oversight

The Housing Authority of the City of High Point, NC

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-06-27.

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

                                                               Issue Date
                                                                       June 27, 2005
                                                               Audit Case Number
                                                                       2005-AT-1011




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




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

SUBJECT: The Housing Authority of the City of High Point, North Carolina
         Did Not Properly Procure Goods and Services


                                    HIGHLIGHTS

 What We Audited and Why

              As part of the Department of Housing and Urban Development (HUD), Office of
              the Inspector General’s (OIG) strategic plan, we audited the procurement
              practices of the Housing Authority of the City of High Point, North Carolina
              (Authority). Our audit objective was to determine whether the Authority solicited
              and awarded contracts in accordance with procurement regulations and other
              requirements.

 What We Found

              The Authority paid at least $524,337 from October 1, 2003, through
              September 30, 2004, without following procurement requirements. This occurred
              because the Authority did not have adequate internal controls to ensure it
              procured goods and services in accordance with procurement requirements. 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.




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What We Recommend


           We recommend that the director of the Office of Public Housing (1) require the
           Authority to develop and implement procurement policies and procedures that
           ensure future procurements are in accordance with requirements, thus providing
           assurance that at least $524,337 will be put to better use during the next 12
           months; (2) require the Authority to discontinue paying vendors who do not have
           valid contracts or purchase orders; and (3) monitor the Authority to ensure it
           complies with procurement requirements and, if necessary, implement appropriate
           sanctions to ensure compliance.

           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.


Auditee’s Response


           We discussed the findings with the Authority during the audit and at an exit
           conference on May 27, 2005. The Authority provided its written comments to our
           draft report on June 3, 2005. The Authority generally agreed with the finding.

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




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                                            2
                                     TABLE OF CONTENTS

Background and Objectives                                                           4

Results of Audit
        Finding 1: The Authority Improperly Spent at Least $524,337 for Goods and   5
        Services

Scope and Methodology                                                               8

Internal Controls                                                                   9



Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use              10
   B.   Auditee Comments and OIG’s Evaluation                                       11
   C.   Criteria                                                                    14
   D.   Table of Procurement Deficiencies                                           16




                                              3
                     BACKGROUND AND OBJECTIVES

The Housing Authority of the City of High Point, North Carolina (Authority), was chartered in
1940 as a nonprofit corporation under General Statutes, Article 15, of the State of North
Carolina. Its primary objective is to provide decent, safe, and sanitary housing to the
low-income citizens of High Point, North Carolina, in accordance with regulations set forth by
the U.S. Department of Housing and Urban Development (HUD).

A seven-member board of commissioners appointed by the mayor of High Point governs the
Authority. Reverend Michael Ellerbe is the current board chair. Reverend Ellerbe replaced
James McInnis who was the board chair from February 2002 until January 2005. Robert Kenner
has been the executive director since January 20, 2003.

The Authority administers approximately 1,220 units funded under the public housing program,
1,291 units funded through the Section 8 Housing Choice Voucher program, and 100 units
through the Section 8 New Construction program.

HUD’s Greensboro, North Carolina, Office of Public Housing oversees the Authority.

Our audit objective was to determine whether the Authority solicited and awarded contracts in
accordance with procurement regulations and other requirements.




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                                               4
                                RESULTS OF AUDIT

Finding 1: The Authority Improperly Spent at Least $524,337 for
           Goods and Services
Our review of 30 procurements found the Authority paid at least $524,337 from October 1, 2003,
through September 30, 2004, without following procurement requirements. This occurred
because the Authority did not have adequate internal controls to ensure it procured goods and
services in accordance with procurement requirements. 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 $524,337
to better use during the next 12 months with development and implementation of internal
controls that ensure the Authority complies with procurement requirements.


 The Authority Did Not Have
 Adequate Controls


              Procurement regulations, Title 24, Part 85.36 of the Code of Federal Regulations,
              require the Authority to conduct all procurement transactions in a manner that
              provides full and open competition, maintain records sufficient to detail the history
              of a procurement, establish procedures for evaluating bids and proposals, perform
              independent cost estimates, and perform cost or price analysis. We found at least
              one deficiency in 27 of the 30 procurements we reviewed. For example, the
              Authority’s files did not contain evidence that it advertised 12 of the 27
              procurements. Thus, it cannot provide evidence that it created an environment that
              permitted full and open competition. Further, the Authority’s current procurement
              policy did not require independent cost estimates, or cost or price analysis. We
              found the Authority did not complete independent cost estimates for any of the 26
              procurements that required them, and did not perform cost or price analysis for 27 of
              28 procurements that required them.

              We also found that for 12 of the 27 procurements, the Authority either did not award
              the procurements to the lowest or best-qualified bidder, or there was not sufficient
              documentation in the files for us to determine if the Authority complied with the
              requirement. Awards should be made to the bidder that is lowest in price, or is most
              advantageous to the program, with price and other factors considered.




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                                                5
           We also found that between January 1, 2001, and September 30, 2004, the
           Authority paid $152,903 to a vendor for temporary services and $119,825 to
           another vendor for cleaning and painting units without competition. The
           Authority’s files did not contain any evidence that it solicited bids or quotes,
           performed independent cost estimates, or performed price/cost analysis. Further,
           it did not execute contracts with either vendor. Similarly, the Authority paid
           $173,635 to an electrical contractor and $119,901 to a carpet company without
           written contracts. 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.

           These deficiencies occurred because the Authority failed to implement an effective
           internal control plan that ensured it procured goods and services in accordance with
           procurement requirements. As a result, it spent at least $524,337 for the 27
           procurements without following requirements. As such, the Authority cannot ensure
           the prices it paid for goods and services were the most economical. Appendix D is
           a complete list of the procurement deficiencies.


 The Authority Revised Its
 Procedures


           The Authority established a central procurement office and hired its first
           procurement officer in July 2001. Before this, the various departments within the
           Authority handled their own procurement transactions. Although the Authority
           hired a procurement officer in July 2001, the various departments continued to do
           their respective procurements without the procurement officer’s involvement.
           When the current executive director was hired in January 2003, he revised the
           procedures to require the procurement officer to perform all procurements.

           Our review included procurements performed both before and following the
           revised procedures. While the current executive director has implemented
           improvements, additional improvements are needed. For example, the
           Authority’s current procurement and disposition policy, effective January 1, 2002,
           requires the executive director to perform a yearly review of random procurement
           files. We found the executive director did not perform the review. Also, the
           current policy does not include provisions to ensure required independent cost
           estimates and cost/price analyses are performed. Further, the Authority does not
           maintain a contract register.

           By implementing internal controls that ensures the Authority complies with
           procurement requirements, the Authority can put at least $524,337 to better use for
           future procurements.




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                                              6
 Recommendations



            We recommend the director, Office of Public Housing

            1A.     Require the Authority to develop and implement procurement policies and
                    procedures that ensure future procurements are in accordance with
                    requirements, thus providing assurance that at least $524,337 will be put
                    to better use during the next 12 months.

            1B.     Require the Authority to discontinue paying vendors who do not have
                    valid contracts or purchase orders.

            1C.     Monitor the Authority to ensure it complies with procurement
                    requirements and, if necessary, implement appropriate sanctions to ensure
                    compliance.




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                         SCOPE AND METHODOLOGY

Our audit objective was to determine whether the Authority solicited and awarded contracts in
accordance with procurement regulations and other requirements. To accomplish our audit
objective, we reviewed

•     Applicable laws, regulations, and other HUD program requirements;

•     Minutes from the board of commissioners meetings; and

•     The Authority’s policies and procedures related to procurements.

To determine whether the Authority followed HUD procurement regulations, we

•     Obtained the Authority’s disbursement records for the period January 1, 2001, through
      September 30, 2004, in electronic format;

•     Calculated the total amounts paid to individual vendors;

•     Reviewed 12 of 74 procurements from a list provided by the procurement officer and a
      nonrepresentative sample of 18 procurements based on amounts paid to vendors or other
      factors. Payments to these vendors between January 1, 2001, and September 30, 2004,
      totaled $11,218,541 or 19.7 percent of the total payments of $56,876,687, excluding
      payments to Section 8 landlords;

•     From the Authority’s cash disbursement records, determined the Authority paid the 27
      vendors whose services were not properly procured a total of $524,337 from
      October 1, 2003, through September 30, 2004. Based on the payments during the 12
      months, we estimated the Authority could put $524,337 of funds to better use in the next 12
      months. This is not a statistical projection and is used only for the purpose of determining
      funds that can be put to better use.

•     Reviewed available contracts and award documents to assess compliance with specific
      procurement criteria (planning, soliciting, evaluating, and documenting); and

•     Interviewed the Greensboro, North Carolina, Office of Public Housing and Authority board
      members, management, and staff.

We conducted our fieldwork from October 2004 through April 2005 at the Authority’s offices in
High Point, North Carolina. Our audit period was from January 1, 2001, through
September 30, 2004. We expanded our audit period as needed to accomplish our objectives.

We conducted the audit in accordance with generally accepted government auditing standards.




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                             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:

                  •   Compliance with laws, regulations, policies, and procedures that
                      management has implemented to reasonably assure that resource use is
                      consistent with laws and regulations and
                  •   Policies and procedures that management has implemented to reasonably
                      assure that resources are safeguarded against waste, loss, and misuse.

              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 item is a significant weakness:

                  •   The Authority did not have an adequate system in place to assure it
                      procured goods and services in accordance with requirements.




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                                    APPENDIXES

Appendix A

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

                             Recommendation         Funds to be put
                                                    to better use 1/
                                     1A                $524,337



1/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     Office of Inspector General (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.




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  Appendix B

          AUDITEE COMMENTS AND OIG’S EVALUATION


  Ref to OIG Evaluation   Auditee Comments




Table of Contents          11
Comment 1




Comment 2




Comment 3




Table of Contents   12
                          OIG Evaluation of Auditee Comments




               The $524,337 paid to the 27 vendors in question was only payments made from
  Comment 1
               October 1, 2003, through September 2004. We agree with the Authority that the
               vendors were also paid various amounts dating back to January 1, 2001.
               However, we are only addressing the amounts paid during the most recent 12
               months of our review for the purposes of estimating the annual amount of funds
               that could be put to better use if the Authority implements internal controls that
               ensures it complies with procurement requirements.

               If the Authority is referring to the amounts paid to the four vendors without
               contracts, the amounts were paid between January 1, 2001, and September 30,
               2004. We added a statement to the finding to clarify the dates of those payments.

               The finding acknowledged that the Authority implemented new procedures;
  Comment 2
               however, additional improvements are needed. The Authority states that it does
               not work with vendors that do not have valid contracts or purchase orders in
               place. As stated in the finding, we found that was not the case for our review
               period. If the Authority does have valid contracts or purchase orders for the four
               vendors in question, they were not in the files or otherwise provided to us.

  Comment 3    Throughout our review, we recognized that current management had made
               improvements and was willing to take necessary steps to ensure it complied with
               requirements. We encourage the Authority to work with HUD to address the
               identified deficiencies.




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APPENDIX C

                                         CRITERIA

24 CFR [Code of Federal Regulations] 85.36(b)(9)

Grantees and subgrantees will maintain records sufficient to detail the significant history of a
procurement. These records will include but are not necessarily limited to the following:
rationale for the method of procurement, selection of contract type, contractor selection or
rejection, and the basis for the contract price.

24 CFR [Code of Federal Regulations] 85.36(c)(1)

All procurement transactions will be conducted in a manner providing full and open competition.

24 CFR [Code of Federal Regulations] 85.36(d)(2)

Procurements by sealed bids are publicly solicited and a firm-fixed-price contract is awarded to
the responsible bidder whose bid, conforming with all the material terms and conditions of the
invitation for bids, is the lowest in price.

24 CFR [Code of Federal Regulations] 85.36(d)(3)

Requests for proposals will be publicized and identify all evaluation factors and their relative
importance. Grantees and subgrantees will have a method for conducting technical evaluations
of the proposals received and for selecting awardees. Awards will be made to the responsible
firm whose proposal is most advantageous to the program, with price and other factors
considered.

24 CFR [Code of Federal Regulations] 85.36(f)(1)

Grantees and subgrantees must perform a cost or price analysis in connection with every
procurement action including contract modifications. Grantees must make independent
estimates before receiving bids or proposals. A cost analysis must be performed when the
offeror is required to submit the elements of his estimated costs, e.g., under professional,
consulting, and architectural engineering services contrast. A cost analysis will be necessary
when adequate price competition is lacking, and for sole source procurements. A price analysis
will be used in all other instances to determine the reasonableness of the proposed contract price.




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24 CFR [Code of Federal Regulations] 85.43

If a grantee or subgrantee materially fails to comply with any term of an award, whether stated in
a Federal statute or regulation, an assurance, in a State plan or application, a notice of award, or
elsewhere, the awarding agency may take one or more of the following actions, as appropriate in
the circumstances: (1) temporarily withhold cash payments pending correction of the deficiency
by the grantee or subgrantee or more severe enforcement action by the awarding agency, (2)
disallow all or part of the cost of the activity or action not in compliance, (3) wholly or partly
suspend or terminate the current award for the grantee's or subgrantee's program, (4) withhold
further awards for the program, or (5) take other remedies that may be legally available.

Office of Management and Budget Circular A-87 (B)(8)

A contract is a mutually binding legal relationship obligating the seller to furnish the supplies
and services (including construction) and the buyer to pay for them. It includes all types of
commitments that obligate the government to an expenditure of appropriated funds and that,
except as otherwise authorized, are in writing.

Housing Authority of the City High Point, North Carolina’s Procurement and Disposition
Policy-Section 8

Requires the executive director to randomly select certain procurement files administered in the
immediately proceeding year to be reviewed and analyzed for consistency with the policy.




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Appendix D

                                 Table of Procurement Deficiencies1
                                            RFP,**
                              Independent RFQ,***                                Price/ Low bidder/
                                   cost     quotes,                               cost      best
     Company name               estimate2 sealed bids3 Advertised3 Competitors4 analysis2 qualified2   Contract5
Tree service                      N            Y           Y            Y          N         Y            Y
Plumbing and heating              N            Y           Y            Y          N         N            Y
Elevators                         N            Y           N            Y          N         Y            Y
Certified public accountant       N            N           N            Y          N         N            Y
Landscaping                       N            Y           Y            Y          N         N            Y
Door maintenance                  N            Y            *           Y          N         Y            *
Flooring                          N            Y           Y            Y          N         N            Y
Electrical contractor-2002        N            Y           Y            Y          N         N            Y
Windows                           N            Y           N            Y          N         N            Y
Painting –1                       N            Y           Y            Y          N         N            Y
Plumbing modernization            N            Y           N            Y          N         Y            Y
Termite & pest control            N            Y           Y            Y          N         Y            Y
Temporary services                N            N           N            N          N         N            N
Cleaning and painting             N            N           N            N          N         N            N
HOPE VI developer                  *           Y           Y            Y          *         Y            Y
Carpeting                         N            Y           N            Y          N         Y            N
Building addition                 N            Y           Y            Y          N         Y            Y
Cleaning retention ponds          N            N           N            Y          N         Y            Y
Drain pipe installation           N            N           N            Y          N         Y            Y
Replacement of cabinets           N            Y           N            Y          N         Y            Y
Replace sewer lines               N            Y           Y            N          N         *            Y
Painting – 2                      N            Y           Y            Y          N         Y            Y
Door installation                 N            Y           Y            Y          N         *            Y
Air conditioning                  N            Y           Y            Y          N         Y            Y
Automotive                         *           Y            *           Y          *         *            *
Healthcare                         *           Y            *           Y          Y         Y            Y
Electrical contractor–2001        N            N           N            N          N         N            N
General counsel                   N            Y           Y            Y          N         N            Y
HOPE VI legal counsel              *           Y           Y            Y          N         N            Y
Playground equipment              N            Y           N           N          N          *            Y
                                 N=26         N= 6        N=12        N= 5       N=27       N=12         N= 4
Total                            Y= 0         Y=24        Y=15        Y=25       Y= 1       Y=14         Y=24



1
  Y = Followed procurement requirements N = Did not follow procurement requirements * = Not applicable
   ** RFP = request for proposal        *** RFQ = request for qualifications
2
  24 CFR 85.36 (f)(1)
3
  24 CFR 85.36 (d)
4
  24 CFR 85.36 (c)(1)
5
  OMB Circular A-87 (B)(8)




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