oversight

Housing Authority of the City of Durham, Durham, NC

Published by the Department of Housing and Urban Development, Office of Inspector General on 2004-11-19.

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

                                                             Issue Date
                                                               November 19, 2004
                                                             Audit Case Number
                                                                 2005-AT-1004




TO:         Michael A. Williams, Director, Office of Public Housing, 4FPIH


FROM:
            James D. McKay
            Regional Inspector General for Audit, 4AGA

SUBJECT:    Housing Authority of the City of Durham
            Durham, North Carolina

                                  HIGHLIGHTS

 What We Audited and Why

           We audited the Durham Housing Authority’s (Authority) financial operations and
           procurement procedures, because a prior Office of the Inspector General (OIG)
           audit identified potential deficiencies in these areas.

           Our audit objectives were to determine if the Authority’s misuse of funds,
           identified in our prior report, jeopardized its ability to operate its projects in a
           manner that promotes serviceability, economy, efficiency, and stability, and
           whether the Authority followed Department of Housing and Urban Development
           (HUD) procurement regulations when purchasing goods and services.

 What We Found
           The Authority jeopardized project stability by misusing funds to subsidize
           operations of Development Ventures, Inc., (DVI) a non-profit subsidiary. The
           Authority’s cash and investments decreased from $2.8 million in 1996 to
           $800,000 in 2003. For the same period, its accounts receivable balance increased
         from $400,000 to $4.6 million. As of June 30, 2004, DVI and its related entities
         owed $4.1 million to the Authority. At its current rate of spending, we estimated
         the Authority only had enough funds to continue operations for about 7 months.
         Without adequate funds to operate and maintain its housing developments, the
         Authority could be in default of its Annual Contributions Contract (ACC). The
         Authority believes once DVI sells three of its developments DVI will repay the
         Authority, thus resolving the Authority’s financial woes. However, the
         Authority’s plan is seriously flawed. The Authority must develop strategies to
         resolve its current financial position and ensure its future financial stability. A
         viable recovery plan coupled with HUD’s Action Plan and continued oversight,
         will help assure the Authority’s $6 million of annual operating subsidy will be put
         to better use.

         Because the Authority did not implement adequate procurement procedures, it
         spent $6,855,271 for goods and services obtained without following procurement
         regulations (Appendix C). Further, the Authority could not support $953,477
         spent for goods and services (Appendix D). Specifically, it did not always
         properly solicit or document its procurements when it purchased goods and
         services. For example, between January 1, 2000, and December 31, 2003, the
         Authority paid a temporary employment agency $1.7 million from HUD funds
         without a written contract. Similarly, it also paid a law firm over $810,000
         without soliciting bids and without a written contract. We believe the Authority
         can put the remaining unobligated balance of $2.2 million of Capital Funds to
         better use by developing and implementing procurement procedures that comply
         with procurement regulations.

What We Recommend


         We recommend the Director, Office of Public Housing require the Authority to:
         (1) devise plans with multiple strategies for resolving both its short-term and
         long-term financial problems, (2) develop and implement adequate procurement
         policies and procedures, including establishing a central procurement office,
         hiring a qualified procurement officer, and ensuring responsible management and
         staff are adequately trained on procurement requirements, (3) repay $6,855,271 to
         its programs from non-Federal funds, and (4) provide support for $953,477. We
         also recommend HUD continue to oversee Authority operations to ensure funds
         are spent for their intended purposes.

         For each recommendation without a management decision, please respond and
         provide status reports in accordance with HUD Handbook 2000.06, REV-3.
         Please furnish us copies of any correspondence or directives issued because of the
         audit.




                                          2
Auditee’s Response

           We discussed the findings with the Authority during the audit and at an exit
           conference on October 26, 2004. The Authority provided its written comments to
           our draft report on November 5, 2004. In its response, the Authority generally
           agreed with the findings and recommendations. It acknowledged the seriousness
           of its financial condition, and stated that it is dedicated to resolving its financial
           difficulties. The Authority stated that it will work with HUD and OIG to develop
           a financial recovery plan in order to put its annual operating subsidy to better use.

           The Authority acknowledged that it needs to review, update, and implement its
           procurement policies, procedures, and practices, and train personnel. It agreed on
           the need for a centralized procurement function and the employment of a senior
           procurement professional.

           The complete text of the Authority’s response, along with our evaluation of that
           response, can be found in Appendix B of this report.




                                             3
                                    TABLE OF CONTENTS

Background and Objectives                                                         5

Results of Audit
      Finding 1: The Authority Is In a Precarious Financial Position               6
      Finding 2: The Authority Improperly Spent Over $6.8 Million for Goods and   10
      Services

Scope and Methodology                                                             14

Internal Controls                                                                 15

Follow-Up on Prior Audits                                                         16

Appendixes
       A.   Schedule of Questioned Costs and Funds To Be Put to Better Use        17
       B.   Auditee Comments and OIG’s Evaluation                                 18
       C.   Ineligible Procurement Payments                                       23
       D.   Unsupported Procurement Payments                                      24




                                             4
                     BACKGROUND AND OBJECTIVES

The Authority was created in 1949 under North Carolina law to provide safe and sanitary
housing for persons of low and moderate income. A seven member Board of Commissioners
governed the Authority. Deloris C. Rogers has served as the Chairperson since
February 24, 2000. The Board of Commissioners accepted the resignation of James R. Tabron,
the former Executive Director, in April 2003. Frank Meachem currently serves as the
Authority’s Interim Executive Director.

The Authority is required to develop and operate public housing complexes in compliance with
its ACC with HUD. The Authority administered 13 Conventional Public Housing complexes
consisting of 2,133 dwelling units. It also managed a Section 8 Program consisting of 2,834
housing choice vouchers. As of June 20, 2003, the Authority had 1,496 applicants on the public
housing program waiting list and 3,244 applicants for the Section 8 Program. HUD authorized
the Authority the following financial assistance for Fiscal Years 2000 through 2003:

   o $23,227,783 Operating Subsidy to operate and maintain its housing developments.

   o $14,022,526 Capital Fund Program funding to modernize public housing units.

   o $1,008,440 Housing Drug Elimination Program funds to eliminate or reduce drug related
     crime and other major crime and disorder problems.

The Authority is the parent company of DVI, a housing development corporation created in 1985
to develop low-income properties. DVI does not have employees. The Authority’s Board of
Commissioners serves concurrently as DVI’s Board of Directors. The Authority’s Executive
Director normally serves as the Secretary/Treasurer for DVI. Currently, the Interim Executive
Director is serving as the Secretary/Treasurer.

DVI owns or has an ownership interest in at least four apartment complexes and an industrial
center, the Golden Belt Center. The apartment complexes are: Woodridge Commons
Apartments, Edgemont Elms Townhomes, Fayette Place Apartments, and Preiss-Steele Place.

We reviewed the Authority’s controls over its development activities and issued a report on
August 2, 2004, (Number 2004-AT-1012). We reported the Authority violated its ACC by
inappropriately advancing funds to DVI and its projects. We recommended the Authority repay
the advanced funds, and terminate a loan to DVI and return the funds to the Turnkey III program.

This second audit was performed to determine if the Authority’s misuse of funds, identified in
the prior OIG report, jeopardized its ability to operate its projects in a manner that promotes
serviceability, economy, efficiency, and stability, and whether the Authority followed HUD
procurement regulations when purchasing goods and services.




                                                5
                                 RESULTS OF AUDIT

Finding 1: The Authority Is In a Precarious Financial Condition
Authority management and the Board of Commissioners continued to subsidize DVI’s
operations and development activities even though several prior DVI developments were
unsuccessful. As a result, the Authority is in a precarious financial position that has jeopardized
the stability of its projects and could result in a default of its ACC. The Authority must develop
strategies to resolve its current financial position and ensure its future financial stability. This
includes recovering amounts DVI and its related entities owe the Authority, and ensuring that it
only spends funds for eligible activities as authorized by HUD. A viable recovery plan coupled
with HUD’s action plan and continued oversight will help assure the Authority’s $6 million of
annual operating subsidy will be put to better use.



 The Authority Subsidized
 DVI Operations

               Over the past several years, the Authority and DVI have undertaken several
               housing development activities and renovation of an industrial center that was
               intended to generate sufficient revenue to fund DVI operations. Unfortunately, its
               efforts were generally unsuccessful. Most of the developments were unable to
               maintain projected occupancy or rental income levels. Thus, they suffered
               financially and relied on the Authority for financial support. Authority
               management and the Board were committed to trying to make the developments
               successful. Thus, they used Authority funds to subsidize their operations even
               though its financial managers provided the Finance Committee with financial
               reports that showed the Authority’s poor financial condition.

 The Authority Is In a
 Precarious Financial Position


               The Authority is in a precarious financial position because of DVI’s failed
               developments. The Authority depleted its cash and investments from $2.8 million
               in 1996 to $800,000 in 2003. In the same period, the Authority’s accounts
               receivable balance increased from $400,000 to $4.6 million. According to the
               Authority’s financial records, DVI and its entities owed the Authority $4.1
               million as of June 30, 2004. Our analysis of the Authority’s recent spending
               showed its cash and investments had declined an average of $38,000 monthly
               from April 1, 2004, through June 30, 2004. At that rate, the Authority would
               expend its $241,000 of unencumbered funds in about 7 months; thus, it could be
               in default of its ACC.


                                                 6
                          Change in the Authority's Assets
                               6
                               5                                                           Cash &


                    Millions
                               4                                                           investments
                               3                                                           Accounts
                               2
                               1                                                           receivable
                               0

                                   1996
                                          1997
                                                 1998
                                                        1999
                                                               2000
                                                                      2001
                                                                             2002
                                                                                    2003
                                   Fiscal year ended December 31



Deficit Spending Violates the
ACC

            The ACC states a substantial default occurs “… if the powers of the housing
            authority to operate the project(s) in accordance with the provisions of this ACC
            are curtailed or limited to an extent that will prevent the accomplishment of the
            objectives of this ACC… .” The ACC requires the Authority to operate its
            projects in a manner that promotes serviceability, economy, efficiency, and
            stability without the Authority expending more funds than they have on deposit.
            Without adequate funds to operate and maintain its housing projects, the
            Authority could be in default of its ACC.

The Authority’s Plan To
Resolve Its Financial Woes Is
Flawed

            In response to our prior audit report and discussions with the Authority and HUD,
            the Authority developed a plan it believed would resolve its financial woes.
            However, the plan is flawed. The plan may not generate sufficient funds timely.
            The Authority plans to have DVI sell Golden Belt, Fayette Place Apartments, and
            Woodridge Commons Apartments. DVI would then use the sales proceeds to
            reduce the amounts owed to the Authority for those three developments.
            However, DVI may not be able to sell the developments timely because of
            unfavorable market conditions. Several Durham area real estate professionals
            told us the commercial real estate market is overbuilt and therefore sluggish,
            especially in the geographic areas of DVI’s developments. One Durham area
            market study reported the apartment vacancy rate increased from 8.8 percent to
            10.5 percent between October 1, 2003, and March 31, 2004. The Chamber of
            Commerce agreed that the two apartment complexes would be hard to sell, but
            was more optimistic about selling Golden Belt. The Chamber estimated Golden
                                                           7
           Belt could be sold in 6 – 12 months. The Authority has claimed since June 2004
           that the developments would be sold to raise funds. Thus far, none of them have
           sold.

           While DVI might eventually sell the properties and repay portions of the amounts
           owed the Authority, the Authority cannot afford to wait for those possible events
           to occur. Further, because the developments have other creditors that must be
           paid, there may not be sufficient proceeds to fully repay the Authority. We are
           concerned that the Authority doesn’t fully realize the seriousness of its possible
           plight should it fail to resolve its financial difficulties. It must develop a recovery
           plan with multiple strategies with both short-term and long-term objectives to
           prevent a possible default of its ACC, ensure financial stability, and ensure
           sufficient financial reserves are available to carry out its primary mission of
           providing decent, safe, and sanitary housing to its tenants.

HUD Took Early Action to
Monitor Financial Operations


           HUD’s Office of Public Housing, Greensboro, North Carolina, initiated actions to
           monitor the Authority’s financial operations after we informed them of our
           concerns in May 2004. The Greensboro Office promptly developed an Action
           Plan that includes several steps to control expenditures that should help the
           Authority improve its financial position. Corrective actions in the Plan include:

                 -   reviewing and approving all purchases and expenditures;
                 -   reviewing the Authority’s financial status;
                 -   requiring the Authority to develop a cost allocation plan;
                 -   requiring the Authority to develop and submit a complete list of all
                     liabilities, checking and investment accounts and the respective balances;
                     and,
                 -   requiring the Authority develop a repayment plan.

           HUD’s early intervention coupled with development of a financial recovery plan
           should help assure the Authority puts its $6 million of annual operating subsidy to
           better use by using the funds efficiently and only for eligible program activities.

Recommendations

           We recommend the Director, Office of Public Housing:

           1A.       Require the Authority to develop a financial recovery plan with short-term
                     and long-term strategies that strengthens its current financial position and
                     ensures its future financial stability. This includes increasing its financial
                     reserves and reducing its accounts receivable by recovering amounts owed
                     by DVI and its related entities.
                                               8
1B.   Continue to monitor Authority financial operations until it has implemented
      procedures to ensure funds are spent efficiently and only for eligible
      activities, thereby putting its $6 million annual operating subsidy to better
      use.




                               9
Finding 2: The Authority Improperly Spent Over $6.8 Million For
           Goods and Services
Our review of disbursements totaling $8,818,224 between January 1, 2000, and December 31, 2003,
found the Authority spent $6,855,271 for goods and services without following procurement
regulations (Appendix C). Further, it could not support $953,477 it spent for goods and services
(Appendix D). For example, the Authority paid about $2.2 million for renovation work to a
contractor who did not have the lowest bid, and paid about $1.7 million from HUD funds to a
temporary employment agency without a contract. This occurred because the Authority did not
have adequate procedures to ensure it properly solicited and documented its procurements. As a
result the Authority cannot ensure it received the resulting goods and services at the best price or
that it properly used HUD funds to meet its mission of providing safe and sanitary housing. The
Authority can put the unobligated $2,287,142 available from its Capital Funds Program (CFP) to
better use with development and implementation of good procurement procedures.



 The Authority Did Not Have
 Adequate Procedures

               Because the Authority did not have adequate policies and procedures governing
               its procurement activities, it did not competitively award some work, paid for
               services without executing contracts, did not adequately define the scope of work,
               did not consistently evaluate proposals, and paid its former Executive Director for
               services in violation of the ACC. The Authority’s procurement policy, developed
               in April 1990, was outdated and did not meet requirements of HUD Handbook
               7460.8 and Title 24, Part 85.36 of the Code of Federal Regulations (CFR).
               Further, the Authority did not always follow prescribed procedures. For example,
               the Authority did not maintain a contract register, did not maintain a current and
               accurate list of pre-qualified bidders, and did not maintain complete files
               documenting the history of its procurements. Also, the Authority’s procurement
               structure was not properly aligned. The Director of Finance and Administration
               was ultimately responsible for all procurement functions. Yet, several contracts,
               change orders, and certifications were negotiated, approved, or signed by persons
               outside of that Director’s authority. Further, the former Executive Director
               allegedly renegotiated the terms of the legal services contract without the
               knowledge of the person responsible for the contract.




                                                10
The Authority Paid $2,693,067
Without Properly Competing
the Work

            The Authority spent about $2.2 million to renovate several of its projects without
            competitively awarding the work. Procurement regulations and HUD Handbook
            7460.8 require the Authority to procure goods and services in a manner that
            provides full and open competition. While the Authority obtained bids, it did not
            award several renovation contracts to the lowest bidder. The Authority believed
            this practice was permissible to meet its Minority Business Enterprise goals. The
            Authority also extended a legal services contract without competing for the
            services when the original contract expired. The Authority thought its former
            administration received HUD approval to continue using the same firm for legal
            services. The Authority also reasoned that its previous attorney was retained for
            40 years without recompeting for the services. Because the Authority did not
            obtain the services through fair and open competition, it may not have received
            the resulting services at the best price since competitors did not have an
            opportunity to provide bids.

The Authority Paid $2,860,960
for Services Without Executing
Contracts

            In violation of procurement regulations, the Authority paid $2,860,960 for
            services without executing written contracts. For example, the Authority paid
            about $1.7 million to a temporary employment agency and over $810,000 from
            HUD funds to a law firm without a written contract. A written contract specifies
            the responsibilities of the parties to the contract, protects their interests if there is
            a dispute, and specifies the payment terms.

Other Procurement Deficiencies


            In addition to failing to competitively award and execute contracts, the Authority
            also failed to follow other prescribed procurement procedures. For example, it
            did not adequately define the scope of work for $1,180,783 of the procurements.
            Thus, it had to modify contracts with change orders that significantly increased
            costs. Also, because the Authority did not consistently evaluate proposals, it paid
            $91,788 to a contractor who may not have been the best qualified. Further, the
            Authority paid $28,673 to its former Executive Director to retain his expertise for
            creating and operating affordable housing. The ACC prohibits the Authority from
            contracting with any officer for 1 year after his tenure on any project in which he
            had an indirect or direct interest.



                                               11
Unsupported Procurements of
$953,477

           On several occasions we requested documentation supporting nine procurements
           totaling $953,477. For some of the procurements, the Authority provided some
           documentation, however, it was insufficient for us to evaluate the history of the
           procurement. For others, the Authority provided no support.

HUD Reviews Noted Similar
Procurement Problems

           In June 2003, the Greensboro Office performed an assessment of the Authority’s
           procurement procedures and found the Authority did not have a detailed
           procurement policy with operational procedures similar to those set forth in HUD
           Handbook 7460.8 and 24 CFR 85.36. Further, the Authority’s contract for legal
           services expired in 2000. There was no record of a Request for Quote or
           modification to extend the legal services contract beyond the expiration date.

           The Greensboro Office advised the Authority that it should implement
           procurement policies similar to those in HUD Handbook 7460.8, which would
           assure staff has access to the same procedures, and should contribute to
           consistency in procurement practices. The Greensboro Office also advised the
           Authority that at the time the legal services contract expired; the Authority was
           required to solicit full and open competition. Despite HUD’s comments, the
           Authority continued to pay for services in violation of requirements.

HUD Took Early Action to
Monitor Contracting


           On May 26, 2004, we discussed our concerns with officials from the Greensboro
           Office, including the Director of Public Housing. Subsequently, the Greensboro
           Office took immediate corrective actions to mitigate the conditions. Specifically,
           they began reviewing and approving:

              •   Contract solicitation packages prior to Board review,
              •   Contract awards, including but not limited to review of all proposals and
                  ratings submitted as a result of solicitation,
              •   Any and all change orders under existing contracts, and,
              •   Any and all requests to extend or renew contracts.

           The Authority can put the unobligated $2,287,142 available from its CFP, as of
           June 30, 2004, to better use if it develops and implements better procurement
           policies and procedures.

                                            12
Recommendations


          We recommend the Director, Office of Public Housing:

          2A.     Require the Authority to develop and implement procurement policies and
                  procedures that ensure its future procurements, including its remaining
                  $2,287,142 million of unobligated Capital Funds are spent in a manner
                  that provides for full and open competition, thus ensuring the funds are
                  used efficiently.

          2B.     Require the Authority to establish a central procurement office.

          2C.     Require the Authority to hire a qualified procurement officer.

          2D.     Ensure responsible Authority staff and management obtains procurement
                  training.

          2E.     Require the Authority to repay its programs $6,855,271 spent for
                  ineligible procurements. Repayment should be from non-Federal funds
                  and paid in the following amounts and to the following programs:
                  Conventional Public Housing General Fund $2,818,331, Capital Fund
                  $3,630,215, HOPE VI $259,289, Section 8 $115,128, Drug Elimination
                  $12,048, Economic Development Support Services $13,831, and Turnkey
                  III program $6,429.

          2F.     Require the Authority to provide support for $953,477 spent for goods and
                  services identified in Appendix D, or require the Authority to repay any
                  amounts it is unable to support. Repayments should be made from
                  non-Federal funds and paid in the following amounts and to the following
                  programs: Conventional Public Housing General Fund $822,529, Section
                  8 $80,102, HOPE VI $19,429, and Turnkey III program $31,417.

          2G.     Continue to monitor the Authority’s procurements until it has
                  demonstrated it has developed and implemented procedures that comply
                  with requirements.




                                           13
                          SCOPE AND METHODOLOGY

We performed the audit:

•    From February through August 2004;
•    In accordance with generally accepted government auditing standards and included tests of
     management controls that we considered necessary under the circumstances; and,
•    At the Durham Housing Authority located in Durham, North Carolina.

The audit covered transactions representative of operations current at the time of the audit and
included the period January 2000 through December 2003. We expanded the audit scope as
necessary. We reviewed applicable guidance, including the Authority’s ACC and 24 CFR 85.36,
and discussed operations with management and staff personnel at the Durham Housing Authority
and key officials at HUD’s Greensboro Office.

To determine if the Authority’s misuse of funds jeopardized project stability we reviewed the
Authority’s and DVI’s financial statements for Fiscal Years 1996 through 2003. We expanded
our review through June 2004 to update our analysis.

To determine if the Authority followed HUD procurement regulations we reviewed the
Authority’s documentation for selected procurements. Documentation reviewed included
available contracts, award documents, accounting records, vendor billings, and checks. We
expanded our review to include a non-statistical sample of procurements based on total amounts
paid to individual vendors. To perform the review, we:

•    Obtained the Authority’s disbursement records for the period January 1, 2000, through
     December 31, 2003, in electronic format.
•    Calculated the total amounts paid to individual vendors.
•    Reviewed a non-representative sample of payments totaling $8,818,224 or 17 percent of
     the Authority’s total checks of $53,106,240 for the period.
•    Reviewed available contracts and award documents to assess compliance with specific
     procurement criteria (planning, soliciting, evaluating, and documenting).
•    Reviewed HUD correspondence related to the audit, and results of monitoring reviews
     conducted by the Greensboro Office.




                                              14
                             INTERNAL CONTROLS

Internal Control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls
              We determined the following internal controls were relevant to our audit objectives:

                  •   Monitoring financial operations to assure the Authority can continue to meet
                      its mission, goals, and objectives.

                  •   Conducting procurement transactions in accordance with procurement
                      regulations and in a manner providing for full and open competition.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

 Significant Weaknesses

              Based on our review, we believe the following items are significant weaknesses:

                  •   The Authority did not monitor financial operations to assure the Authority
                      could continue to meet its mission, goals, and objectives (Finding 1).

                  •   The Authority did not conduct procurement transactions in accordance
                      with procurement regulations and in a manner providing for full and open
                      competition (Finding 2).



                                               15
                   FOLLOW-UP ON PRIOR AUDITS


Housing Authority of the City
of Durham, North Carolina,
Report Number 2004-AT-1012


           OIG audit report 2004-AT-1012, issued August 2, 2004, reported the Authority
           violated its ACC and Turnkey III agreement with HUD. For example, the
           Authority inappropriately advanced funds and guaranteed loans for non-Federal
           development and other activities that were not approved by HUD. The Authority
           also failed to properly allocate operating costs to other entities. Further, the
           Authority has not completed several of its development efforts, thus we
           questioned its ability to successfully complete its HOPE VI Revitalization Plan.
           These actions occurred because the Authority Board of Commissioners and
           management did not establish and implement sufficient controls to monitor
           activities and ensure transactions adhered to Federal regulations. Further, the
           Board did not adequately fulfill its fiduciary responsibilities to oversee Authority
           operations, and management willfully disregarded HUD requirements and
           instructions. The report contained 16 significant recommendations that remain
           open pending completion of corrective actions.




                                            16
                                               APPENDIXES

Appendix A

                      SCHEDULE OF QUESTIONED COSTS
                     AND FUNDS TO BE PUT TO BETTER USE

                                                                       Funds To Be Put to
             Recommendation           Ineligible 1/   Unsupported 2/     Better Use 3/
                   1B                                                     $ 6,000,0001
                   2A                                                       2,287,142
                   2E                 $ 6,855,271
                   2F                                   $ 953,477
                  Total               $ 6,855,271       $ 953,477          $ 8,287,142




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
           polices or regulations.

2/         Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
           or activity when we cannot determine eligibility at the time of audit. Unsupported costs
           require a 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.

3/         Funds to be put to better use are quantifiable savings that are anticipated to occur if an
           OIG recommendation is implemented, resulting in reduced expenditures at a later time
           for the activities in question. This includes costs not incurred, deobligation of funds,
           withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures,
           loans and guarantees not made, and other savings.




1
    Estimate based upon fiscal year 2004 subsidy.

                                                      17
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         18
Comment 1




            19
Comment 2




            20
Comment 3




            21
                     OIG Evaluation of Auditee Comments




Comment 1   We are pleased the Authority recognizes the seriousness of its financial
            condition and the need to resolve its financial difficulties.

Comment 2   We are also encouraged that the Authority will implement procurement
            procedures to address weaknesses identified in our report.

Comment 3   Implementation of our recommendations and continued HUD oversight
            should improve Authority operations and ensure HUD funds are used more
            efficiently and effectively, and for their intended purposes. We appreciate
            the Authority’s cooperation during the audit and welcome its continued
            cooperation in implementing corrective actions.




                                         22
Appendix C

                     INELIGIBLE PROCUREMENT PAYMENTS
                                 OF $6,855,271


                                                             CGP
                                                              or        HOPE       Section
       Good or Service      Deficiency Conventional          CFP         VI           8        Other
     Temporary
     Employment                 (2)          $1,504,795      $32,364     $58,563    $109,390   $25,8792
     Legal                    (1) (2)           550,079       57,649     196,901       5,738       1893
     Landscaping                (1)             339,535                    3,825                 6,2403
     Pest Control               (2)             253,567
     Meter Reading              (1)              75,836

     Payroll                    (2)              65,846
     Consulting
     Agreement                  (4)              28,673

     Property Renovations       (1)                         2,220,803
     Damar Court Paving         (3)                           546,589
     Fayette Street &
     Morreene Road
     Paving & Drainage          (3)                          452,983
     Hoover Road Roofing        (3)                          181,211

     Architectural              (5)                           91,788

     Appliances                 (1)                           46,827

       Total                                 $2,818,331 $3,630,215      $259,289    $115,128   $32,308

       (1)   Inadequate or no competitive awarding. Total = $2,693,067
       (2)   No written contract. Total = $2,860,960 (includes the $810,556 for legal services)
       (3)   Inadequate scope of work. Total = $1,180,783
       (4)   Prohibited by ACC. Total = $28,673
       (5)   Inadequate bid evaluation. Total = $91,788




2
    Economic Development Support Services ($13,831) and Drug Elimination Program ($12,048).
3
    Turnkey III




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Appendix D

         UNSUPPORTED PROCUREMENT PAYMENTS




                      GOOD OR SERVICE    AMOUNT
  Insurance                                 $ 375,898
  Telecommunications                           196,935
  Legal                                        118,349
  Engineer Consultants                          37,667
  Janitorial                                    93,415
  Interior Construction                         51,042
  Housing Quality Standards Evaluator           50,528
  Housing Quality Standards Evaluator           29,643
   TOTAL                                     $ 953,477




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