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.
Table of Contents
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.
Table of Contents
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.
Table of Contents
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.
Table of Contents
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.
Table of Contents
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.
Table of Contents
7
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.
Table of Contents
8
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.
Table of Contents
9
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.
Table of Contents
10
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.
13
Table of Contents
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.
Table of Contents
14
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.
Table of Contents
15
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)
Table of Contents
16
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)