroll expenses.



                                     Summary of Grant Salary Expenses

     Grant Employee          Percentage of Salary Number of                 Total Expenses
        Charged               Charged to Grants Employees Dates of Expense Charged to Grant

    Investigator                        33%                      25         5/16/97-8/31/01              $176,2276
    Grants
    Administrator                       50%                      1          10/13/00-6/8/01              $ 47,260
    Director of
    Residential Services      25% reduced to 5%                  1          6/22/01-8/31/01              $    9,937
    Associate Director
    of Resident Services                25%                      1          6/22/01-8/31/01              $    8,485


    Total                                                                                                $241,909

                                                According to Title 24 CFR Part 85.20, the Authority can
                                                use Drug Elimination Program funds for employee salaries,
                                                provided the personnel are necessary and the grant funds
                                                only cover the portion of the employee’s salary earned
                                                while performing grant-related activities. To be allowable,
                                                OMB Circular A-87 places specific salary recordkeeping
                                                requirements on the grantee. Specifically, the grantee must
                                                maintain reports that: (1) account for the total activity for
                                                which the employee is compensated, (2) reflect an after the

5
 Three investigators were employed and paid using PHDEP grant funds from February 4, 2000 to September 14,
2001. However, only two investigators were employed at one time during this period.
6
 On June 2, 1998, the Authority requested reimbursement of the investigator’s salary, via a LOCCS Payment Voucher, for
$52,243 of this payroll expenditure. The Authority paid these payroll expenses with other program funds between May 16,
1997, and May 29, 1998.
2004-PH-1002                                         Page 12
                                                                                                         Finding 1


                                             fact determination of actual activity of each employee, and
                                             (3) are prepared at least monthly for an employee that
                                             works on multiple activities and semiannually for an
                                             employee that works only on one Federal award. In
                                             addition, the report is to be signed by the employee and/or
                                             responsible supervisor. Further, the OMB Circular states
                                             that budget estimates or other distribution percentages the
                                             grantee establishes before the employee performs the
                                             services do not qualify as support for the charges to the
                                             grant.7

                                             According to the Assistant Finance Director, employees did
                                             not document the actual time they spent on specific
                                             activities for the grants. Thus, the Authority could not
                                             properly account for the salaries and benefits charged to the
                                             Drug Elimination Grant Program. Although the Assistant
                                             Finance Director said only employees directly related to
                                             Grant Program activities were charged to the Program,
                                             without the proper documentation to support the allocation
                                             charged to the grant, HUD has no assurance the allocation
                                             is accurate.

    Payroll Records Did Not                  During our review of the payroll, we found the Authority
    Always Support LOCCS                     made six LOCCS payment requests, from December 29,
    Draws                                    1998 to August 17, 2000, to cover payroll expenses totaling
                                             $55,692. However, a review of the actual payroll record
                                             for this corresponding period showed the Authority only
                                             paid out $40,444 to employees working on Drug
                                             Elimination activities. Thus the Authority could not
                                             support $15,248 of the grant funds it drew down from
                                             LOCCS.

    Number of Miscellaneous                  For a number of miscellaneous program expenditures the
    Grant Expenditures Were                  Authority could only provide us with documents that it
    Not Properly Supported                   generated internally as support for the expenditure. These
                                             documents consisted primarily of copies of purchase
                                             orders, vouchers and journal entries. HUD requirements
                                             state grantees must support costs charged to the grants with
                                             adequate source documentation including cancelled checks,
                                             invoices, and contracts. However, the Authority was not
                                             able to provide the original documents and could not
                                             provide cancelled checks to support many of these
                                             purchases. For example, on March 26, 1999, the Authority
7
  Grantees may use such methods for interim accounting purposes subject to specific requirements, which include at
least quarterly comparisons to actual costs on a monthly basis and an adjustment of the accounting records to reflect
actual cost.
                                                  Page 13                                             2004-PH-1002
Finding 1


                           requested $1,452 for reimbursement for a Teen Club Ski
                           Trip taken at Hidden Valley Resort. This expenditure was
                           supported with a booking agreement and a cancelled check.
                           However, no statement of account was included to support
                           this expenditure to assist in determining who participated in
                           the trip and what was paid for.

                           In another example, on August 16, 2001, the Authority
                           requested $1,991 for an expenditure that was supported
                           by a voucher and a copy of an invoice dated July 23,
                           2001. However, the corresponding check could not be
                           identified in the Authority’s check register indicating
                           payment for this Grant Program expenditure had been
                           made. In total, the Authority did not have sufficient
                           documentation to support $54,567 of miscellaneous
                           expenditures.

                           The Authority Needs to Improve Accountability of its
                           Drug Elimination Funds

                           We found the Authority pays all Grant Program
                           expenditures from its Conventional Program cash account.
                           This account includes funding from the Drug Elimination
                           Program and other funding from HUD. The general grant
                           requirements state the accounting systems of the grantee
                           must ensure that HUD funds are not commingled with
                           funds from other HUD programs, such as the low-rent
                           operating funds or Comprehensive Grant Program funds.
                           Funds specifically budgeted and/or received for one
                           program shall not be used to support another. Accounting
                           for the various program funds in one cash account is not a
                           violation, however, the grantee must establish an auditable
                           system to provide adequate accountability for the funds it
                           has been awarded.

 The Authority Drew        We found the Authority requested and drew down
 Down Grant Funds For      $183,305 of Grant Program funds from LOCCS to pay for
 Expenses It Had Already   expenditures it had already charged to its Conventional
 Charged To Other          Program Operating Subsidy Account. The Authority drew
 Program Accounts          down these funds to reimburse its Conventional Program
                           Account for these expenditures; however, we found no
                           record that the Authority reimbursed the Conventional
                           Program Operating Subsidy Account. Further, the
                           Authority had no support that the funds that were drawn
                           down were used for other valid expenditures.


2004-PH-1002                   Page 14
                                                                      Finding 1


                   For example, on February 23, 1999, the Authority
                   requested $21,262 in Grant Program funds to pay for
                   contract services provided by the City of Duquesne Police
                   Department. The Authority paid this expenditure on
                   February 24, 1999, by using its Operating Subsidy funds.
                   To record this expenditure, the Authority charged a non-
                   drug elimination grant account. However, once the funding
                   was received from the Drug Elimination grant LOCCS
                   draw, an adjusting entry was not made by the Authority to
                   properly reflect the request and use of the grant funds for
                   this expenditure in its accounting records. Therefore, the
                   Authority paid for this expenditure using other funding
                   sources, and reported it as such, in its accounting records.

                   The Authority contends that by paying for Grant Program
                   eligible expenses using the Conventional Program funds,
                   and then reimbursing the Conventional Program
                   subsequently through the LOCCS requests, it has in
                   essence minimized the time lapsed from the LOCCS
                   request to disbursement. However, our review of the
                   records showed that the funds received to “reimburse” the
                   Conventional Program for the Drug Elimination Program
                   charges were never properly accounted for as Drug
                   Elimination expenditures in the accounting records. Until
                   these funds are properly accounted for within their records,
                   we consider them to be unsupported.



Auditee Comments   The Authority expressed its appreciation for the auditor’s
                   positive suggestions on improving its management controls
                   and stated it has started to implement many of them before
                   the issuance of the final report. However, the Authority
                   strongly disagreed with almost all of the items that the OIG
                   identified as ineligible expenditures. For example, the
                   Authority disagreed with our opinion that the $330,000 in
                   construction costs it applied to Hays Manor were ineligible.
                   In their response, the Authority stated HUD approved the use
                   of these funds prior to the funds ever being expended and
                   thus they were used in accordance with the Grant Program.

                   The Authority also disagreed with the auditor’s use and
                   interpretation of many of the applicable laws and regulations
                   cited in this report. In particular, the Authority objected to
                   the auditor’s use of the NOFAs as the criteria for questioning


                       Page 15                                      2004-PH-1002
Finding 1


                    many of the ineligible costs, stating “NOFAs are not subject
                    to the rule-making procedures required under the federal
                    Administrative Procedures Act (APA) and therefore are not
                    binding on grant recipients as are regulations complying with
                    the APA…” In other situations, the Authority simply
                    disagreed with the auditor’s interpretation of HUD
                    requirements. For example, the Authority argued a $19,914
                    wood chipper was necessary to prevent rape and $49,163 of
                    expenditures for an interior designer and artist was
                    necessary to improve the aesthetic appearance of two
                    community centers. The Authority also expressed its
                    opinion that the auditors could not fully appreciate the drug
                    problems the Authority faces on its properties or the need to
                    implement various innovative strategies to attack this difficult
                    problem.

                    In addition, the Authority disagreed with the unsupported
                    expenditures we questioned in this report. The Authority
                    expressed confidence that it would eventually be able to fully
                    support these costs during the audit resolution process with
                    HUD Program staff.



OIG Evaluation of   We are pleased that the Authority started to take the
Auditee Comments    appropriate action to improve their overall management
                    process. However, we disagree with the Authority’s position
                    that the NOFA criteria we cite in the report is non-binding.
                    The NOFAs clearly define specific activities for which grant
                    funds are not permitted. Further, under Article II of the grant
                    agreement it states: “In executing this agreement, the Grantee
                    agrees to abide by all applicable laws, regulatory
                    requirements, including without limitation, all Federal, state,
                    and local laws, regulations, executive orders, OMB Circulars,
                    codes, and assurances and certifications in the approved
                    application/proposal, as amended.” In addition, a copy of this
                    draft report was provided to HUD staff and they too agreed
                    with our use of the NOFA in determining the eligibility of
                    specific grant expenditures.

                    We disagree with the Authority’s assessment as to why it
                    believes the $330,000 in construction costs is eligible under
                    the Grant Program. The Authority obtained the funds under
                    the pretense the funds would be used for computers, security
                    lighting and to prepare a daycare facility at Hawkins Village,


2004-PH-1002            Page 16
                                                                     Finding 1


                  not for the associated costs to construct the Hays Manor
                  Community Center. Further, the NOFA is clear that funding
                  is not permitted for the costs of construction of any facility
                  space. In addition, HUD staff stated they were unaware that
                  these funds were expended for only the construction of the
                  Hays Manor Community Center.

                  Finally, during the review and on several occasions during the
                  draft report stage, the Authority was provided the opportunity
                  to support the unsupported expenditures.             At each
                  presentation of supporting documentation, the audit staff
                  reviewed the documents provided and made adjustments
                  when appropriate, however, for the questioned costs that
                  remain, adequate support was never provided during this
                  process.



Recommendations   We recommend the Pittsburgh Office of Public Housing
                  require the Authority to:

                  1A.      Establish an effective cash management system to
                           ensure grant funds are drawn down timely to meet
                           expenditures.

                  1B.      Reimburse HUD with non-Federal funds, $330,000
                           for the ineligible construction expenditures.

                  1C.      Reimburse HUD with non-Federal funds $134,638
                           for the ineligible grant expenditures, where the
                           supporting documentation was used more than once
                           to obtain funding from a LOCCS draw.

                  1D.      Repay HUD $130,792 with non-Federal funds for
                           the miscellaneous ineligible expenditures.

                  1E.      Reimburse HUD with non-Federal funds, $54,567
                           for unsupported miscellaneous expenditures, unless
                           proper supporting documentation can be provided.

                  1F.      Reimburse HUD with non-Federal funds, $37,516
                           for unsupported LOCCS draws, unless proper
                           supporting documentation can be provided.




                        Page 17                                    2004-PH-1002
Finding 1


               1G.      Reimburse HUD with non-Federal funds a total of
                        $241,909 for unsupported payroll allocations unless
                        proper supporting documentation can be provided
                        to fully support the allocations.

               1H.      Reimburse HUD with non-Federal funds a total of
                        $15,248 for unsupported grant payroll expenditures,
                        unless proper supporting documentation can be
                        provided to fully support the funds drawn from
                        LOCCS.

               1I.      Reimburse the Conventional Program account
                        $183,305 for those Grant expenditures paid with
                        other program funds or return the Drug Elimination
                        Funds to HUD. If those funds are not available
                        then, reimburse HUD with non-Federal funds.

               1J.      Establish and implement policies and procedures to
                        ensure all future LOCCS Payment Vouchers are
                        supported with original supporting documentation,
                        such as invoices or timesheets, at the time of the
                        LOCCS draw. These policies should include a
                        requirement       for     routinely     completing
                        reconciliations between the LOCCS vouchers to the
                        expenditures charged.

               1K.      Complete a review of Drug Elimination grant funds
                        expended from September 30, 2001 to verify that
                        the funds expended after our audit period were
                        properly supported and were used for eligible
                        activities.

               1L.      Establish an effective grants administration system,
                        which includes the designation of a person to act as
                        the Authority's representative with respect to the
                        services and the agreements for each of the grants
                        awarded to the Authority.




2004-PH-1002         Page 18
                                                                                       Finding 2


    The Authority Improperly Awarded Service
                    Contracts
The Authority violated a number of Federal procurement requirements and its own procurement
policy in awarding six service contracts totaling $400,000. Specifically, the Authority did not
develop the required cost or price estimates necessary to ensure the prices paid were reasonable
for the services provided, split bids to avoid various procurement requirements, and overpaid a
number of vendors with questionable qualifications. In part, these problems occurred because
the Authority’s Procurement Policy violated Federal laws and regulations and the Purchasing
Manager misinterpreted the Authority’s own procurement policy. As a result, the Authority paid
$20,206 of ineligible expenses and could not adequately support $229,405 of expenditures for
the six service contracts we reviewed.



 Authority Did Not                  As part of the Drug Elimination Program, the Authority
 Complete A Required                contracted with vendors to provide computer and
 Cost Or Price Analysis             workplace skills training to the tenants at its various
 For All Procurements               properties. During our review of the FY 1997 and FY 1998
                                    grants we conducted a limited review of four service
                                    contracts. Two of the contracts provided computer skills
                                    training and two contracts provided workplace skills
                                    training. The Authority awarded each contract for $40,000.
                                    Although the Authority completed separate Requests for
                                    Proposals for these two services, they did not complete a
                                    cost or price analysis prior to issuing each request. Title 24
                                    CFR Part 85.36 requires a cost or price analysis be
                                    performed in connection with every procurement action.
                                    Grantees must make independent estimates before
                                    receiving bids or proposals to ensure contract prices are fair
                                    and reasonable. The Authority’s procurement policies and
                                    procedures have similar requirements.

                                    When we presented this finding to the Housing Authority
                                    officials, they told us the Authority was not required to
                                    complete a cost or price analysis in connection with the
                                    procurement of these four contracts because they followed
                                    the small purchases procedures of 24 CFR Part 85.36.
                                    However, the Authority’s own procurement policy as well
                                    as Title 24 CFR Part 85.36 requires a cost or price analysis
                                    be performed in connection with every procurement action
                                    before receiving bids or proposals.



                                         Page 19                                     2004-PH-1002
Finding 2


                             Further, the Purchasing Manager explained the Authority’s
                             procurement policy gives the Executive Director the
                             authority to approve a contract obtained non-competitively
                             if it does not exceed $40,000. Since the service contracts
                             were under the $40,000 threshold, the Authority believed it
                             could obtain these contracts non-competitively and without
                             preparing a price analysis. This policy is a direct violation
                             of Title 24 CFR Part 85.36, which states all procurement
                             transactions must be conducted in a manner that provides
                             full and open competition. Thus, the Authority’s
                             procurement policy is only partially compliant with the
                             Federal requirements.

                             After this issue was discussed at the exit conference, the
                             Authority acknowledged their procurement policy needed
                             to be revised and the Board adopted a new procurement
                             policy on September 17, 2003. The Authority requested the
                             Pittsburgh Field Office review the updated policy to ensure
                             it is fully compliant with all HUD rules and regulations.

 Authority Issued Multiple   The contract files showed the Authority executed contracts
 Contracts Under Two         valued at $160,000 against its 1997 and 1998 grants to fund
 Separate Requests For       four contracts for computer skills and workplace skills
 Proposals To Avoid The      training. In doing so, the Authority issued separate
 Competitive Process         Requests for Proposals for the computer training and
                             workplace skills training with each solicitation valued at
                             $80,000. However, under these two solicitations, the
                             Authority decided to select two different vendors under
                             each solicitation and awarded each of the four vendors a
                             $40,000 contract for their services.

                             Although the Authority’s procurement policy provides the
                             Executive Director the discretion to approve and contract
                             out services valued under $40,000, this policy violates
                             Federal procurement regulations which requires all
                             procurements to be completed on a competitive basis. The
                             Authority’s procurement policy cannot override this
                             requirement. In addition, based on the Authority’s files, it
                             appears that the bids were split into four separate contracts
                             to avoid following more stringent procurement
                             requirements, which is also a violation of Federal
                             Procurement regulations.




2004-PH-1002                     Page 20
                                                                            Finding 2


Authority Paid           Each of the four contractors received a contract valued at
Unreasonable Fees To     $40,000 for a time period of 5 months. A review of the
Contractors              Request for Proposals along with the issued contracts
                         provided no evidence as to the number of training courses
                         or hours of training that each contractor was to provide. In
                         fact, both documents were very generic in nature when they
                         discussed the scope of work to be performed. Since the
                         Authority did not complete a cost estimate on these
                         contracts or provide specific details behind the services
                         needed, we questioned whether the Authority paid a
                         reasonable price or received the best value for the services
                         purchased.

                         A review of the invoices show the Authority actually paid
                         the computer vendors $375 per hour and one of the
                         workplace skills trainers $350 per hour (lead instructor was
                         paid $200 and the assistant was paid $150) for their
                         services. We could not determine the exact hourly rate of
                         the second workplace skills vendor because the invoices
                         the vendor submitted to the Authority did not support a
                         constant hourly rate. However, based on the available
                         records, we estimate the Authority paid the vendor between
                         $27 and $77 per hour.

                         Also, the Authority’s records indicated one of the contract
                         panel members independently identified a more technically
                         qualified vendor that would have charged a rate in the
                         range of $93 - $156 per hour (see below under
                         Qualifications of Vendors Questioned). Further, we noted
                         the Authority paid the two computer training vendors
                         $100,206 but only received 144 hours of actual training.
                         Likewise the Authority paid the two workplace skills
                         training vendors $76,254 but only received 137.5 hours of
                         training. Thus, we question the reasonableness of the rates
                         paid to the selected contractors.

Authority Paid Vendors   In addition to the questioning the hourly rates the Authority
More Than Contract       paid to its training vendors, we noted the Authority also
Amount                   paid the two computer skills training vendors above their
                         contracted amounts. The contracts stated that each vendor
                         would be paid no more than $40,000. However, the
                         Authority did not comply with the terms of these contracts.
                         The Authority paid one vendor $50,757 and the other
                         vendor $49,449 for a total of $100,206 on the two



                             Page 21                                     2004-PH-1002
Finding 2


                                           contracts. Thus, in total the Authority paid these vendors
                                           $20,206 above the specified contract price.

    Later Issued Service                   We also completed a more limited review of the computer
    Contracts Had Similar                  skills training and workplace skills training contracts the
    Issues                                 Authority awarded with the FY 1999 and FY 2000 grant
                                           funds. We found the Authority awarded both these
                                           contracts to one of the workplace skills vendors it had
                                           previously awarded a contract. However, this time the
                                           contract amounts were slightly higher: $113,000 for the
                                           computer skills training and $127,000 for the workplace
                                           skills training. Based on the cost estimate provided by the
                                           Authority each contract called for 180 classes, which would
                                           come to approximately $157 per hour for the computer
                                           skills and $176 for the workplace skills.8

                                           As with the previous contracts, the Authority did not
                                           complete an actual cost or price analysis before it awarded
                                           the new contracts. However, the Authority used the cost it
                                           paid under the previous contracts as justification that the
                                           cost of the new contracts were reasonable. Thus, as with
                                           the previous contracts, we question whether the Authority
                                           received the most competitive price for the new contracts.
                                           The Authority paid this vendor $73,151 from July 13, 2001
                                           to September 20, 2001.

                                           During our review, we found information in the
    Qualifications Of Vendors
                                           procurement files that indicated the vendors selected may
    Questioned
                                           not have been the best qualified for the tasks. For example,
                                           notes in the file showed that during the review of the
                                           Request for Proposals, one of the Authority’s employees on
                                           the review panel questioned the qualifications of the
                                           vendors. Specifically, this panel member noted the
                                           computer vendors that submitted a proposal did not have
                                           the necessary accreditation for providing the proposed
                                           computer classes. The panel member then contacted a
                                           number of vendors that had the appropriate accreditations,
                                           and based upon the file notes, indicated those vendors
                                           would have been able to provide the training in the range of
                                           approximately $93 to $156 per hour. This was $282 to
                                           $219 per hour less than what the Authority had previously
                                           paid its vendors. Thus, we question whether the Authority
                                           actually received the best service at the best price.

8
  For these contracts, the Authority’s documentation only provided a contract cost and the number of classes to be
taught. We calculated the hourly rates by estimating an average class would be 4 hours.

2004-PH-1002                                    Page 22
                                                                        Finding 2


                   In summary, since the Authority did not complete the
                   required cost or price analysis, split bids, executed these
                   contracts under a Procurement policy that violated Federal
                   regulations, and paid unreasonable fees to less qualified
                   venders, we are questioning the entire $400,000 in awards
                   on these six contracts.



Auditee Comments   With the exception of the overpayment that occurred on the
                   contracts for the FY 1997 and FY 1998 grants, the Authority
                   disagreed with the finding. In their response, they stated that
                   the appropriate price analyses were prepared, there was no
                   bid splitting, all vendors were properly qualified and the fees
                   charged were reasonable. A summary of the Authority’s
                   response follows:

                   (1) The Authority said the required cost or price analyses
                   were prepared. Prior to issuing the Request for Proposals, the
                   Authority received a price quote of $40 per hour from the
                   local Community College for providing the computer training
                   and workplace skills training. The Authority originally
                   planned to have the local Community College provide the
                   training for the residents. However, the negotiations between
                   the Authority and Community College did not result in the
                   issuance of a memo of understanding to provide these
                   services. Thus, the Authority decided to issue a Request for
                   Proposals for the services. The Authority asserts it used the
                   price quotation provided by the Community College as the
                   basis for the price analysis before going out for bids under the
                   Request for Proposals. Although the Community College did
                   not submit a bid under the Request for Proposals, five
                   vendors did bid on the contract. The bids for the four
                   vendors that were determined to be responsive, ranged from
                   $132 to $375 per hour.

                   The Authority stated that since the bids were too expensive, it
                   abandoned the Requests for Proposals. The Authority
                   determined the best way to proceed was to develop an
                   experimental “pilot” project where it used two separate
                   vendors for each type of training. Further, it decided to use
                   what it called an “informal procurement”, available for “small
                   purchases”. Since the Authority’s procurement policy
                   specifies that small purchases cannot be over $40,000; it
                   awarded each vendor a contract not to exceed $40,000.


                       Page 23                                       2004-PH-1002
Finding 2


               The Authority then stated that since it awarded the contacts as
               small purchases, it used a price analysis based upon the
               pricing data from the original bids, which is appropriate under
               a small-purchase procurement. The Authority justified its
               actions stating 24 CFR 85.36 “specifies that an independent
               cost estimate is to be prepared before solicitation when the
               estimated amount will be above the small purchase
               limitation”. Thus the Authority said a required price analysis
               was performed relevant to the informal procurement carried
               out.

               (2) The Authority said it did not split bids when it procured
               the computer and workplace contracts. As noted above, the
               Authority said it used its informal procurement process to
               obtain vendors based upon a price comparison. The Authority
               stated that based on the proposals it received under the
               original Requests for Proposals, each vendor had its own area
               of expertise that would benefit the Authority. Therefore, the
               Authority determined it would enter into agreements for
               separate “pilot” programs with all four firms who had bid on
               the discarded Requests for Proposals. The Authority said it
               determined this approach was the most advantageous way for
               the Authority to proceed. Lastly, the Authority said it used its
               small purchase authority and informal procurement to
               facilitate its commitment to encourage contracts with small,
               minority and women-owned businesses to participate in its
               work.

               (3) The Authority believes all vendors were properly
               qualified. The Authority said it was the unanimous opinion
               of the selection panel that all the vendors selected presented
               adequate qualifications sufficient to perform the work.
               Further, the Authority stated the computer vendors were not
               required to be accredited with the Microsoft Software to be
               qualified to perform the task.

               (4) The Authority asserts that the fees charged by the vendors
               were reasonable. The Authority said it used several criteria to
               determine the reasonableness of the prices paid for both the
               2000 (awarded with 1997/98 grant funds) and 2001 contract
               awards. Specifically, for the four contracts awarded in 2000,
               the Authority used the original bids it received under the
               original Requests for Proposals it had cancelled as the basis
               for determining price reasonableness. The Authority referred
               to HUD’s Procurement Handbook which states for small


2004-PH-1002       Page 24
                                                                        Finding 2


                    purchases a price analysis can be satisfied if the Authority
                    compares proposed prices received.

                    For the two contracts issued in 2001, the Authority stated it
                    compared the competitive proposals it received for the
                    previous contracts issued in 2000 to independent price
                    estimates it received in 2000. In the Authority’s opinion, this
                    comparison showed that the 2001 contract prices were
                    reasonable. Further, the Authority said that current market
                    rate information it obtained from its October 2003 market
                    inquiry showed the prices it paid for all contracts were
                    reasonable, and in many cases lower than market rates.



OIG Evaluation of   We disagree with the Authority’s assessments.
Auditee Comments
                    (1) The Authority did not complete a proper price analysis.
                    Although we agree that it was probably the Authority’s
                    original intention to use the Community College as the trainer
                    for the services they required, using their initial estimate as
                    the basis for its price estimate was not appropriate. Authority
                    staff acknowledged that the reason a memo of understanding
                    could not be reached with the Community College to
                    complete the training was because the Authority had made
                    changes in the scope of work that the Community College
                    was not able to accommodate. Thus, the Authority’s use of a
                    cost estimate based upon a different scope of work than what
                    was issued under the Request for Proposals has little basis or
                    value. This was evidenced by the fact that the bids received
                    under the Requests for Proposals ranged from $132 - $375
                    per hour, when the Community College’s estimate was only
                    $40 per hour.

                    The Authority’s position that since it decided to award the
                    contracts as an informal small purchase procurement it could
                    now use the original vendor bids under the cancelled
                    Requests for Proposals to satisfy the independent cost
                    estimate, is seriously flawed. The decision by the Authority to
                    issue four contracts just under the small purchase threshold to
                    avoid following Federal procurement requirements does not
                    legitimize its action. Once the Authority decided to cancel the
                    Requests for Proposals, it should have reissued them with the
                    correct scope of the work to be performed and obtained an
                    accurate price analysis.


                        Page 25                                      2004-PH-1002
Finding 2


               Further, since the Authority used the invalid pricing data from
               the four contracts it awarded in 2000 as the primary basis for
               its independent cost estimate for later contracts, the price
               analysis for the 2001 contracts was not appropriate either.

               (2) The Authority did split bids. The Authority’s explanation
               and justification why they issued four service contracts just
               under its small purchase threshold of $40,000 is a classic
               example of bid splitting. The Authority obtained the bids, did
               not like what they received and then changed the method of
               procurement to obtain contracts to avoid the competitive
               process.

               (3) Based on the evidence we obtained during the audit, the
               vendors did not appear to be the best qualified to perform the
               work for the fees charged the Authority. While we agree that
               the Requests for Proposals did not require the computer
               vendors to be accredited with the Microsoft Software, one of
               the Authority’s own selection panel members questioned the
               qualifications of the selected computer vendors and their
               associated fee. This panel member independently obtained
               prices from vendors who had the accreditation, and found the
               prices obtained were several hundred dollars less than what
               was actually contracted out to vendors that did not have a
               higher level of accreditation. Thus, we believe it is
               appropriate to question the qualifications of the vendors and
               the prices the Authority paid for those services.

               (4) The fees charged by the vendors and paid by the
               Authority did not appear to be reasonable. As we discussed
               above, the Authority never obtained an independent price
               estimate or performed a proper price analysis of the
               vendors’ bids as is required under the Federal procurement
               requirements. Also, prices obtained by one of the
               Authority’s own selection panel members for three better
               qualified vendors indicated the prices paid by the Authority
               were several hundred dollars higher than what probably
               could have been obtained if the proper procurement
               procedures were followed. Further, due to the timing and
               nature of the market pricing information the Authority
               provided us from its October 2003 market pricing inquiry,
               we were not able to evaluate the reliability or validity of
               the data to draw any conclusion that the pricing data
               showed the prices paid by the Authority were reasonable.



2004-PH-1002       Page 26
                                                                     Finding 2

Recommendations   We recommend the Pittsburgh Office of Public and Indian
                  Housing:

                  2A.      Determine a fair and reasonable price for the six
                           contracts issued by the Authority. For any costs in
                           excess of what is determined to be reasonable, the
                           Authority should be required to reimburse HUD
                           with non-Federal funds all funds expended under
                           these six contracts. At the time of our review this
                           amount consisted of:

                           i.     $156,254 paid for contracted computer and
                                  workplace skills training services under the
                                  FY 1997 and FY 1998 Grant Program funds.
                                  ($80,000 – Computer Skills and $76,254 –
                                  Workplace skills)

                           ii.    $73,151 paid for contracted computer and
                                  workplace skills training services for FY
                                  1999 and FY 2000 Grant Program funds.

                  2B.      Conduct periodic reviews of the Authority’s
                           procurement activities to determine if the Authority
                           is complying with HUD’s requirements.

                  2C.      Require the Authority to reimburse HUD $20,206
                           with non-Federal funds for the contract
                           overpayments made on the FY 1997 and FY 1998
                           computer skills training contract.

                  2D.      Require the Authority to update its procurement
                           policy to bring it in line with the Federal
                           Procurement Regulations. Specifically, the policy
                           should include steps to insure that a cost and price
                           analysis is prepared for every procurement action;
                           all procurement actions are competitively
                           completed; provisions that would prohibit bid
                           splitting; and provisions to ensure insure the best
                           qualified contractor is selected.




                        Page 27                                   2004-PH-1002
Finding 2




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                   BLANK
               INTENTIONALLY




2004-PH-1002    Page 28
Management Controls
In planning and performing our audit, we obtained an understanding of the management controls
that were relevant to our audit. Management is responsible for establishing effective
management controls. Management controls, in the broadest sense, 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.



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

                                    •   Cash management of the program,

                                    •   Documentation to support activity and cost eligibility,

                                    •   Procedures over the reporting of activities and
                                        associated costs, and

                                    •   Policies and procedures in awarding service contracts.

                                    We assessed all of the relevant control categories identified
                                    above, to the extent they impacted our audit objective.

 Significant Weaknesses             A significant weakness exists if management controls do not
                                    give reasonable assurance that resource use is consistent
                                    with laws, regulations, and policies; that resources are
                                    safeguarded against waste, loss, and misuse; and that
                                    reliable data are obtained, maintained, and fairly disclosed
                                    in reports. Based on our review, we believe the following
                                    items are significant weaknesses:

                                    •   The Authority did not have a system to ensure costs
                                        incurred were for eligible activities, properly supported
                                        by appropriate source documentation, and were
                                        allocable as grant expenditures (see Finding 1).

                                    •   The Authority did not have a system to ensure proper
                                        cash management and use of budgetary control over
                                        expenditures (see Finding 1).




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Management Controls



                      •   The Authority did not have effective policies and
                          procedures in place to ensure service contracts were
                          awarded    according     to   Federal   procurement
                          requirements (see Finding 2).




2004-PH-1002              Page 30
Follow Up On Prior Audits
The Office of Inspector General completed a review of the Allegheny County Housing Authority
Public Housing Drug Elimination Grant Program and issued an audit report on July 22, 1992
(Audit Report 92-PH-209-1010). The audit report had four recommendations which have all
been closed.




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Follow Up On Prior Audits




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2004-PH-1002                 Page 32
                                                                                  Appendix A

Schedule of Questioned Costs

     Recommendation                      Type of Questioned Cost
        Number                    Ineligible 1/         Unsupported 2/

            1B.                    $330,000
            1C.                    $134,638
            1D.                    $130,792
            1E.                                              $ 54,567
            1F.                                              $ 37,516
            1G.                                              $241,909
            1H.                                              $ 15,248
            1I.                                              $183,305
            2A.                                              $229,405
            2C.                    $ 20,206

         Totals                    $615,636                  $761,950


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

2/   Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
     activity and eligibility cannot be determined at the time of audit. The costs are not
     supported by adequate documentation or there is a need for a legal or administrative
     determination on the eligibility of the costs. Unsupported costs require a future decision
     by HUD Program officials. This decision, in addition to obtaining supporting
     documentation, might involve a legal interpretation or clarification of Departmental
     policies and procedures.




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Appendix A




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2004-PH-1002    Page 34
                             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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