Issue Date April 25, 2005 Audit Report Number 2005-BO-1003 TO: Donna J. Ayala, Director, Office of Public Housing, 1APH FROM: John Dvorak, Regional Inspector General for Audit, 1AGA SUBJECT: Audit of Milford, CT, Housing Authority’s Capital Fund Program, Development Grants for Scattered Sites, Section 8 Voucher Program, and Specific Administrative Policies and Procedures HIGHLIGHTS What We Audited and Why As part of our annual plan, we audited the Milford Housing Authority (Authority) of the City of Milford, CT, to determine whether the Authority’s Capital Fund program was operating in an effective and efficient manner and in compliance with its U.S. Department of Housing and Urban Development (HUD) Annual Contributions Contract, applicable laws, and contractual requirements. Our initial survey results identified additional risk areas. Therefore, we expanded the scope of our audit to include the Authority’s public housing development grants for scattered sites, Section 8 Voucher program, and specific administrative policies and procedures. The audit was conducted between June 2003 and February 2004 and covered the period January 1, 2000, through December 31, 2003. When appropriate, the audit was extended to include other periods. We conducted our audit in accordance with generally accepted government auditing standards. What We Found Our audit identified eight findings, resulting in questioned costs and opportunities for funds to be put to better use totaling $1,525,796 (see appendix A). We determined that the Authority failed to: • Address exigent health and safety issues at its Foran Towers project; • Manage its Harrison Avenue Renovation Project in an effective and efficient manner; • Use development funds for scattered site units on necessary and needed expenditures, maintain an inventory for the prematurely replaced or newly purchased scattered site equipment, and comply with Section 504 handicapped requirements for the development of scattered site units; • Comply with Federal requirements and its own contracts for legal services incurred; • Implement adequate management controls and procedures over Section 8 inspections; • Lease-up Section 8 units at an acceptable rate; • Comply with HUD procurement regulations and its own procurement policy; and • Obtain the required HUD approval for the Executive Director’s 5-year employment contract and establish performance measurements and execute performance evaluations for the Executive Director, properly charge HUD programs for personal use of the Executive Director’s automobile, comply with requirements for executive sessions, and perform employee evaluations for staff. The above conditions occurred because the Executive Director and Board of Commissioners failed to establish policies and management controls necessary to comply with the Annual Contributions Contract. As a result, the Authority did not provide safe, decent, and affordable housing for many families, made questionable expenditures, and lost opportunities to put funds to better use. 2 What We Recommend We recommend that the Authority: • Prioritize the repair and/or replacement of the brick façade and sanitary piping at Foran Towers using available operating reserves and Capital Funds; • Reimburse the Scattered Site Development fund $135,824 from nonfederal funds for the premature replacement of kitchen appliances, kitchen cabinets and countertops, furnaces, and roofs; • Comply with the Section 504 handicapped-accessible regulations covering the development of scattered sites; • Reimburse its applicable programs from nonfederal funds for the ineligible legal costs and develop adequate management controls over legal expenditures, including the requirement to obtain the concurrence of HUD’s Regional Counsel before incurring any legal costs related to matters involving litigation; • Reimburse HUD $26,280 from nonfederal funds for the Section 8 administrative fees collected by the Authority when its Section 8 program units did not meet housing quality standards; • Implement an effective system to ensure all outstanding housing quality standards deficiencies are monitored and corrected within the required time. This will result in future housing assistance payments being put to better use than the $280,628 paid for substandard housing; • Submit a monitoring plan to ensure they use all available Section 8 funding; • Implement controls to ensure it complies with HUD regulations and its own procurement policy in awarding competitive and noncompetitive contracts; • Submit the Executive Director’s current contract for HUD approval and establish specific goals and measurements to evaluate the Executive Director’s performance; and • Reimburse its applicable programs from nonfederal funds $25,347 for the Executive Director’s personal use of vehicle. 3 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 held an exit conference with the Milford Housing Authority (Authority) on January 20 and 21, 2005. We provided the Authority our discussion draft report during the exit conference. On January 27, 2005, we requested the Authority to provide comments on our draft audit findings by February 11, 2005. At the Authority’s request, we provided an 11-day extension for submission of comments. The Authority’s written response to the draft report was received on February 22, 2005. The Authority disagreed with the majority of the findings and recommendations, and provided only limited additional factual data over what had been provided during the course of the audit to support their disagreement. However, we withdrew two recommendations related to Finding 2 and modified several others based on the factual data provided in the response. In addition, the Authority has taken corrective action on several recommendations that should correct the cited deficiencies. We included the complete text of the Authority’s response, and our comments to the Authority’s response in appendix B of this report. The Authority also submitted approximately 250 exhibits with their response, but the exhibits added little support for the responses. The exhibits were not included as part of this report, and will be available to HUD upon request and to the public through a freedom of information request. 4 TABLE OF CONTENTS Background and Objectives 6 Results of Audit Finding 1: Authority Failed To Address Exigent Health and Safety Issues at 7 Foran Towers Finding 2: The Authority Failed To Manage Its Harrison Avenue Renovation 12 Project in an Effective and Efficient Manner Finding 3: The Authority’s Use of Development Funds Was Unnecessary and 16 Wasteful Finding 4: The Authority Failed To Comply with Federal Requirements and Its 20 Own Contracts for Legal Services Finding 5: The Authority Lacked Adequate Management Controls and 28 Procedures Over Section 8 Inspections Finding 6: The Authority Failed To Lease Section 8 Units at an Acceptable Rate 35 Finding 7: The Authority Failed To Comply with HUD Procurement 39 Regulations and its Own Procurement Policy Finding 8: The Authority Had Deficiencies in Several Administrative Policies 46 and Procedures Scope and Methodology 53 Internal Controls 56 Follow-up on Prior Audits 57 Appendixes A. Schedule of Questioned Costs and Funds To Be Put to Better Use 58 B. Auditee Comments and OIG’s Evaluation 59 C. Schedule of Premature Replacements for Scattered Sites 112 D. Schedule of Federal Subsidies Expended for Substandard Housing 114 E. Schedule of Questioned Administrative Fees the Authority 116 Received To Manage Substandard Housing 5 BACKGROUND AND OBJECTIVES The Milford Housing Authority (Authority) of the City of Milford, CT, was created in accordance with Section 8-40 of the Connecticut General Statutes to provide low-income public housing for qualified individuals. The Authority contracted with the Federal Government, acting through the U.S. Department of Housing and Urban Development (HUD), for financial assistance for low-income public housing pursuant to the United States Housing Act of 1937, as amended. The Authority also contracted with the State of Connecticut Department of Economic and Community Development for the financial assistance of housing projects for the elderly through capital grants and/or loans pursuant to Sections 8-70 and 8-114a of the Connecticut General Statutes. At the completion of our audit fieldwork, the Authority owned 313 units of Federal low-income housing and administered a regional Section 8 program with 266 units. The Authority’s main office is located at 75 DeMaio Drive, Milford, CT. The daily operations are managed by the Executive Director, who was appointed by a five member Board of Commissioners. The Board of Commissioners was appointed by the City’s Mayor. The Authority has a staff of 11 employees. Revenue for fiscal year 2003, the last period for which audit financial statements were available, was $5.3 million. Since fiscal year 2000, HUD’s Capital Fund program has provided annual funding to public housing authorities. The funds provide for capital and management activities, including modernization, correcting physical deficiencies, financing, and development of public housing. The Capital Fund grants are awarded noncompetitively and are based on a formula that considers the existing and future modernization needs of a public housing authority. The Authority applied for and received two grants from HUD for $1,696,950 and $1,835,900 to develop scattered site low-income public housing in Milford, CT. Efforts to develop the housing with these grants was rejected in 1995 by the Authority’s Board of Commissioners. This action resulted in lawsuits filed by the U.S. Department of Justice and the National Association for the Advancement of Colored People in the fall of 1998. Subsequently, a Settlement Agreement was reached between the parties whereby the Authority agreed to develop up to 28 units of low- income public housing over the course of 3 years. HUD agreed to consolidate the development grants into one development program (CT26-P030-009-91F) for $3,532,850. In addition, $254,241 of 1998 Capital Grant Program funds were reallocated for development purposes for a total budget of $3,787,091. Our overall audit objective was to determine whether the Authority was operating its Capital Fund, Development Fund, and Section 8 Voucher programs in an effective and efficient manner and in compliance with HUD regulations, applicable laws, and contractual requirements. We also reviewed specific administrative policies and procedures at the Authority. 6 RESULTS OF AUDIT Finding 1: The Authority Failed To Address Exigent Health and Safety Issues at Foran Towers The Authority failed to address exigent health and safety issues at the Foran Towers development 1, as required by the Annual Contributions Contract. We identified $838,000 in funds that should be put to better use by reallocating the funds from the Authority’s Harrison Avenue development 2 to Foran Towers, which continues to have a more urgent and immediate need. These conditions occurred because the Authority’s Executive Director and Board of Commissioners gave the Harrison Avenue Phase III renovations priority over Foran Towers. The Executive Director and the Authority’s General Legal Counsel continually asserted to HUD officials that the Authority had a binding contract for Phase III of Harrison Avenue at a cost of $838,000. However, the Authority had removed Phase III work from the contract and was in dispute as to the contract credit amount. They also stated that it would cause serious legal problems and cost the Authority a great deal of money if it attempted to break its contract. They further stated that the New Haven, CT, Legal Assistance Branch of the National Association for the Advancement of Colored People would likely sue the Authority if program funds were reallocated from Harrison Avenue to Foran Towers. We found no evidence to support their claims. As a result, the elderly tenants at Foran Towers were exposed to unsafe and unsanitary conditions since 1999. HUD Requirements The Annual Contributions Contract requires the Authority to operate each project in a manner that promotes serviceability, efficiency, economy, and stability. The Annual Contributions Contract states in part that the Housing Authority shall at all times develop and operate each project solely for the purpose of providing decent, safe, and sanitary housing. The health and safety concerns at Foran Towers include a damaged brick façade on the building’s exterior and the poor condition of sanitary piping. Both are considered to be emergency repair items and a potential threat to human life. In addition, the roof and windows need replacement. 1 The Foran Towers development is a housing project for the elderly. 2 The Harrison Avenue development is a family housing project. 7 Harrison Avenue Renovation Contract On November 2, 2001, the Authority awarded a contract for $2,340,000 to complete renovations of 45 family units at its Harrison Avenue development. The contract was divided into three phases. Phases I and II were for the renovation of 25 units, and Phase III was for the renovation of the remaining 20 units. The Authority Failed To Properly Deduct Phase III The Authority’s General Legal Counsel established a two-step process to issue a notice to proceed with the construction because the Authority did not have sufficient funds to complete the entire project. The Authority requested HUD approval to issue bonds by pledging future Capital Fund program grants as collateral. The two step-process was intended to provide the Authority with time to deduct Phase III and its $838,000 cost if HUD did not approve the issuance of bonds. The last date on which the Authority could exercise the deduct option without penalty was February 28, 2002. If the bonds were approved, there would be a second step, meaning a notice to proceed for Phase III would be issued. HUD did not approve the bonds, and the Authority failed to exercise the option to deduct Phase III in writing before the expiration date. The Authority’s General Legal Counsel stated that he notified the contractor by telephone, leaving a voicemail on February 28, 2002, that the Authority was exercising the option to deduct Phase III. However, the contractor disputed this assertion. This resulted in a contract dispute for $91,938 and legal costs incurred by both parties. Although the dispute was settled in favor of the Authority we maintain that had the Authority exercised the option in writing by February 28, 2002, there would have been no dispute (see finding 2). We asked the Executive Director to explain his involvement in notifying the contractor that the Authority would not be going forward with Phase III. The Executive Director did not respond to our inquiries. 8 Serious Health and Safety Issues at Foran Towers not Addressed Serious health and safety issues at Foran Towers were not addressed. The Authority must prioritize repairs at Foran Towers before considering renovations at other projects. There are serious health and safety issues at Foran Towers such as a damaged brick façade and poor sanitary piping that have not been properly addressed by the Authority. Based on the Real Estate Assessment Center’s inspections dating back to 1999 and four engineering studies, the poor condition of the brick façade is considered to be a major concern, and at least three of the engineering studies showed that the conditions were a threat to human life. In addition to a chain link fence installed as a result of the first engineering study, the U.S. Army Corps of Engineers (Corps) determined that the front of Foran Towers was an area of particular concern. As an interim measure, the Corps requested that a protective canopy be installed along the front of the building to protect residents and visitors. The Corps stated that this measure was intended as only a temporary solution since the condition of the brick façade would continue to deteriorate, suggesting that permanent replacement or repairs be completed as soon as possible. The following photograph of Foran Towers shows the protective canopy and fencing. The most recent engineering study, completed on February 11, 2004, recommended that additional safety measures be initiated within the next 12 months. This study estimated costs to correct the overall masonry construction deficiencies, including window replacement, ranging from $829,615 to 9 $1,171,200. The study did not evaluate the condition of the building’s sanitary piping. However, a previous engineering study estimated the cost of replacing the piping at $134,200. HUD officials have repeatedly requested that the serious health and safety issues at Foran Towers be addressed. The Authority has continually asserted the lack of funds due to a binding contract for Harrison Avenue renovations. However, as stated above, the Authority removed Phase III work from the contract in 2002 but is in dispute as to the contract credit amount (see finding 2). As a result, the elderly tenants at Foran Towers were exposed to unsafe and unsanitary conditions. Since Phase III is no longer an option, the $838,000 set aside for Phase III could realistically be used for repairs at Foran Towers. In a letter, dated March 27, 2003, the Director of the New England Office of Public Housing informed the Authority that in addition to Capital Funds, funding sources for Foran Towers could include operating reserves, excess Section 8 administrative fees, and other unrestricted cash. Available Funds of $1,234,595 To determine Operating Reserves available for Foran Towers, we used an analysis of the availability of operating reserves performed by the Authority's Fee Accountant and updated information from the Independent Public Accountant’s report for fiscal year 2003. According to our analysis, the Authority would have approximately $388,373 for general purposes as of December 31, 2003. As of December 31, 2003, the Authority had $1,321,387 in unexpended Capital Funds program funds. The estimated amount required to complete Phases I and II at Harrison Avenue was $475,165. As a result, available Capital Funds were estimated to be $846,222 ($1,321,387 minus $475,165). Therefore, the Authority had a total of $1,234,595 ($388,373 plus $846,222) available to make necessary repairs at Foran Towers. Conclusion The Authority’s Executive Director and Board of Commissioners prioritized the Harrison Avenue Phase III renovations over the more urgent needs at Foran Towers. The Executive Director misled HUD by asserting that the Authority had a binding contract for Phase III and by indicating that the National Association for the Advancement of Colored People would sue the Authority if funds were 10 reallocated from Harrison Avenue to Foran Towers. As a result of the current conditions at Foran Towers, the project’s elderly tenants are exposed to unsafe and unsanitary conditions. Recommendations We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 1A. Prioritize the repair and/or replacement of the brick façade and sanitary piping at Foran Towers, using available operating reserves and Capital Funds. If the available Authority funding is exhausted, the Authority may apply for emergency funding. 11 Finding 2: The Authority Failed To Manage Its Harrison Avenue Renovation Project in an Effective and Efficient Manner The Authority did not adequately address important matters related to construction activities at its Harrison Avenue development in an effective and efficient manner. The Authority failed to: • Provide timely written notification to a construction company hired for Harrison Avenue renovations of its decision to deduct Phase III (costing $838,000) from the contract, • Ensure the timely completion for Phases I and II of Harrison Avenue renovations, and • Repair and reoccupy vacant units for Phase III at Harrison Avenue. These problems occurred because the Executive Director did not make timely decisions and the Board of Commissioners failed to monitor the Executive Director’s actions. In addition, because there were significant delays in completing the construction work at Harrison Avenue, individuals were deprived of housing. Phase I and II Not Completed in a Timely Manner The Authority failed to ensure that Phases I and II for Harrison Avenue were completed in a timely manner. According to the contract, allowing 324 days for completion, Phases I and II should have been completed by January 15, 2003. Change orders added 164 days, resulting in a revised completion date of May 19, 2003. However, Phases I and II were not completed until February of 2004. We determined that the large number of change orders, a total of 16, and the Executive Director’s failure to make decisions and approve change orders in a timely fashion contributed to the delays. It took the Authority an average of 43 days to approve change orders once the construction company submitted its final change order proposals even though the construction company had already worked out the change orders with the Authority’s Modernization Coordinator and Architect. The Architect and the construction company stated that the Executive Director had difficulty approving change orders. For example, the project’s laundry room was redesigned three times, and the Executive Director was slow to decide on interior 12 doors and tub surrounds for bathroom renovations. Both the Architect and the Authority’s Modernization Consultant stated that the construction company incurred staffing problems due to the Authority’s failure to make timely decisions. We used the Architect’s analysis, which showed a completion date of May 19, 2003, to project lost rental income of $55,390 for unoccupied units from May 19, 2003, through January 31, 2004. In addition to the lost rental income, there were lost housing opportunities for individuals on the Authority’s waiting list, which consisted of 175 applicants. The Authority Failed To Ensure Completion of Work We found no evidence that the Authority aggressively monitored construction progress, quantified delays, or took appropriate action to complete Phases I and II on schedule even though the contract contained a liquidating damages clause for contractor-caused delays. The construction company reported in the Construction Minutes as early as August 16, 2002, that the work was behind schedule. However, the Authority took no action. We asked the Executive Director what measures he took to ensure that the construction company completed Phase I and II renovations in a timely manner and requested any letters, e-mails, or other evidence to show the actions taken. The Executive Director has not responded to our request. Vacant Units Not Rehabilitated and Reoccupied Once the Authority made the decision to deduct Phase III from the contract in April 2002 (see finding 1), it should have immediately planned to rehabilitate and reoccupy the vacant units. In a February 15, 2002, letter to HUD headquarters, the Executive Director stated that the last 20 units (Phase III) of family housing would not be available for reoccupancy due to noncompliance with uniform physical condition standards—unless HUD approved the bond issuance. The Executive Director further stated that there would be insufficient funds to bring the units into compliance with uniform physical condition standards for a very long time, if ever. We determined that the Authority could have renovated most of the units at minimal cost. The Authority could have used $20,330 in lost rental income to fund these repairs. In addition to the lost rental income from the vacant units, 13 families are being deprived of needed housing. The Authority has approximately 175 families on its waiting list. Currently, 13 of the 20 units in Phase III remain unoccupied. Inspections performed by the Authority’s Work Maintenance Supervisor in October 2003 showed that 9 of the 13 unoccupied units in Phase III could be brought up to uniform physical condition standards for the estimated cost of $19,200. The nine units include 156B, 156C, 156D, 158A, 158C, 162A, 162B, 162C, and 164A. The Office of Inspector General (OIG) and the local HUD Office of Public Housing inspected the units in December 2003 and concurred that the units did not require extensive rehabilitation and could be brought on line at minimal cost. Vacant Units in Unsanitary Condition The remaining four unoccupied units in Phase III will require more extensive work. However, the Authority should make every effort to bring these units on line. Although the Authority may not be able to make immediate repairs to those units, it should clean them. An example of the units’ current condition follows (Unit 162D). Conclusion The Executive Director’s failure to make timely decisions and the Board of Commissioners’ failure to monitor the Executive Director’s actions regarding construction activities at Harrison Avenue led to a serious dispute with the 14 construction contractor. Also, the significant delays in completing the construction work in Phases I and II and the Authority’s failure to occupy units initially designated for rehabilitation in Phase III deprived individuals of housing. Recommendation We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 2A. Rehabilitate and prepare vacant units in Phase III at Harrison Avenue for occupancy. 15 Finding 3: The Authority’s Use of Development Funds Was Unnecessary and Wasteful The Authority used $135,824 of development funds on unnecessary and premature replacement of equipment and other items at its scattered site properties. The Authority also failed to maintain an inventory of the newly purchased or replaced equipment that included new stoves, refrigerators and furnaces. HUD requires a cost-benefit analysis whenever early replacement of equipment is planned as cited in Public Housing Modernization Standards Handbook 7485.2, REV-1, Section 1-4. Weak management controls allowed the Authority to purchase and replace appliances, kitchen cabinets, furnaces, and roof tiles prematurely. Weak management controls also resulted in the Authority’s failure to maintain an inventory for the newly purchased and prematurely replaced equipment. Without an inventory of new equipment, the Authority has no accounting of what it owns and cannot readily plan its future maintenance needs or determine the disposal of the replaced equipment. The Authority’s failure to manage the scattered site program in an economical and efficient manner has resulted in fewer development funds being available for other public housing needs. In addition, the Authority did not resell any of the equipment they replaced that was saleable and reusable. The Authority also did not provide a handicapped-assessable unit required under Section 504 of the Rehabilitation Act, and by the Settlement Agreement between the Authority, the U.S. Department of Justice and the National Association for the Advancement of Colored People. The Authority’s Executive Director said that he was unaware of requirements specified in the Settlement Agreement for the scattered sites. As a result, handicapped individuals were denied access to a handicap accessible unit. Eight Properties Acquired The Authority acquired eight properties containing 18 units. As of January 2004, 16 units had been rehabilitated and reoccupied. Milford Housing Authority Replaced All Appliances and Made Unnecessary Renovations The Authority replaced kitchen appliances, refrigerators, ranges, kitchen cabinets, and countertops regardless of their physical condition (see appendix C). In 16 addition, the Authority replaced furnaces at five properties and roof tiles at one property without consideration of the physical condition of the items. Our review of the Appraiser’s reports and the Architect’s existing condition reviews, performed for each of the properties, showed that it was not necessary to replace these items. The Architect and the Authority’s Consultant stated that the Authority decided to replace all ranges with electric stoves and to replace all refrigerators regardless of their condition. The Architect stated that the Authority’s Executive Director preferred gas heat furnaces to oil. Therefore, if the scattered site unit’s furnace used oil, it was converted to gas regardless of the condition of the furnace. We determined that for at least three properties, the furnaces were only 2 years old and were in good physical condition, yet they were replaced. The Authority was unable to provide the cost benefit analysis as required by HUD’s Public Housing Modernization Standards Handbook 7485.2, REV-1, Section 1-4, concerning premature replacement. Accordingly, we questioned the cost (see appendix C) of premature replacement as unnecessary and wasteful. The Authority’s management decisions have resulted in less funding being available for other housing needs. Lack of Inventory for Scrapped Appliances and Furnaces The Authority did not maintain an inventory of scattered site equipment, such as stoves and refrigerators that were either discarded or purchased. The construction company estimated that approximately 50 percent of the refrigerators and stoves and 25 percent of the cabinets that were discarded were in good condition. Furthermore, the contractor stated that his construction company was not required to maintain an inventory of scrapped or replacement items. The Authority claimed to have relied upon the Architect, the Consultant, and Clerk of Works to make disposal determinations on the replaced items. However, the Authority’s senior management could not provide documentation to support the delegation of authority. The Authority is not performing one of its critical functions, which is to safeguard its assets. As a result, it received no money on record when it disposed of its excess equipment that was saleable and/or reusable. In addition, without an inventory of new equipment, the Authority has no accounting of what it owns, nor can it plan for future maintenance. 17 The Authority Failed To Modify Units for Handicapped Accessibility The Authority did not comply with 24 Code of Federal Regulations, part 8.23b, which requires that a minimum of 5 percent of the units be handicapped accessible. Based on this requirement, at least one of the scattered site units should have been made handicapped accessible. According to the Architect’s update in May 2001 and our inspection of the property, no modifications were made to make these units handicapped accessible. The Authority’s Executive Director claimed to be unaware of the Section 504- handicapped accessibility requirements. The Authority’s plan for the development of scattered site units stated that the Authority intended to satisfy the Section 504 requirement that 5 percent of all newly developed, acquired, or rehabilitated units be accessible or adaptable to accommodate mobility impaired individuals. Furthermore, the Settlement Agreement stated that the Authority’s subsidized housing units would comply with the Fair Housing Act, Section 504 of the Rehabilitation Act, and HUD’s accessibility guidelines set forth in 24 Code of Federal Regulations, parts 40 and 100.205. We determined that the Authority did not comply with these requirements. As a result, handicapped individuals were denied access to a handicap accessible unit. Conclusion The Authority’s use of development funds for scattered site properties was unnecessary and wasteful. Management did not properly monitor the purchase and replacement of items acquired for the scattered sites and failed to maintain an inventory for prematurely replaced or newly purchased scattered site equipment. The Authority’s failure to manage the Scattered Site program in an economical and efficient manner resulted in fewer development funds being available for its public housing needs. In addition, handicapped individuals were denied access to the scattered site units because the Authority did not provide a handicapped- assessable unit as required by the Settlement Agreement. 18 Recommendations We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 3A. Reimburse $135,824 to its Scattered Site Development program from nonfederal funds for the premature replacement of kitchen appliances, kitchen cabinets and countertops, furnaces, and roofs. 3B. Update and maintain an inventory of scattered site equipment including the date of purchase, cost, serial number and useful life. 3C. Comply with the handicapped-accessible Section 504 regulations required by the Settlement Agreement. 19 Finding 4: The Authority Failed To Comply with Federal Requirements and Its Own Contracts for Legal Services The Authority did not comply with Federal requirements and its own contracts for legal services and incurred questionable costs of $219,717 ($215,982 in ineligible costs and $3,735 in unsupported costs) as follows: • Litigation services were procured without the required HUD Regional Counsel concurrence; • Payments for legal services were improperly made to defend against a lawsuit that the Authority erroneously thought HUD might bring against it; • Separate payments were made to the Authority’s General Legal Counsel for services already included and paid for in his annual retainer contracts; • Payments for legal services were not supported by sufficient documentation to justify the reasonableness of the costs; and • The Authority failed to follow proper procedures in procuring legal counsel (see Finding 7). These violations of HUD requirements and Federal cost principles occurred because the Executive Director, the Board of Commissioners, and the General Legal Counsel disregarded Federal regulations and contractual requirements. In addition, the Board of Commissioners failed to exercise its leadership and oversight of the Executive Director’s actions and establish adequate management controls over legal expenditures. As a result, the Authority had fewer funds available for safe, decent, and affordable housing. A summary of legal costs paid and questioned follows: Type of Legal Expense Amount Paid Ineligible Unsupported Total General Counsel $168,673 $100,266 $100,266 Special Counsel 119,451 115,716 $3,735 119,451 Total $288,124 $215,982 $3,735 $219,717 Ineligible Costs of $100,266 Paid to General Counsel For the period October 1, 2000, through December 11, 2003, the Authority incurred $168,673 in costs for the General Legal Counsel. We questioned $100,266 of these costs as ineligible because the services performed were already included and paid for in the General Legal Counsel’s annual retainer contract. 20 General Legal Counsel Contract Provisions The Authority’s contract for the General Legal Counsel recognized HUD regulations and contained provisions governing the conditions and process for the General Legal Counsel to follow to request and obtain payment for extraordinary services and services beyond the scope of those included in the $7,500 per year retainer contract. The General Legal Counsel’s retainer contract stated in part that the General Legal Counsel was to represent the Authority in matters in connection with the business of the Authority and the conduct of its affairs and the management of its properties and construction projects. The scope of services to be provided are outlined under item 2 of the General Legal Counsel’s contract. The General Legal Counsel’s contract further provides: “said attorney shall, whenever he is of the opinion that any certain matter of litigation exceeds the scope of the legal services contemplated by section 2.j or is extraordinary and beyond the scope of Paragraph 2. of this Agreement, he is to prepare a proposal for additional fees and submit the proposal and supporting documentation to the Authority.” The contract further states that the Authority will immediately submit the request to the HUD Regional Office for approval before execution and payment of any fees. In the event that there is a question of whether litigation or other matters are considered extraordinary or extra services, the contract provides that HUD’s Regional Counsel will make a final determination on the matter. Based on our review of General Legal Counsel invoices, we identified $100,266 of ineligible charges. We determined that the retainer already covered the services provided. For example, the Authority made numerous payments for union and personnel related matters, which are covered in the retainer under “specific services,” described there as “advice and assistance provided to members and employees of the Authority with respect to Authority business” and “rendering legal advice with regard to union grievances on behalf of employees of the Authority.” Another example of charges that related to advising and assisting the Authority regarding Authority business, also covered in the retainer, pertains to various meetings and telephone conferences regarding project renovations. We found no evidence that the General Legal Counsel prepared and submitted proposals for extraordinary services except for the implementation of the Scattered Sites Settlement Agreement. We took no exception to those costs as shown in the schedule below. 21 We calculated our questioned costs by deducting charges pertaining to the General Legal Counsel’s separate contract for implementation of the Settlement Agreement, annual retainers, and amounts charged to State accounts from the General Legal Counsel’s total charges. The following table summarizes the calculation for determining the ineligible costs. Schedule of Ineligible Legal Costs Total charges $168,673 Less Settlement Agreement (34,749) Less retainer (28,767) Less State charges (4,891) Ineligible costs $100,266 As a result of paying these ineligible costs, the Authority had fewer funds available to provide safe, decent, affordable housing. Ineligible Costs of $115,716 and Unsupported Costs of $3,735 The Authority hired Special Legal Counsel when litigation matters arose for which its General Legal Counsel did not have the expertise. The Authority incurred a total of $119,451 for services incurred by the Special Legal Counsel from October 22, 2002, through December 31, 2003. Of the $119,451, $115,716 was for ineligible costs, and the remaining $3,735 was for unsupported costs. The following table lists the use of the funds and whether the use was for ineligible or unsupported costs. Schedule of Questioned Special Legal Counsel Costs Use of Funds Ineligible Unsupported Total Foran Towers $25,287 $25,287 Employee lawsuit 86,688 86,688 Contract dispute 3,741 3,741 Labor relations 3,735 3,735 Grand Totals $115,716 $3,735 $119,451 22 Public Housing Authority Shall Not Defend Against Litigation Without Written HUD Concurrence HUD’s Litigation Handbook, 1530.1, REV-4, requires that a public housing authority not initiate or defend litigation, other than routine eviction actions, without obtaining the prior written concurrence of HUD’s Regional Counsel. In addition, the public housing authority must receive the Regional Counsel’s concurrence before expending program funds for the Authority’s defense. The Handbook also requires that the Regional Counsel not approve the expenditure of program funds for a public housing authority’s defense if he or she finds that the Authority has clearly violated HUD requirements or is otherwise at fault. HUD policy and Federal cost principles as established by the Office of Management and Budget do not permit a public housing authority to use project or program funds to pay the costs of litigation against HUD. Milford Housing Authority Must Send Copy of Litigation Complaint to HUD Regional Counsel HUD requires that a public housing authority engaged in litigation promptly send a copy of the complaint to the Regional Counsel. An authority that is threatened with litigation must also promptly notify HUD’s Regional Counsel of the name, title, and address of the complainant; the nature of the complaint; and a factual statement of the authority’s involvement in the subject of the complaint. Threatened litigation includes any communication, oral or written, announcing an intention to institute litigation against an authority or other HUD-assisted recipient. Office of Management and Budget Circular A-87 states that a cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person under the circumstances prevailing at the time the decision was made to incur the cost. It further provides that a cost is reasonable if it is recognized as ordinary and necessary for the performance of a Federal award and if the entity acted with prudence, considering its responsibilities to its employees, the taxpayers, and the Federal Government. The OIG Program Integrity Bulletin dictates that Commissioners are responsible for the actions and decisions made by the Executive Director to ensure that the 23 public housing authority is properly managed and is acting legally and with integrity. Health and Safety Deficiencies Reported at Foran Towers The Authority paid its Special Legal Counsel $25,287 to serve as counsel to protect the Authority and its Commissioners and staff against a possible lawsuit from the New Haven, CT, Legal Assistance Branch of the National Association for the Advancement of Colored People and against HUD, related to a controversy involving the proposal to reallocate funds from Harrison Avenue to Foran Towers. The Special Legal Counsel made the statement that HUD preferred that the Authority address health and safety deficiencies at Foran Towers before completing renovations at Harrison Avenue. The Executive Director expressed concern that the New Haven, CT, Legal Assistance Branch of the National Association for the Advancement of Colored People would likely sue the Authority if funds were reallocated from Harrison Avenue to Foran Towers. In a March 11, 2003, letter, addressed to the Authority’s Board of Commissioners, the Special Legal Counsel stated, in part, that it was retained by the Authority to provide advice and counsel with respect to the Harrison Avenue and Foran Towers properties. Use of Federal Funds for Litigation Against HUD Not an Allowable Cost We determined that there was no immediate threat of a lawsuit from the National Association for the Advancement of Colored People. The Authority’s belief that the Association might initiate litigation if the Authority did not complete the Harrison Avenue development on schedule was based solely on a newspaper article in which an attorney from New Haven Legal Assistance indicated concern about the completion of the project. However, the belief about possible litigation was misguided and contrary to the facts known at the time. On March 10, 2003, the Litigation Director at New Haven Legal Assistance informed the Executive Director that she did not represent the Greater New Haven Branch of the National Association for the Advancement of Colored People regarding the current dispute over Foran Towers and Harrison Avenue and did not have any authority to sue on behalf of the Association or anyone else. Consequently, there was no reasonable basis on which to use Federal funds to hire outside litigation counsel to defend the Authority against a threatened lawsuit. As previously stated, using Federal funds for the costs of litigation against HUD are not an allowable legal cost. The Special Legal Counsel’s statement that HUD 24 claimed the Authority was diverting money from Foran Towers toward the Harrison Avenue rehabilitation was not accurate. While HUD’s Regional Director made known his concerns that the Authority was not properly protecting the safety of the elderly tenants at Foran Towers, HUD never threatened to sue the Authority and never alleged that the Authority had improperly diverted funds from Foran Towers. Milford Housing Authority Defended Against Litigation Without HUD Concurrence The Executive Director incurred an additional $86,688 for the Special Legal Counsel to defend the Authority in a Federal “whistle blower” lawsuit involving a former employee of the Authority without obtaining prior written concurrence from HUD’s Regional Counsel. We considered these costs to be ineligible. The Executive Director failed to inform the Regional Counsel regarding the litigation between the Authority and the former employee and did not promptly send pertinent documents, such as the complaint in the case, along with the anticipated defenses and pleadings filed to the Regional Counsel. The Authority did not submit the required information until being instructed to do so by the Regional Counsel on April 3, 2003. This was approximately 5 months after the Authority began receiving services pertaining to this lawsuit. OIG asked the General Legal Counsel why the Authority expended funds for litigation without concurrence of the Regional Counsel. The General Legal Counsel responded that he did not hire the Special Legal Counsel but, rather, advised the Authority that he could not provide the required expertise since he did not have litigation experience. In a letter dated, March 19, 2003, the Regional Counsel requested that the Authority submit a copy of the legal service contract between the Authority and its Special Legal Counsel, along with a description of the scope of services for which the firm was hired, a detailed account of the procurement methods used in selecting the Special Legal Counsel, and any Board of Commissioners resolutions regarding such procurement. The Regional Counsel also requested an accounting of how much the Authority had paid the Special Legal Counsel, what funds were being used, and copies of any bills from the firm. The Authority failed to comply with the Regional Counsel’s request that this documentation be provided within a specified timeframe. Pursuant to part A, section 15B, of the Annual Contributions Contract between the Authority and HUD, the Authority is required to provide HUD with any program-related information and at such times as HUD requires. After repeated requests by the Regional Counsel, the Authority provided information that was not sufficient. 25 On November 13, 2003, the Board of Commissioners authorized the Executive Director to negotiate and enter into a retainer agreement to engage the services of the Special Legal Counsel to provide construction litigation services for the Harrison Avenue Project. There is no evidence that the Authority received the Regional Counsel’s concurrence before the use of $3,741 in program funds. Therefore, we determined that the $3,741 incurred was ineligible. Law Firm Hired To Clarify Bargaining Agreement We classified $3,735 as unsupported for Special Legal Counsel to represent the Authority in matters related to union negotiations with its staff. The Special Legal Counsel was hired specifically to assist the Authority in clarifying the bargaining unit makeup, including three employee members. The Authority’s contracted Human Resources Consultant indicated that he would have the capability of performing a portion of the services related to union negotiations provided by the Special Legal Counsel. The Consultant stated that he routinely competes against attorneys for these types of services he provides to other housing authorities. Since the Human Resources Consultant was already on retainer, there may have been a duplication of services. Therefore, we classified the $3,735 in legal services as unsupported, pending receipt of further documentation. Board of Commissioners Failed To Monitor Executive Director There is no evidence that the Authority’s Board of Commissioners questioned any of these legal services. The Board of Commissioners is responsible for the review and approval of the Authority’s payments. A disbursement report with a listing of all checks is submitted to the Board of Commissioners monthly for approval. Certain Members of the Board of Commissioners said that they were not aware of the requirement that HUD’s Regional Counsel’s concurrence was required before a public housing authority expended program funds for its legal defense. The record demonstrates that the Board of Commissioners routinely approved legal bills, which were submitted by the Executive Director on behalf of the General Legal Counsel and Special Legal Counsel, without any question or concern about the necessity of the services provided or the reasonableness of the costs for those services. As a result of incurring questionable legal costs, the Authority has fewer funds available for safe, decent, and affordable housing. 26 Conclusion The Authority’s Executive Director and General Counsel disregarded Federal regulations and contractual requirements pertaining to legal expenditures. In addition, the Board of Commissioners failed to exercise its leadership and oversight of the Executive Director’s actions and establish adequate management controls over legal expenditures. This resulted in questioned costs of $219,717 with fewer funds available to provide safe, decent, and affordable housing for individuals. Recommendations We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 4A. Reimburse $115,716 to its public housing program from nonfederal funds for the ineligible payments made to its Special Legal Counsel. 4B. Reimburse $100,266 to its public housing program from nonfederal funds for the ineligible payments made to its General Legal Counsel. 4C. Provide documentation to support the $3,735 of unsupported legal costs. If documentation cannot be provided, the Authority should reimburse its public housing program the appropriate amount from nonfederal funds. 4D. Implement procedures and controls to ensure that its procurement of legal expenditures is performed in accordance with Federal requirements. 27 Finding 5: The Authority Lacked Adequate Management Controls and Procedures Over Section 8 Inspections The Milford Housing Authority did not have adequate procedures and controls in place for Section 8 Inspections. The Authority failed to ensure that: • Housing quality standards deficiencies were corrected in a timely manner; • Quality control procedures were implemented to verify the reliability of inspection reports; • Section 8 inspection reports, including failure notification letters, were maintained in Milford Housing Authority files; and • All units were inspected to verify that they were decent, safe, and sanitary. These conditions occurred because the Executive Director failed to monitor the Section 8 Inspector hired to perform Section 8 inspections, and did not ensure that the Section 8 program was adequately staffed and properly supervised. Also, the Authority’s failure to establish proper abatement procedures and require prompt corrective actions for cited violations provided landlords with little incentive to correct deficiencies. As a result, Federal funds were used for housing that was not decent, safe, and sanitary. A total of $280,628 (see appendix D) in Federal subsidies was expended for 63 substandard housing units. Therefore, we questioned $26,280 (see appendix E) in administrative fees the Authority billed HUD to manage these substandard units. Goal of Section 8 Program To Provide Safe and Sanitary Housing The goal of the Section 8 program is to provide decent, safe, and sanitary housing at affordable cost to lower income families. HUD regulations set basic housing quality standards that all units must meet. The primary objective of these standards is to protect tenants receiving assistance under the program by guaranteeing a basic level of acceptable housing. 28 HUD Required Prompt and Vigorous Action To Correct Housing Quality Standards Public housing authorities must inspect each unit before occupancy, at least annually, and at other times as needed to ensure the minimum standards are met. Quality control inspections must be conducted to ensure that the inspection program provides an accurate assessment of housing conditions. HUD requires that public housing authorities implement a system to promptly identify units for which deficiencies have not been corrected within required timeframes. Exigent or life-threatening violations must be corrected within 24 hours, and other defects must be corrected within 30 calendar days. Potential sanctions to force corrective action include abatement of rent and/or termination of assistance to the family. To ensure proper program management, HUD may reduce or offset any administrative fee to the public housing authority if it fails to adequately perform its administrative responsibilities. Milford Housing Authority Outsourced Inspection Services On March 14, 2001, the Authority entered into an agreement with a private Section 8 Inspector to perform its Section 8 inspections. The Section 8 Inspector agreed to (1) perform annual inspections, (2) document inspection results on the Inspector’s web site, (3) inform tenants and landlords of any housing quality standards violations, (4) perform follow-up inspections as needed, and (5) provide the Authority completed inspection reports and abatement lists for units that failed to meet the housing quality standards. Serious Deficiencies Not Corrected in a Timely Manner for 70 Section 8 Units We reviewed a total of 159 failed inspections identified on the private Inspector’s web site, covering a 27-month period from October 2001 through December 2003. We observed that 114 of the 159 inspections clearly showed that dwelling units failed to meet the housing quality standards. Our review showed that 70 of the 114 had serious and life-threatening deficiencies that were not corrected in a timely manner. Of the 70 failures, 29 • 32 failed due to missing, inoperable, or improperly installed smoke detectors, and • 38 failed for serious deficiencies including infestation, serious structural damage, electrical hazards, and furnace flues in disrepair - a carbon monoxide hazard. It took an average of 146 days before the Section 8 Inspector confirmed that serious and life-threatening violations were corrected. The Authority’s average of 146 days for corrective action is contrary to HUD’s requirements that exigent or life-threatening deficiencies be corrected within 24 hours and other housing quality standards deficiencies be corrected within 30 days. A total of 15 units out of the 114 with outstanding housing quality standards deficiencies that were not repaired within the required time remained uncorrected as of December 31, 2003. Serious Water Leak Left Uncorrected Led to Collapse of Roof The Authority’s failure to take aggressive action to correct deficiencies had severe consequences. For example, the failure to correct a water leak in one unit eventually resulted in the roof collapsing on the property 1 year later. The unit failed inspection for the water leak on September 19, 2001. Inspection reports from April 15 and May 31 of 2002 showed that the water leakage had become more severe with evidence of sheetrock falling from the ceiling. On September 5, 2002, the Section 8 Inspector reported a large hole in the ceiling caused by rain coming through the roof of the building. However, the Authority did not abate the subsidy payment until October 1, 2002, approximately 13 months after the deficiency was first observed. On October 12, 2002, the roof of the property collapsed while three of the four units were occupied. The City of Milford’s Building Inspector attributed the collapse to extensive water damage. Milford Housing Authority Failed To Adequately Monitor Inspections We determined that these deficiencies went uncorrected because the Authority did not properly monitor the Section 8 Inspector to ensure that he performed the duties required by his contract. The Authority did not receive inspection reports and abatement lists on a consistent basis. 30 Inspection Reports Not Maintained The Independent Public Accountant reported in its annual audited financial statements for fiscal years 2001 to 2003 that the Authority’s Section 8 inspection files were not properly maintained because many inspection reports were missing from the files. Our review of the Authority’s files showed that the Authority retained inspection reports for only 123 of the 159 failed inspections we reviewed. The Authority’s visibility of inspection reports was further limited because the Section 8 Inspector also did not update his web site and post completed inspections on a consistent basis. Section 8 Inspector Failed Units for Minor Deficiencies The Authority’s employees informed the Executive Director that the Section 8 Inspector was failing units for minor or non-housing quality standards deficiencies. As a result, the Authority’s Section 8 Coordinator was reluctant to take action on reported failures. Our review confirmed the Coordinator’s concerns and showed that 45 of the 123 inspections on file cited questionable housing quality standards deficiencies. For example, the Section 8 Inspector failed one unit based solely on the fact that there were unregistered vehicles in the building’s parking lot and the front lobby was missing tiles. Also, the Section 8 Inspector failed two units because the shower required recaulking. Quality Controls Were Not Implemented for Inspections The Authority failed to perform quality assurance Inspections, as required by HUD, pertaining to the 123 inspection reports on file. The Section 8 Coordinator stated that she received little assistance and direction from the Executive Director, particularly regarding her responsibilities for conducting quality assurance inspections. During our review of Section 8 files, we observed that some quality assurance inspections were contained in the files. However, there was no evidence that the Authority maintained a record of the quality assurance inspections performed or used the results to ensure that inspections were conducted in accordance with HUD’s requirements. 31 Abatement Procedures Not Implemented for Uncorrected Deficiencies The Authority did not implement rent abatement procedures for landlords that failed to correct deficiencies within timeframes established by HUD. This occurred primarily because the Authority did not have an effective tracking system to monitor deficiencies. The current Section 8 Coordinator stated that she relied on the Section 8 Inspector to track deficiencies and ensure they were corrected. The current Section 8 Coordinator and the former Section 8 Manager also stated that the Section 8 Inspector failed to provide abatement reports on a consistent basis. The Section 8 Inspector confirmed that the reports were not always provided and did not send reports for a few months starting in July of 2003. The Section 8 Coordinator said that she did not rely on the failure notifications to enforce housing quality standards because she had little confidence in the Section 8 Inspector’s performance. Also, because she questioned the quality of the inspections, she was reluctant to abate payments even when the Section 8 Inspector provided abatement reports. The Authority abated only two payments during the period of June 2002 through December of 2003. $280,628 in Housing Assistance Payments Required Abatement We identified 391 subsidy payments for 63 housing units that required abatement. Payments totaling $282,545 should have been abated because inspection reports clearly showed that the units failed to meet the housing quality standards, and deficiencies were not corrected within the required time. However, the Authority abated only two payments totaling $1,917, resulting in $280,628 ($282,545 minus $1,917) being disbursed for substandard housing. Because the Authority failed to properly administer its program, we questioned the $26,280 in Section 8 administrative fees received but not earned to manage housing units that failed to meet HUD’s housing quality standards. 32 The Authority Failed To Annually Inspect All Units The Authority has failed to ensure that 20 of its subsidized units were inspected within the past year. The Section 8 Inspector failed to perform 18 inspections that the Authority requested, and the Authority failed to request the additional two inspections. The Authority was not aware of the error because it did not have a system in place to ensure that all required inspections were conducted. Therefore, it could not verify that these 20 units were in decent, safe, and sanitary condition. Executive Director Failed To Take Appropriate Action on Section 8 Deficiencies We determined the Executive Director did little to monitor known Section 8 inspection deficiencies and did not take appropriate action as the Contracting Officer to ensure compliance of the Authority’s contracted Section 8 Inspector. The Executive Director was responsible for monitoring, detecting, and correcting Section 8 program deficiencies. As a result of the Executive Director’s failure to fulfill his assigned duties, tenants were living in unsafe and unsanitary conditions. Conclusion The Executive Director failed to monitor the Section 8 Inspector hired to perform Section 8 inspections, and did not ensure that the Section 8 program was adequately staffed and properly supervised. As a result, tenants did not receive decent, safe, and sanitary housing, and $280,628 in Federal subsidies was expended for 63 substandard housing units. 33 Recommendations We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 5A. Reimburse $26,280 to HUD from nonfederal funds for the Section 8 administrative fees collected by the Authority. 5B. Establish an effective system to ensure all outstanding housing quality standards deficiencies are monitored and corrected within the required time. This will result in future housing assistance payments being put to better use than the $280,628 paid for substandard housing. 5C. Implement quality control procedures to ensure inspections are accurate and reliable and are performed in a timely manner. 5D. Abate subsidies for landlords that fail to correct housing quality standards deficiencies within the required time. 5E. Properly supervise and adequately staff its Section 8 program. 34 Finding 6: The Authority Failed to Lease Section 8 Units at an Acceptable Rate The Authority’s utilization rate for Section 8 Vouchers is currently at 75 percent, which is significantly below the 95 percent level required by HUD. The lease rates for fiscal years 2001, 2002, 2003, and a portion of 2004 are listed in the following table: Vouchers Vouchers Lease Rate Period Available Leased Unused Vouchers Fiscal year 2001 266 187 70% 79 Fiscal year 2002 266 187 70% 79 Fiscal year 2003 266 180 68% 86 4/1/03 – 12/31/03 266 199 75% 67 The Authority did not make sufficient efforts to issue more vouchers. In addition, we determined that the Authority was not using the correct rents for Section 8 units. The Authority’s Family Section 8 Program Assistant did not acknowledge the most recent increases in fair market rents. Offering lower rents to prospective landlords and low voucher utilization rates resulted in reduced opportunities for families to obtain housing. In addition, the Authority lost $114,090 in potential administrative fees by not leasing 100 percent of its allocated vouchers. Most importantly, needy families are being deprived of housing. HUD Requirements In accordance with HUD Handbook 7420.3m, REV-2, section 5-16(a), authorities are required to use 95 percent of their available units. The Authority must work with HUD to identify and correct needed adjustments in administration, such as landlord outreach methods or use of staff. HUD Oversight On April 23, 2002, the local HUD Office of Public Housing conducted an onsite review of the Authority’s Section 8 Management Assessment Program. Based on the review, HUD requested that the Authority submit a corrective action plan to 35 address its low utilization rate. The Authority did not provide the corrective action plan. Insufficient Number of Applicants Shopping for Units During the past 9 months, the Authority has had an average lease rate of two units per month with nine applicants shopping for a unit over that period. The Authority should strive to increase its number of applicants shopping for units. Section 8 Program Not Sufficiently Staffed The Authority’s Fee Accountant stated that the Authority could benefit by increasing its Section 8 staff. The Section 8 Program Assistant stated that she did not have the time to work toward improving the utilization rate with her current workload. In addition to her duties as Program Assistant, she took over the duties of the Section 8/Family Housing Manager when that person retired on June 28, 2002. Currently, only a part-time person assists the Section 8 Program Assistant. The Section 8 Program Assistant stated that she asked the Executive Director for assistance in reducing her workload. The Executive Director has not complied with her request. The Authority Did Not Use Correct Payment Standards for Section 8 The Authority did not use the correct payment standards for Section 8. The Authority’s fair market rents increased on October 1, 2003. However, the Authority continued to base its exception payment standards on the fair market rents from the September 30, 2002, Federal Register for new tenants in January and March 2004. The Authority’s Family Section 8 Program Assistant did not acknowledge the most recent increases in fair market rents. Offering the lower payment standards to potential landlords reduced the Authority’s opportunity to increase its utilization rate. 36 The Authority Lost $114,090 in Potential Administrative Fees and Is Understaffed During the 21-month period of April 2002 through December 2003, the Authority lost $114,090 in potential administrative fees. Total administrative fees earned by the Authority over the same period was $264,808. Since the Authority earned substantial administrative fees over this period and has the potential to earn significantly more, the Authority should study the effect of having more staff in the Section 8 program, based on the Section 8 program’s current workload and poor performance. Chairman of Board of Commissioners Questioned High Number of Unused Vouchers The Chairman of the Authority’s Board of Commissioners expressed concern regarding the Authority’s low utilization rate and indicated that the Authority would strive for improvements in this area. Questions regarding the Authority’s low Section 8 utilization rate were frequently raised at Board of Commissioners meetings. For example, at a Board of Commissioners meeting conducted on January 15, 2002, the Board of Commissioners asked questions regarding the high number of unused Section 8 Vouchers. An adequate response was not provided. The Executive Director only indicated that issues regarding the Housing Choice Voucher program would be addressed in the future. Outreach Efforts to Landlords Needed The Authority can improve its Section 8 utilization by including more landlords in the Section 8 program. One way of accomplishing this is to periodically conduct landlord workshops to educate new landlords on the benefits of the Section 8 program. According to the Section 8 Program Assistant, the last time the Authority conducted a landlord workshop was in May 2002. The Section 8 Program Assistant stated that when there were two full-time employees, including herself and the former Section 8/Family Housing Manager, the Authority conducted landlord workshops monthly. The Section 8 Program Assistant could not continue to conduct these monthly workshops because she did not have sufficient time. 37 As a result of the Authority’s underuse of Section 8 Vouchers, low-income families are being deprived of affordable housing. In addition, the Authority is losing opportunities to earn significant administrative fees. Conclusion The Authority did not make sufficient effort to lease Section 8 units at an acceptable rate. In addition, we determined that the Authority was not using the correct rents for Section 8. Offering lower rents to prospective landlords and low voucher utilization rates resulted in reduced opportunities for families to obtain housing. The Authority lost $114,090 in potential administrative fees by not leasing 100 percent of its allocated vouchers. Most importantly, needy families are being deprived of housing. Recommendations We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 6A. Submits a monitoring plan to ensure they use all available funding. 6B. Is using the correct payment standards for Section 8. 38 Finding 7: The Authority Failed To Comply with HUD Procurement Regulations and Its Own Procurement Policy The Authority’s procurement practices did not comply with HUD regulations and its own procurement policy. The Authority failed to: • Award contracts competitively, • Justify emergency procurements, • Execute or update service contracts and/or written agreements, • Compete contracts fairly, • Adequately evaluate competitive proposals, and • Perform cost/price analysis. As Contracting Officer, the Executive Director did not fulfill his responsibility to establish and implement effective management controls over the procurement process. HUD has no assurances that the Authority’s procurement process is fair and equitable and results in the best quality and/or priced services obtained. In addition, without formal contract documents, the Authority was at risk for overbilling and paying for unauthorized services. Procurement To Provide Full and Open Competition The Authority’s Annual Contributions Contract requires it to comply with all applicable regulations issued by HUD. The Federal procurement regulations are contained in the Code of Federal Regulations. These regulations require the Authority to: • Conduct all procurements in a manner that provides full and open competition and • Maintain a contract administration system, which ensures that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders. These records should also include the rationale and justification for the method of procurement, the type of contract, the selection of the contractor, and the basis for the contract price. The Authority’s procurement policy states that the Authority will comply with HUD’s Annual Contributions Contract; HUD Handbook 7460.8, Procurement Handbook for Public Housing Agencies; and the procurement standards of 24 Code of Federal Regulations, part 85.36. The term “procurement” includes both contracts and modifications - including change orders - for construction or 39 services, as well as purchase, lease, or rental of supplies and equipment. All contracts and modifications should be in writing, clearly specifying the desired supplies, services, or construction and supported by documentation regarding the method of selection, the procurement chosen, the rationale for selecting or rejecting offers, and the basis for the contract price. The Authority’s procurement policy provides that a cost or price analysis shall be performed when only one offer is received or for other procurements as deemed necessary by the Authority. The Authority’s procurement policy also requires that for small purchases, no less than three offerors shall be solicited to submit price quotations, which may be obtained orally, by telephone, or in writing. The quotations shall be recorded and maintained as a public record. Award shall be made to the offeror providing the lowest acceptable quotation. HUD Handbook 7460.8, REV-1, paragraph 4-23A, provides that when procuring services by competitive proposals, a written plan for evaluating technical and cost proposals and an evaluation review process shall be established before the request for proposal is issued. This plan shall include a rating sheet for each offeror, which lists each of the evaluation criteria and the weight assigned. The rating sheets should require the technical evaluator to assign both numerical ratings and narrative justifications to support the ratings given. 20 Violations Found for Eight Procurements We reviewed 14 procurements. The cost of procurements totaled $4,249,579. For 8 of the 14 procurements, we identified a total of 20 violations of HUD regulations and/or the Authority’s procurement policy. The following table lists the contract reviewed, cost of the contract, and whether any deficiencies existed in the procurement. 40 # Contract Cost Deficiencies 1 Harrison Avenue A&E Contract $150,000 None 2 Harrison Avenue Construction Contract 2,340,000 None 3 Scattered Sites A&E Contract 51,640 None Scattered Sites Construction None 4 Contract Phases I and II 903,900 5 Clerk of Works 42,897 2,3,4,5 6 Human Resources Consultant 60,553 1,3 7 Scattered Site Implementation Development Program Manager 136,000 3,4,5 8 Modernization Program Manager 262,500 4,5 9 Section 8 Annual Unit Inspections 17,700 None 10 Special Legal Counsel – Employee Lawsuit 86,688 1,3,6 11 Special Legal Counsel – Capital Project Funding Issues 25,287 2,6 12 Special Legal Counsel – Contract Dispute 3,741 3 13 General Legal Counsel 133,849 1,3,6 General Legal Counsel – Fair Housing 14 Settlement Agreement 34,824 None Total $ 4,249,579 20 deficiencies Legend 1 Awarded contracts without evidence of competition. 2 Lacked justification for emergency procurements. 3 Did not formally execute contracts or update contracts. 4 Did not fairly compete contracts. 5 Failed to adequately evaluate competitive proposals. 6 Did not perform cost/price analyses. Clerk of Works The Authority could not justify soliciting for the Clerk of Works services based on a noncompetitive emergency procurement. We do not agree that this qualified as an emergency procurement. The Authority’s procurement policy states that noncompetitive awards may be used only when an emergency exists that seriously threatens the public health, welfare, or safety or endangers property or would otherwise cause serious injury to the Authority, as may arise by reason of a flood, earthquake, epidemic, riot, equipment failure, or similar event. Our review disclosed that the Authority paid the Clerk of Works a total of $42,897. The Clerk of Works assisted the Project Manager and Architect to make changes on plans and specifications and assisted in verifying change order costs, including quantity and quality for justifications of an increase in the construction contract. 41 The Authority’s former Modernization Coordinator performed Clerk of Works duties before his termination on March 8, 2002. Four months passed between the termination of the former Modernization Coordinator and the date the Authority awarded the Clerk of Works contract on July 8, 2002. Therefore, the Authority had ample time to advertise the contract. The Board of Commissioners authorized the Authority’s Work Center Supervisor to function as the acting Clerk of Works. Our discussions with the Authority’s Modernization Consultant disclosed that the Work Center Supervisor was capable of providing satisfactory Clerk of Works services. Therefore, the Authority’s rationale for this noncompetitive award did not meet its emergency procurement criteria. One year later, the Executive Director advertised the Clerk of Works position. However, the Executive Director limited competition by advertising and closing the contract within 7 days instead of the 25 days required by the Authority’s procurement policy. The policy requires that the Authority give public notice for each procurement at least 10 days before issuing the solicitation. The policy also requires the Authority to provide a minimum of 15 days for preparation and submission of the bids. The Authority did not complete a narrative justifying the scoring for the proposals. The narratives could show that the evaluation process was fair and reasonable. In addition, the Authority did not execute the contract, dated July 8, 2003, until October 10, 2003. Therefore, the Clerk of Works worked for 3 months without a formal written contract. Human Resources Consultant The Authority provided no evidence that the contract for the Human Resource Consultant was ever competed. The Authority’s former Executive Director awarded the initial contract without competition for $85 per hour in 1997. The current Executive Director renewed the contract without competition for the period April 1998 to April 1999. From April 1999 through March 2001, no contract or agreement was provided. In April 2002, the 1998 contract was converted, without competition, from $85 per hour to a fixed amount of $1,500 per month plus out-of-pocket costs. A new agreement was not in place until the Board of Commissioners’ approval was received on May 22, 2002. In February 2003, the contract was increased, without competition, to $2,000 per month, retroactive to January 1, 2003. The reason given for the increase was additional responsibilities brought on by the certification of the International Association of Machinists union. Therefore, the consultant has worked for the Authority for 7 years without competing for a contract. 42 Scattered Site Implementation Development Program Manager The Executive Director contracted with a Consultant in September 1999 to provide management and relocation assistance services for scattered sites. The contract was not fairly competed. The request for proposal was advertised for 18 days with only two proposals received. Only one Board member evaluated the proposals, and narrative reports were not issued to explain how the scores were determined. There was no explanation as to why the Consultant’s $136,000 proposal was selected over a lower proposal bid of $135,000. Also, we determined that the contractor signed the contract in blue ink. However, the effective date of September 15, 1999, was written in blue felt tip marker. The Consultant acknowledged on February 2, 2000, that he started work before a written contract was established. Therefore, it appears that this contract award may have been predetermined. Modernization Program Manager The Executive Director awarded the same Consultant a $262,500 contract on September 5, 2002, to provide modernization management and consulting services. The request for proposal was advertised for only 12 days instead of the required 25 days. Therefore, contractors not privy to the impending award had little time to prepare and submit competitive proposals. The Authority’s files lacked a narrative evaluation report to show how the scores were determined and failed to show that the Consultant’s proposal provided the best value for the Authority. Finally, the Executive Director awarded the contract 5 days before the Board of Commissioners evaluated the Consultant’s proposals, indicating that the award may have been predetermined. Special Legal Counsel – Employee Lawsuit The Authority did not solicit bids or quotes for $86,688 in legal services it received from the Special Legal Counsel. The Authority received legal services to defend against a Federal whistle blower retaliation lawsuit. The Executive Director provided no evidence that the services were properly competed or quotes solicited. 43 Also, the Executive Director did not maintain a contract or agreement for the $86,688 paid to defend the Authority in the lawsuit. The Authority’s Special Legal Counsel eventually provided a signed engagement letter specifying the scope of services and rates to be provided. However, there was no written documentation indicating the Authority’s acceptance. In addition, no cost/price analysis was performed to ensure price reasonableness. Special Legal Counsel – Capital Project Funding Issue The Authority could not justify soliciting for legal services as a noncompetitive emergency procurement. The Authority paid the Special Legal Counsel $25,287 for legal advice related to the funding of capital projects and to assess its legal position regarding a potential lawsuit with National Association for the Advancement of Colored People. The Executive Director stated that competition was not required due to emergency repairs at Foran Towers. However, we determined that there was insufficient evidence that the procurement was an emergency. Under these conditions, prospective vendors were improperly denied access to federally funded contracts. In addition, no cost/price analysis was performed to ensure price reasonableness. Special Legal Counsel – Contract Dispute The Executive Director did not execute and maintain a contract for legal services regarding a construction contract dispute handled by the Special Legal Counsel. The Special Legal Counsel started work in November of 2003. However, the Special Legal Counsel and the Executive Director did not sign and formally execute a contract until 3 months later in February of 2004. Therefore, a formal contract or agreement establishing the services provided was not in place. General Legal Counsel The Authority provided no evidence that the procurement for General Legal Counsel was ever competed, and the General Legal Counsel did not always have a contract in place. The General Legal Counsel was first hired on September 30, 1994, for the period of October 1, 1994, to September 30, 1995, for $6,300. The General Legal Counsel continued to work for the Authority without a contract for an additional 6 years through September 30, 2001. The General Legal Counsel’s 44 contract was noncompetitively renewed for each of the next 2 years through September 30, 2003, for $7,500 per year. Since the most recent agreement expired September 30, 2003, the General Legal Counsel continued to work for the Authority without a contract. We note that for the period October 17, 2000, to December 17, 2003, the General Legal Counsel was paid $168,673 for legal services of which we questioned $100,266 (see finding 3). The Authority’s Procurement Policy complies with HUD’s Annual Contributions Contract; HUD Handbook 7460.8, Procurement Handbook for Public Housing Agencies; and the procurement standard of 24 Code of Federal Regulations, part 85.36. However, as shown above, the Authority did not follow Federal procurement regulations and its own policy in all cases of procured services. Therefore, vendors were not provided an equal chance to obtain publicly funded contracts, and the Authority was not assured that the best price and quality of services available were received. Conclusion The Authority’s Executive Director did not fulfill his responsibility to establish and implement effective management controls over the procurement process. HUD has no assurances that the Authority’s procurement process is fair, equitable, and results in the best quality and/or priced services obtained. In addition, without formal contract documents, the Authority was at risk for over billing and paying for unauthorized services. Recommendation We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 7A. Implement procedures and controls to ensure that its contracts are awarded in a manner providing full and open competition as required by HUD’s regulations and its procurement policy. 45 Finding 8: The Authority Had Deficiencies in Several Administrative Policies and Procedures The Authority had deficiencies in several administrative areas relating to the Executive Director’s employment contract and performance evaluations, the Authority’s handling of personnel functions and employee benefits, and compliance with requirements for executive sessions conducted during Board of Commissioner meetings. The deficiencies noted in these areas included: • The Authority did not obtain HUD approval for Executive Director’s long- term contract, • The Authority did not establish performance measurements and execute performance evaluations for the Executive Director to justify his long- term employment contract, • HUD programs were improperly charged for the personal use of the Executive Director’s vehicle, • Board of Commissioners meeting minutes did not state the reasons for going into executive sessions, and • Employee evaluations were not performed for staff. The deficiencies were caused by weak management controls and managements’ lack of awareness of HUD requirements and State laws. As a result: • The Executive Director’s employment contract requires the Authority to pay the Executive Director’s salary and benefits for the full contract term even in the event of involuntary termination of employment. • HUD programs were charged $25,347 for the Executive Director’s personal use of an Authority vehicle. • Board of Commissioners did not publicly disclose its executive sessions, ensuring that there was not improper business being conducted. • Authority did not periodically evaluate employee performance. 46 Executive Director’s Contract The Authority failed to obtain written approval from HUD for the Executive Director’s 5-year contract. HUD Handbook 7460.8, REV-1, paragraph 4-27, part B(3), states that an Executive Director may be hired as an employee or retained under an employment contract and requires HUD approval in writing for Executive Director employment contracts exceeding 2 years. Executive Director’s Performance and Long-Term Employment Contract On April 1, 1998, the Authority’s Board of Commissioners approved the Executive Director’s employment contract with an initial 5-year term. The contract contained a “golden parachute” renewal clause. In the event of an involuntary termination of the Executive Director, the Authority shall pay the Executive Director: The Executive Director’s annual salary multiplied by the unexpired term of the Agreement including any extensions in the Agreement, • Severance pay in an amount of money equal to 2 weeks current salary for each year of the Executive Director’s service to the Authority, • An amount of money equal to the Executive Director’s accumulated sick leave benefits based on his current salary, • An amount of money equal to the Executive Director’s accumulated vacation time based on his current salary, • Recognized retirement status with medical benefits and life insurance benefits identical to all retired Authority employees under the present policy of the Authority, and • Payments to any defined payment plans the Executive Director may have earned based on plan parameters. Board of Commissioners Unfamiliar With HUD Requirements Our interpretation of the “third anniversary” clause contained in the Executive Director’s contract with the Authority is that once the third anniversary passes, the Executive Director has 3 years remaining on his employment contract unless the Board of Commissioners votes not to extend his contract. This places the 47 Authority in the position of paying the Executive Director’s salary and benefits for another 3 years or having to buy out the Executive Director’s contract. HUD programs are at risk since the vast majority of the Authority's funding is received from HUD. The current Board of Commissioners members were not on the Board in 1998, at the time the contract was executed. Therefore, they could not provide any information regarding the basis for approving the Executive Director’s contract. Two Board of Commissioner Members Considered Executive Director’s Contract Unacceptable On December 12, 2002, the Authority’s Chairman of the Board of Commissioners initiated a resolution not to grant a 1-year extension on the Executive Director’s employment contract beyond April 1, 2005, for the purpose of affording the Board of Commissioners the ability to renegotiate that contract at its formal conclusion in 2004. The Chairman did not understand why Board members would make a long- term commitment that would bind future members. In addition to the Chairman, a second Board of Commissioner voted not to grant the 1-year extension through April 1, 2005, because she concluded that the contract was unacceptable. The remaining three Commissioners voted against this resolution. Therefore, the Executive Director’s contract was extended. The three Commissioners voted against the resolution because they believed that the Executive Director was deserving of such a contract, although no specific performance documentation was provided. The Board of Commissioners did not vote in 2003. Therefore, on April 1, 2004, the contract was automatically extended through April 1, 2007. The Board of Commissioners did not act prudently in approving and continuing to renew a contract that could put the Authority’s funds at risk. Such a long-term lucrative contract should contain specific objectives and performance goals that are used to measure the Executive Director’s performance to justify the continued renewal of the contract. The Executive Director’s contract is not valid from HUD’s perspective because the Authority failed to obtain prior written approval of the contract from HUD. Therefore, HUD should not assume any risk that could occur from involuntary termination of the Executive Director’s employment. 48 HUD Criteria HUD programs were charged $25,347 for the personal use of the Executive Director’s vehicle. According to his contract, the Executive Director is entitled to the use of an automobile and related expenses. However, prudent practice dictates that the personal use of the vehicle should not be charged to HUD programs. The Authority’s Board of Commissioners failed to establish sufficient guidelines for the Executive Director’s personal use of an Authority vehicle. Part A, section 2. of the Annual Contributions Contract stipulates that operating expenditures shall include all costs incurred by the Housing Authority for administration, maintenance, and other costs and charges that are necessary for the operation of the public housing authority. The Finance Director said the Authority had not calculated and withdrawn the value provided by the Executive Director’s personal use of the automobile. In fact, the Finance Director was not aware of the value of benefits provided to the Executive Director for the use of the vehicle. According to the Finance Director, the Authority’s Fee Accountant planned to calculate the benefits for personal use of Authority vehicles in April of 2004 when compiling the Authority’s year-end accounting statements. Executive Director Received Benefits of $25,347 The Authority paid the Executive Director for driving 79 miles per day to and from work as well as the personal use of the vehicle on weekends, vacations, and holidays. Therefore, HUD programs are charged with the costs associated with the Executive Director’s personal use of the Authority’s vehicle. We estimated that the Executive Director received $25,347 in benefits. The following table explains the method used to calculate the amount of benefit derived by the Executive Director. We excluded personal use on weekends, vacations, and holidays from our computations. 49 Year Daily Work Days Total Internal Benefits Commuting (52 wks @ 5 days/wk Commuting Revenue (Miles x Rate) less 20 vacation days Miles & 10 holidays) Miles Service Mileage Rate 2000 79 230 18,170 $ 0.360 $ 6,541 2001 79 230 18,170 $ 0.365 $ 6,632 2002 79 230 18,170 $ 0.345 $ 6,269 2003 79 230 18,170 $ 0.325 $ 5,905 Total $ 25,347 Reasons for Going into Executive Sessions Not Established The minutes of the general meetings for the Authority’s Board of Commissioners did not contain the reason(s) why the Board went into an executive session. The Board’s minutes only show the times that the motions were made to adjourn to executive sessions and the time the executive sessions were completed. The Executive Director was not aware of any specific disclosure requirements related to executive sessions. Prudent practice dictates that the Board minutes should provide an adequate reason for going into executive session. Otherwise, the public cannot be assured that the Authority’s Board is conducting business properly. Also, section 1-225 of the State of Connecticut’s Freedom of Information Act states that public meetings, such as Board of Commissioners meetings, must state the reasons for such executive sessions. Executive sessions cannot be used to shield public employees from disclosure of substance of Board votes taken as result of nonpublic discussions. Personnel Issues The Authority did not perform employee evaluations for staff. We interviewed five key employees, and all expressed concern that they failed to receive an annual performance rating in writing. The Authority’s failure to perform periodic employee performance appraisals was unfair to employees. It also created confusion among employees as to their eligibility for promotions or salary increases and could lead to employee grievances and disputes. The Authority failed to follow its personnel policies, which state that employees shall receive an annual performance rating in writing and performance ratings shall be included in employee service records. 50 Conclusion Weak management controls and lack of familiarity with HUD requirements and State laws created deficiencies related to the Executive Director’s performance evaluations and related employment contract, the Authority’s handling of personnel functions and employee benefits, and compliance with requirements for executive sessions conducted during Board of Commissioner meetings. The impact of these deficiencies includes the fact that the Executive Director’s current employment contract places the Authority in the position of having to pay the Executive Director’s salary and benefits for several years in the event of involuntary termination of the Executive Director’s employment. HUD’s programs are at risk because the vast majority of the Authority's funding is from HUD programs. In addition, the Authority’s Board of Commissioners’ failure to enforce proper guidelines for the Executive Director’s personal use of an Authority vehicle resulted in HUD programs being charged with ineligible costs of $25,347. This resulted in fewer funds available for the Authority to provide affordable housing to tenants. In addition, without proper disclosure of executive sessions, the public cannot be assured that the Authority’s Board of Commissioners is not conducting improper business. The Authority’s failure to perform periodic employee performance appraisals was unfair to employees. It created confusion among employees as to the eligibility for promotions or salary increases and could lead to employee grievances and disputes. Recommend We recommend that HUD’s Director of Public Housing, Boston Regional Office, assure that the Authority: 8A. Submit the Executive Director’s current contract for HUD approval. 8B. Establish specific goals and measurements to evaluate the Executive Director’s performance. 8C. Reimburse the applicable HUD programs $25,347 from nonfederal funds for the Executive Director’s personal use of the Authority’s vehicle. 51 8D. Establish a policy to identify charges for personal benefits and withdraw amounts to ensure that HUD programs are not charged. 8E. Ensure that Board of Commissioners’ minutes state the reason(s) for going into an executive session. 8F. Ensure that all staff receive annual performance evaluations. 52 SCOPE AND METHODOLOGY Our overall audit objective was to determine whether the Authority was operating its Capital Fund program, Development Fund program, and Section 8 Voucher program in an effective and efficient manner and in compliance with HUD regulations, applicable laws, and contractual requirements. We also reviewed specific administrative policies and procedures at the Authority. To accomplish the audit objectives, we • Reviewed Federal requirements including HUD Handbooks and Public and Indian Housing Notices and Directives. In addition, we reviewed the Housing Authority’s organizational and administrative structure, administrative plans, and personnel policies; 24 Code of Federal Regulations, part 941 - Public Housing Development; and recorded minutes of the Board of Commissioner meetings. • Interviewed Massachusetts and Connecticut State Office of Counsel and Public Housing personnel to obtain information relating to the Authority’s operations and management controls. • Reviewed independent public accountant audit reports, as well as monitoring reviews conducted by the HUD Field Office, to determine the status of the Authority’s management and financial operations. For the Capital Fund program, we • Determined whether the Authority’s procurement practices complied with HUD regulations and its own procurement policy. • Interviewed the Harrison Avenue construction company related to the contract dispute for Phase III. • Examined a nonrepresentative sample of Capital Fund program contracts. A nonrepresentative selection was appropriate because the items of interest that had a high degree of risk were readily apparent. We did not project the sample results to the universe. 53 For the development of scattered sites, we • Evaluated the Authority’s development procurement practices related to architectural and construction services, appraisals, program management and relocation assistance, legal service, and acquired real estate to determine whether procurements were conducted in accordance with requirements of 24 Code of Federal Regulations, part 85.36. • Evaluated 100 percent of income and related expenses for the Scattered Site Development program because we considered this a high-risk area. • Performed physical inspections to determine if units were occupied and work completed and if at least one unit was handicapped accessible as required by the Settlement Agreement. For the Section 8 program, we • Evaluated the Authority’s management controls and overall performance of its Section 8 program. • Evaluated the Section 8 inspections for assurance that housing quality standards deficiencies were corrected in a timely manner and whether subsidy payments were abated when deficiencies were not corrected within the required period. We limited testing to Section 8 inspection reports performed by an independent contractor during the period of October 15, 2001, to December 31, 2003. We used the contractor’s web site as our source document for inspection because the Authority’s files were incomplete. The period tested was limited to inspections conducted after October 15, 2001, because the web site only listed inspections after that date. To evaluate the Authority’s administrative policies and procedures, we • Conducted interviews with the Board of Commissioners, Executive Director, and Authority’s employees. • Reviewed 100 percent of legal payments ($168,673) made to the Authority’s General Legal Counsel covering the period from October 2000 to December 2003 and 100 percent of legal payments ($119,451) made to the Authority’s Special Legal Counsel covering the period from November 2002 through February 2004. We reviewed 100 percent because we considered this a high-risk area. 54 • Reviewed the Executive Director’s employment contract and fringe benefits. Also, we reviewed the Authority’s compliance with its personnel policies and executive sessions. We analyzed the Authority’s computer system to ensure accurate and reliable data were maintained for its Federal programs and to determine at a minimum, 1) the type of computers the Authority used, 2) how the computer system was organized, 3) the main characteristics of the system and environment, 4) how management controlled computer system activities, and 5) any known problems with the system. The audit was conducted between June 2003 and February 2004 and covered the period January 1, 2000, through December 31, 2003. When appropriate, the audit was extended to include other periods. We conducted our audit in accordance with all generally accepted government auditing standards. 55 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: • Administrative controls to assure proper management, • Financial controls to assure proper accounting, • Management controls over program receipts and expenditures, • Management controls over procurement and contract administration, and • Safeguards over assets; records; and compliance with applicable laws, regulations, and contractual agreements. We assessed the relevant controls identified above. Significant Weaknesses 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. Our review identified significant weaknesses in the management control areas we assessed. Specific control weaknesses related to HUD programs are described in the findings sections of this report. 56 FOLLOWUP ON PRIOR AUDITS Prior Independent Public Accountant Report Findings The Annual Audit Financial Statements for fiscal years 2001 to 2003 contained findings that the Authority’s Section 8 tenant files were not properly maintained. Our audit determined that this condition had not been corrected. We focused our review on the lack of housing quality standards inspection reports. (see finding 5) 57 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Ineligible Unsupported Unnecessary Funds To Be Put to Better Number 1/ 2/ 3/ Use 4/ 1A $838,000 3A $135,824 4A $115,716 4B $100,266 4C $3,735 5A $26,280 5B $280,628 8C $25,347 Total $267,609 $3,735 $135,824 $1,118,628 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/ Unreasonable/unnecessary costs are those costs not generally recognized as ordinary, prudent, relevant, and/or necessary within established practices. Unreasonable costs exceed the costs that would be incurred by a prudent person in conducting a competitive business. 4/ “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 later 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. 58 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 1 59 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 2 Comment 3 Comment 4 Comment 5 Comment 6 Comment 7 60 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 61 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 5 Comment 5 Comment 5 62 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 7 Comment 7 Comment 7 63 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 8 Comment 9 Comment 9 64 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 9 Comment 10 65 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 66 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 11 67 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 68 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 69 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 70 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 71 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 72 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 73 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 74 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 12 Comment 13 Comment 13 Comment 13 75 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 76 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 Comment 14 77 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 Comment 14 78 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 79 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 80 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 81 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 82 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 Comment 14 83 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 Comment 14 84 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 Comment 14 85 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 86 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 87 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 14 88 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 15 Comment 16 Comment 17 89 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 18 Comment 19 90 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 20 Comment 21 Comment 22 91 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 23 92 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 93 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 94 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 95 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 24 96 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments 97 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 25 Comment 26 98 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 27 Comment 28 Comment 29 99 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 1 The Authority submitted a three-ring binder containing the response and approximately 250 associated exhibits. Due to their volume, we did not include the Authority’s exhibits in the report. However, we will make the exhibits available to HUD upon request and to the public through a freedom of information request. Comment 2 The Authority’s assertion of drastically reduced subsidies is incorrect. The subsidies have remained constant over the past 5 years. Comment 3 The Authority’s statement on the amount of time spent conducting the audit is an incorrect statement. We were only on-site at the Authority for a period of 8 months. Comment 4 The statements on the Authority’s operation and accounting system are misleading and give the impression that OIG made these representations in the report. We did not make any representations on the Authority’s accounting system in the report, and did not express any opinon regarding the existence of irregularities or improprieties in the operation, or on the accuracy and reliablity of data, or on its effective use of the data in managing its programs. Comment 5 We strongly disagree with the Authority’s statements that the life threatening conditions of the building were unsupported. The life threatening conditions at Foran Towers were supported by three engineering studies performed at the building. The life threatening conditions identified in the studies were the poor condition of the building’s sanitary piping and the poor condition of the building’s outer structure. The studies also point out that the temporary solution of the canopy and fence did not eliminate the life threatening condition of the building’s outer structure, and the building’s condition would continue deteriorate until permanent replacement or repairs to the brick facde were completed. In addition, we did consider the NATCOMM study on the outer structure of the the building completed over one year ago. The Authority trys to use the NATCOMM’s “Envelope Study,” to discount the life threatening conditions described in the previous engineering studies. The Authority points to the statement made by NATCOMM that there was “no evidence of loose damage brick units” and “at this we are not of the opinion that the veneer is in eminent danger of collapse”. However, NATCOMM noted major deficiencies in the masonry construction, similar to those identified in the three previous engineering studies. The NATCOMM study stated “This condition (Façade Repair) must be addressed within the next 12 months.” Since the study was completed over one year ago, we believe our assertions are supported and this work must be addressed immediately. 100 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 5 We believe the NATCOMM study supported that Foran Towers be prioritized (Continued) ahead of the Harrison Avenue redevelopment due to the masonry construction deficiencies, and necessary window and roof replacements. The Authority needs to address and eliminate all of the poor conditions and the threats to human life at Foran Towers. In addition, we disagree with the Authority’s statement that it has consistently included funds for modernization and repairs at Foran Towers in its five-year Capital Plan. The Authority failed to fund renovations at Foran Towers when serious health and safety issues first became evident. The Authority reallocated 2000 and 2001 Program funds that were designated for repairs of the brick facade at Foran Towers to Harrison Avenue. In fact, the Authority did not allocate any funding for Program Years 1996 through 2003 for repairs of the damaged brick facade or the sanitary piping at Foran Towers. Instead, the Authority funded a construction contract for modernization at Harrison Avenue. The Authority continues to disregard HUD program officials and OIG recommendations to prioritize Foran Towers poor conditions, and recently the Authority decided to vacate Harrison Avenue and go forward with additional renovations estimated to cost $1.5 million for phase III. These costly renovations will leave little funding for the elimination of Foran Towers’ life threatening conditions for several years. Comment 6 The Authority states that the continued deterioration of the Harrison Avenue Development resulted from the heavy use of residing families for over thirty years. However, the Authority needs to accept the responsibility for the deterioration of the housing stock which is the result of the Authority’s failure to enforce the lease and conduct periodic rehabilitation efforts of its housing stock during the thirty years. In addition, the heavy use by families does not warrant the diversion of funds needed to address the exigent health and safety conditions at Foran Towers. 101 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments The dispute and Authority’s need to defend itself was the result of the Comment 7 Authority’s failure to notify the Harrison Avenue Construction Company of its decision to deduct Phase III in writing. In fact, the Authority’s General Counsel informed OIG that it was his mistake that the Contractor was only notified orally, and was not notified in writing regarding the elimination of Phase III. The Authority was responsible for the litigation and the legal expenses incurred are considered unnecessary. However, the dispute was settled, and we withdraw our recommendation. Our position regarding counsel’s litigation fees is that the fees were unnecessary, ineligible program costs and should be repaid from nonfederal funds (Recommendation 4A). We maintain that the Authority’s failure to monitor construction activities and make timely decisions contributed to significant delays in completing Phase I & II. We disagree with the Authority’s statement that rehabilitation work on Phase I & II was completed efficiently and effectively since the work was not completed until approximately 8 months past the revised completion date of May 19, 2003. Further evidence of the Authority’s inefficiency and ineffectiveness were the failure to obtain required construction progress schedules and timely enforce the liquidating damages clause of the contract for contractor caused delays during the construction period. This is further supported by the arbitrator’s decision not to award liquidating damages clauses that the Authority ultimately sought. Comment 8 The Authority’s representation that HUD imposed a $100,00 threshold requirement due to their effective procurement practices is incorrect. The threshold requirement is a limit established for everyone and is not reflective of how good the Authority’s practices are, or how well they were being followed. In addition, the procurement was not in accordance with the Authority’s procurement policy because a formal contract was not in place until 3 months after legal work was started. (See Finding 7) We do concur that HUD Regional Counsel concurrence is required prior to the award of litigation services contracts expected to exceed the $100,000 threshold. However, the issue here is not the award of the contract that required the HUD Regional Counsel concurrence but rather that concurrence was required before expending funds for litigation. 102 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 9 We disagree with the Authority’s statement that OIG’s method was flawed because certain variables there were not taken into consideration. The Architect committed an error and a change order was necessary to correct the error. The Authority acknowledged that the Architect omitted a portion of the required asbestos abatement from project specifications, and is misrepresenting our statement on the need for a change order. If the Architect had properly computed the area for asbestos replacement, the original bid may have been lower due to the normal volume discount for the replacement. If the Authority believed that the Architect was at fault, it should have attempted to recover the increased cost from the Architect. The Army Corp stated that the change order was acceptable and cited the 30% reduction achieved through negotiations. We believe this supports our original premise that the omission may have resulted in excessive costs bid for the change order. In addition, the Authority failed to provide documentation in support of its statement that the cost to abate asbestos would be in excess of $4,000 per unit at the time of our audit. However, based on the additional factual data submitted in the Authority’s written response, we removed recommendation 2B regarding the overpayment. Comment 10 The Authority stated that OIG did not provide any support for its estimate of $19,500 required to bring the 9 units in Phase III up to Uniform Property Condition Standards. We maintain that 9 vacant units in Phase III of Harrison should be prepared for occupancy. We consider the estimate to repair units as reliable based on the input received from two qualified sources. In fact, one of the Authority’s own staff (Work Center Supervisor) provided us the $19,500 estimate to bring the 9 units on line. OIG, and two employees from the local HUD field office, including a Construction Analyst, concurred that the units could be brought up to Uniform Property Condition Standards at a minimal cost. These units have been vacant for two years and the Authority has lost significant rental income and the opportunity to house families. We note that seven of the adjacent units were occupied during our review. Therefore, we do not understand the need for complete asbestos removal. We contend that the units can be brought up to physical conditions standards at minimal cost until the Authority has the funding for major renovations. 103 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 11 The Authority states in the response that “the decision to replace certain fixtures and equipment were both adequately supported and prudent.” The Authority provided approximately 40 photographs, and several change order documents as evidence that they did not prematurely replace capital assets. However, the photographs provided with the Authority’s response were difficult to view or not clearly marked, dated, or traceable to the properties in question. During the audit, the Architect and Appraiser provided extensive photographs that indicated that the fixtures did not have to be replaced. In addition, the Authority repeatedly stated, “Due to the unknown age, condition, and efficiency of all appliances MHA commissioners made the determination to replace and standarize all appliances.” The response clearly supports our determination that the capital assets were replaced regardless of their physical condition and that no cost benefit analysis was performed as required by HUD’s Public Housing Modernization Standards Handbook 7485.2, concerning premature replacement. The Authority’s response also fails to clearly present the condition of capital assests that were known. For example, the Authority’s response cites 3 locations (136 Merwin Ave, 76-78 Atwater St, and 79-81 Elaine St.) but fails to include the appraiser and architect reports which indicated that the furnaces were only 2 years old, yet they were replaced. The Authority’s response only provided anecdotal evidence, pictures, and a few change order proposals prepared by the renovations contractor. They did not provide any factual data to change our position. Comment 12 We acknowledge the Authority’s intent to comply with our recommendation to update and maintain an inventory for the scattered site equipment. The Authority contends that scattered site units are not subject to the Comment 13 handicapped accessible rule. The Authority also stated that all project plans and specifications submitted were approved by HUD, and received no notice of alleged Section 504 non-compliance prior to receipt of the draft audit report. We disagree. The governing criteria is contained in the Authority’s Plan for the Development of Scattered Site Properties (Part II, Section A) that stated “The MHA intends to satisfy the section 504 requirement that 5% of all newly developed, acquired, or rehabilitated units (in this case, 2 of the 28 units) be accessible or adaptable to the mobility impaired.” 104 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 13 In addition, the Settlement Agreeement between the Authority, the Department (Continued) of Justice and the National Association For the Advancement of Colored People states that the Authority is “to ensure that persons with disabilities have equal opportunity to live in the Authority’s subsidized housing units for families, those units will comply with the Fair Housing Act, Section 504 of the Rehabilitation Act, and HUD’s accesibility guidelines set forth in 24 CFR Part 40 and 24 CFR Part 100.205.” These guidelines also contain the 5% requirement. Furthermore, HUD is not responsible for detecting Section 504 violations. Compliance with Section 504 is the responsibility of the Authority. We also disagree with the Authority’s response that they are in compliance with Section 504. The Authority contends that scattered site units do not constitute new construction and are not subject to the 5% handicapped accessibility requirement based on the PIH notice. In this case, the Settlement Agreement between the Authority, the Department of Justice and the National Association For the Advancement of Colored People takes precidence. Comment 14 The Authority contends that the legal costs are eligible and supported, but no additional documentation was provided with the response. In addition to the costs being ineligible and unsupported, we continue to maintain that the services were not properly procured (See Finding 7). Since we coordinated this finding with HUD Regional Counsel, we have forwarded the Authority’s response to them for final analysis and resolution. The Authority contends that the hourly rate paid to General Counsel is reasonable. However, OIG’s concern is not whether the hourly rate is reasonable, but whether the Authority is contractually obligated to pay for these services and whether documentation is adequate to support the billings for legal services outside of the retainer contract to determine eligibility. The Authority contends that they complied with federal regulations for General and Special Legal Counsel, and the legal charges are eligible because the attorney advised the Authority of all charges exceeding the scope of the services contract. We disagree. The legal charges are not eligible because they were not supported by proper documentation. The Authority improperly paid for additional costs for services contained in General Counsel’s annual retainer contract and did not did comply with the requirements of the HUD Litigation Handbook for litigation services. 105 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 14 The Authority contends that fees paid to legal counsel were eligible because of (continued) the HUD litigation handbook criteria, HUD’s requirement for allowable expenses, OMB Circular A-87 attachment B item 10(B), HUD’s Settlement Agreement, and potential investigation by the City. In addition, the Authority contends that budgetary and actual costs and billings were provided to the Executive Director and discussed and approved by the Board of Commissioners. This response is not relevant to our findings because it gives the impression that the Board was fully informed. We interviewed the Board of Commissioner’s and determined that they were unaware of the requirements contained in HUD’s Litigation Handbook requiring prior HUD approval for expenditures. In addition, the Board was not familiar with what was contained in General Legal Counsel’s retainer contract but rather relied on the Executive Director’s and General Counsel’s assertions. The Authority contends that litigation HUD does not allow is limited to court litigation and they (Authority) were not involved in court litigation. We disagree. HUD policy and Federal cost principles as established by the Office of Management and Budget do not permit a public housing authority to use project or program funds to pay the costs of litigation against HUD. The Authority contends that they never threatened litigation against HUD. The finding states that the Authority paid for legal services to defend against HUD because they erroneously believed that HUD was going to bring suit against them. Regardless of the Authority’s misintrepretation of the facts in the finding, the legal service cost they spent under the erroneous belief of possible ligitation against HUD are not an allowable program cost. The Authority is responsible for managing the program to ensure that costs are allowable program costs. The Authority cannot transfer this responsibiltiy to HUD by claiming that HUD Regional Counsel did not communicate to the Authority that the Authority was not in compliance or by claiming that they (Authority) did not have to comply with the litigation handbook because they intrepreted the handbook differently. The Authority did not comply with HUD requirements for procuring the services of an attorney. 106 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 15 The Authority feels that an appropriate system was in place but not followed and is taking steps to implement a more effective system. Also, they did not agree with our calculation of $26,280 for administrative fees. The Authority stated that they did not believe we took into account the 30 days in which the owner had to make repairs. Management should have realized that procedures were not followed, and by their own admission, these deficiencies “resulted in housing assistance payments being provided for units that did not currently meet housing quality standards”. We contend that our calculation did provide the 30 day grace period. In addition, we offered to provide support and further discussion for any of our findings at the time the discussion draft report was transmitted as well as at the exit conference. In fact, data was requested and provided to the Authority for another finding (asbestos omission). Detailed computations will be furnished upon request. Comment 16 The Authority feels that it had an appropriate system in place. However, the Authority has taken steps to implement a more effective system by subcontracting this effort to the Ansonia, Connectiuct Housing Authority and working with its inpection firm, Kelson and Associates. In addition, the Authority states that the Section 8 staff took actions that had the effect of concealing the non-abatement from the Executive Director. We strongly disagree with the Authority’s statement that it had an appropriate system in place. We contend that the Executive Director did little to monitor known inspection deficiencies and did not take appropriate action when he was apprised by his Section 8 staff. We found no evidence that the Section 8 staff took actions to conceal non-abatements from the Executive Director. In conclusion, it is ultimately the responsibility of the Executive Director to ensure that the Section 8 staff follows established procedures. Comment 17 The Authority stated that a new system has been implemented that should improve the quality control procedures over inspections and abatements. We concur. The Authority stated that with the assistance of its Section 8 Administrator, the Comment 18 new system should allow the Authority to abate subsidies for units that do not meet housing quality standards. We concur. 107 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 19 Prior to its hiring Ansonia Housing Authority, the Authority stated that the Section 8 Program was adequately staffed and that the staff received appropriate training. We disagree with the Authority’s assessment. Our report did not comment or question whether or not staff received appropriate training. However, we contend that the Authority’s Section 8 Program could have benefited by having more staff available to process Section 8 applicants and have more applicants out shopping for units. Comment 20 The Authority states that it is currently at 99.7% of its monthly budget authority and will monitor this on a monthly basis. The Authority also stated that on May 28, 2002, the Executive Director requested a 119% payment standard from HUD due to difficulty in leasing units. In addition, in September 2003, the Authority drafted a Section 8 Project Based Assistance Program Request for Proposal that was put on hold due to funding constraints. In fiscal year 2005, HUD revised its method of funding the Section 8 Program due to budgetary constraints. Because the Authority historically underutilized it’s authorized funding, HUD significantly reduced its FY05 funding to its historical baseline. As a result, the Authority is leased at 99.7% of its monthly budget authority and is serving 211 eligible families. We maintain that had the Authority made sufficient efforts to lease Section 8 Program units at an acceptable rate their current funding would not have been reduced. As a result, we estimate that the Authority has lost the ability to house approximately 55 additional families (266 – 211) in the City of Milford. In addition, we disagree that the Authority was proactive to the April 23, 2002 onsite review by HUD. The Authority’s May 28, 2002 letter requesting a 119% payment standard was in direct response to the local HUD field office’s May 3, 2002 e-mail informing the Authority that they could increase rents to 119% of the published Fair Market Rents without completing a survey. Based on the Authority’s response, we revised our recommendation to require the Authority to submit a monitoring plan to ensure they use all available funding. 108 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 21 The Authority stated that they reviewed the payment standards currently in use in conjunction with its new Section 8 contract administrator and is now using the correct standards. In addition, the Authority stated they complied with HUD’s recommended practice for annual re-certifications. Although our finding and recommendation referred to using proper payment standards for new tenants, not re-certifications, the Authority’s corrective actions should result in the use of proper payment standards. Comment 22 We agree with the Authority that the Section 8 Program Assistant was made aware of changes in Fair Market Rents for existing housing. The Executive Director recently provided OIG emails sent to the Section 8 Program Assistant with regard to the annual changes required by HUD in the FMR’s. Based on the emails, OIG agrees with the Authority’s assertion and has removed the statement from the report. The Authority asserted that the Executive Director and Board of Comment 23 Commissioners worked continuously to manage its procurement policy. The Authority states that it provided extensive evidence that the organization procured goods and services in a manner that resulted in the best quality and/or prices for services obtained. The Authority stated that the procurement of Clerk of Works was an emergency procurement. The Authority added that the procurement resulted in fair and reasonable rates. We strongly disagree. Based on our review, it was evident that the Authority’s procurement practices did not comply with HUD regulations and its own procurement policy. The Authority’s response contained no more factual data than what we obtained during the course of our audit. Contrary to the statements made by the Authority, the evidence we received was not sufficient to assure that the Authority procured goods and services in a manner that resulted in the best quality and/or prices for services. Therefore, our recommendation remains unchanged. We disagree that the procurement of Clerk of Works qualified as an emergency procurement. Consideration of rates is not the main focus in this situation. The Authority did not comply with HUD regulations and its own procurement policy which states that noncompetitive awards may be used only when an emergency exists that seriously threatens the public health, welfare, or safety or endangers property or would otherwise cause serious injury to the Authority, as may arise by reason of a flood, earthquake, epidemic, riot, equipment failure, or similar event. 109 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 24 The Authority stated that the Executive Director’s 5-year employment contract was not subject to HUD review and approval under Handbook 7640.8 Rev-1. Also, the Authority stated that multi-year contracts for Executive Directors do not violate any federal statute or regulation of HUD. The Executive Director utilizes Part II, Section 14 of the ACC, applicable to conditions of employment and benefit plans, to contend that HUD has no jurisdiction over the employment contract. The Authority stated that the procurement Handbook is not applicable to employment contracts nor are the procurement regulations at 24 CFR 85.36. We disagree. HUD requirements limit multi-year contracts for the Execuitve Directors to 2 years. We believe that the Handbook is applicable, and states that an Executive Director may be hired as an employee or retained under an employment contract and, if such agreement exceeds two years, approval from HUD is required. OIG utilized handbook criteria, handbook 7460.8, Section 4-27B, as criteria without reference to the ACC. Therefore, there is no conflict between the handbook and the ACC. Contrary to Authority’s assertions, HUD does have authority over the employment contract. The Executive Director is correct that HUD did abolish the Personnel Policies handbook containing the criterion being used in the finding. However, the provision in the Handbook was reinstated in the procurement handbook when it was revised. The revision to the handbook does address employment contracts for executive directors of housing authorities with more than 250 units and this Authority is subject to this provision. We confirmed our understanding with HUD legal in Hartford, Connecticut who had contacted HUD Legal in headquaters for an opinion. Comment 25 The Authority stated that it established specific goals and measurements to evaluate the Executive Director’s performance. We disagree with the Authority’s response. Other than anectdotal evidence, no documentation was provided to support this statement. Comment 26 The Authority stated that since the Executive Director is on call 24 hours a day, seven days a week the use of a vehicle for commuting to and from work should be an eligible expense. We disagree. We consider the Executive Director’s normal commute to be a personal expense and any reasonble method to calculate the expense amount to be withdrawn for the period is acceptable. In those rare instances when the Executive Director uses the vehicle to respond to emergencies, we would consider the cost to be an eligible business expense. 110 Appendix B AUDITEE COMMENTS AND OIG’S EVALUATION OIG Evaluation of Auditee Comments Comment 27 The Authority stated that it will continue to accurately prorate and allocate expenses between activities and W-2’s will be issued to employees who have personal use of a vehicle. We concur these personal costs should be reported on employee W 2’s. However, the personal costs should not be charged to programs. Comment 28 The Authority stated that it will continue to comply with the Freedom of Information Act and that the reasons for the executive sessions were included on their agendas. We disagree. Agendas are planned events that may not occur. The Board Minutes are a permanent record of what actually transpired. Therefore, the minutes need to reflect the reasons for going into executive session. Comment 29 The Authority stated it will comply with its union agreements and provide evaluations in accordance with its personnel policy. Although the Authority’s prior personnel policy dictated that all employees of the Authority were to receive annual performance ratings in writing and they did not, the policy needs to be enforced. 111 Appendix C SCHEDULE OF PREMATURE REPLACEMENTS FOR SCATTERED SITES Property Refrig- Kitchen Furnaces Roofs Hot Total Address erators/ Cabinets & Water Costs Ranges Countertops System 136 Merwin 1,300 3,300 4,750 9,350 Avenue (single family) Appraiser’s Report 4/6/2000, Property has new appliances. The furnace and oil tank were replaced in 1998. Architect’s Report 2/8/2000, Kitchen cabinets and appliances were in good condition. The Mechanical and Electrical Report indicated that the oil-fired furnace was 2 years old. 176-178 Platt 2,600 9,200 6,100 17,900 Street (two family) Appraiser’s Report 4/6/2000, Property is in average/good condition overall. All appliances, mechanicals, and utilities are in average condition. Current condition has no adverse effect on marketability of property. Architect’s Report 1/28/2000, Kitchen cabinets and countertops were in good condition. The Mechanical and Electrical Report indicated that the two gas-fired furnaces used are 12 to 15 years and 15 to 20 years old, respectively. 20 White Oaks 1,300 4,500 5,800 Terrace (single family) Appraiser’s Report 4/12/2000, No obsolescence noted for property and no repairs or improvements are recommended at this time. The effective age of the property reflects regular maintenance and repairs of the improvements. Architect’s Report 2/3/2000, Kitchen cabinets were in good condition. 22-24 Casco 2,600 12,318 14,918 Street (two family) Appraiser’s Report 4/10/2000, Property is in good overall condition. All appliances, mechanicals, and utilities are in average condition. Current condition has no adverse effect on marketability of property. No repairs or upgrades were required. Architect’s Report 1/28/2000, Kitchen cabinets and countertops were in good condition. 86-88 West 2,600 4,600 4,600 11,800 Town Street (two family) 112 Appendix C SCHEDULE OF PREMATURE REPLACEMENTS FOR SCATTERED SITES Property Refridg Kitchen Furnaces Roofs Hot Total Address erators/ Cabinets & Water Costs Ranges Countertops System Appraiser’s Report 12/15/2000, Property in good condition overall. All appliances, mechanicals, and utilities in average condition. Current condition has no adverse effect on marketability of property. No needed repairs or upgrades. Architect’s Report 10/13/2000, Kitchen cabinets and countertops were in good condition. Mechanical and Electrical Report indicated heating supplied by two furnaces; age of which are unknown. 76-78 Atwater 2,600 4,222 5,000 1,100 12,922 Street (two family) Appraiser's Report 1/2/2000, Unit was remodeled within the past 2 years. Kitchens, including cabinets, and furnaces are 2 years old. All appliances, mechanicals, and utilities are reported in good condition. No repairs or upgrades are required. Architect’s Report 11/14/2000, Kitchen cabinets and countertops were in good condition. Architect indicated property was remodeled within the past 2 years. 79-81 Elaine 2,600 5,000 2,300 9,900 Street (two family) Appraiser's Report 1/2/2000, Unit was remodeled within the past 2 years. Property reported to be in good condition. Kitchens and furnaces are only 2 years old, and property has new kitchen cabinets/countertops. No needed repairs or upgrades noted. Architect’s Report 11/14/2000, Kitchen cabinets and appliances reported in good condition. Mechanical and Electrical Report indicated that the furnace was installed in 1998. 10 Housatonic 7,800 27,000 18,434 53,234 Avenue (6 units) Appraiser’s Report 12/22/2000, Property is in great condition. Appraiser reported that property is approximately 10 years old and has new appliances. Architect’s Report 2/5/2001, Kitchen cabinets/countertops and appliances were in good condition. Grand Totals $23,400 $65,140 $25,450 $18,434 $3,400 $135,824 113 Appendix D SCHEDULE OF FEDERAL SUBSIDIES EXPENDED FOR SUBSTANDARD HOUSING Date Date Months Total Exigent? Address Failed Passed Lapsed HAPAssistance Yes/No Payment Amount 27 Lansdale Avenue 3/20/02 6/7/02 2 $ 674 No 27 Lansdale Avenue 4/10/03 9/12/03 4 1,956 No 71 Bridgeport Avenue 3/21/02 6/7/02 3 978 Yes 27 Wildwood Avenue 5/9/02 4/8/03 11 8,965 Yes nd 27 Broadway 2 1/29/02 4/8/02 2 2,087 No 27 Broadway 2nd 5/20/03 * 6 6,150 No 52 A Locust Street 8/20/02 11/15/02 2 1,536 No 52 A Locust Street 4/21/03 * 7 5,376 No 43 Laurel Avenue 9/19/01 11/1/02 13 9,571 No 12 Bridgeport Avenue 4/9/03 6/2/03 1 456 No 180 Melba Street #218 9/13/02 12/13/02 2 608 No 308 Meadowside #201 3/18/02 5/10/02 1 603 No 308 Meadowside #201 4/22/03 5/23/03 1 725 Yes 137 Edgefield Avenue 4/18/02 7/10/03 15 11,760 Yes 757 Milford Point Road 4/15/02 5/31/02 1 422 Yes 152 Broad Street Rear 12/13/02 5/19/03 5 1,830 Yes 118 Naugatuck Avenue 2nd 11/18/02 4/1/03 5 3,975 Yes 22 Darina Place 11/19/02 12/31/02 1 694 Yes 22 Darina Place 5/28/02 * 19 12,878 Yes 68 Cooper Avenue 7/19/02 11/18/02 4 3,992 Yes 101-103 Bridgeport Ave 4/9/03 * 8 7,800 Yes 155 West Main Street 3/20/02 6/11/02 3 1,470 Yes 183 Broadway 1st Floor 1/14/02 4/8/02 3 882 Yes 33 Broadway #3 9/19/01 10/30/02 12 8,424 No 33 Broadway #3 4/23/03 5/29/03 1 1,144 Yes 33 Broadway #3 9/23/03 * 2 2,288 No 92 Opal Street 3/21/02 1/21/04 22 6,525 Yes 95 Naugatuck Avenue 1/30/02 4/15/02 2 1,550 No 4 Elm Street #1 4/18/02 6/11/02 2 1,924 Yes 4 Elm Street #1 4/23/03 * 7 7,875 No 300 Meadowside #208 4/21/03 * 7 5,915 No 58 Laurel Avenue 12/13/02 3/13/03 2 2,088 No 121 Seemans Lane #14 5/19/03 8/11/03 2 958 No 82 West Town Street 4/21/03 8/11/03 3 3,000 No 180 Melba Street #303 3/25/02 6/11/02 2 492 No 180 Melba Street #303 4/7/03 8/11/03 3 861 No 218 West Main Street 1st 4/21/03 6/2/03 1 683 No 107 Bridgeport Avenue 4/15/02 7/19/02 3 2,050 Yes 19 James Street 11/18/02 4/10/03 4 3,608 No *An asterisk indicates that deficiencies have not been corrected as of December 31, 2003. 114 Appendix D SCHEDULE OF FEDERAL SUBSIDIES EXPENDED FOR SUBSTANDARD HOUSING Date Date Months Total Assistance Exigent Address Failed Passed Lapsed Payment ? Amount Yes/No 138 Melba Street 1st 3/25/02 6/11/02 2 710 No 105 Bridgeport Avenue 4/9/03 9/23/03 4 3,300 No 44 Harkness Avenue 1/28/02 9/23/03 19 17,822 No 49 A Fairwood Avenue 4/8/02 * 19 13,129 No st 601 Milford Point Road, 1 4/10/03 * 8 6,496 Yes 27 Peck Street 4/21/03 7/10/03 2 2,588 No 1 Park Circle #2 3/21/02 6/11/02 2 1,138 No 33 Broadway, Rear 1/14/02 4/8/02 2 1,144 No 54 A Naugatuck Avenue 11/18/02 * 12 5,376 No 92 B Robert Treat Drive 4/22/03 * 8 4,216 Yes 194 A Cherry Street 4/21/03 6/2/03 1 251 No 216 Naugatuck Avenue, 1st 1/28/02 5/31/02 3 1,791 No 91 C Robert Treat Drive 3/20/02 5/10/02 1 351 No 91 C Robert Treat Drive 4/22/03 * 7 5,505 No 27 Broadway, 1st 1/14/02 4/8/02 3 2,700 Yes st 27 Broadway, 1 4/23/03 9/12/03 5 4,500 Yes 122 Naugatuck Avenue 1/28/02 6/7/02 4 2,500 No 122 Naugatuck Avenue 5/20/03 * 7 4,995 Yes 273 Seaside Avenue, 2nd 4/19/02 8/20/02 3 936 No st 27 Kittery Street, 1 11/18/02 3/13/03 4 3,300 Yes 106C Merwin Avenue 4/19/02 * 19 11,006 No 52 Hawley Avenue #6 4/19/02 7/19/02 2 822 No 76 Dunbar Road 3/21/02 9/12/02 6 6,768 Yes 76 Dunbar Road 4/8/03 * 8 9,024 Yes 308 Meadowside #103 4/22/03 8/11/03 3 2,127 No 180 Melba Street #301 4/7/03 10/21/03 5 3,260 No 180 Melba Street #301 3/20/02 9/12/02 5 4,000 No 16 Wall Street 2nd Floor #2 3/25/02 6/11/02 2 862 No 36 Beechland Avenue 3/25/02 7/8/02 3 3,351 No 36 Beechland Avenue 4/7/03 7/15/03 2 1,184 No 180 Melba Street #309 9/13/02 12/13/02 2 1,614 No 519 Naugatuck Avenue 2nd 3/20/02 6/7/02 2 1,162 No 24 Lenox Avenue 2nd Fl 3/21/02 5/9/02 2 1,086 Yes 24 Darina Place 3/20/02 9/12/02 5 5,000 No 1070 New Haven #76 4/8/03 6/2/03 1 851 No 106B Merwin Avenue 7/19/02 3/13/03 8 6,992 Yes 180 Melba Street #105 9/13/02 12/13/02 2 1,650 No rd 27 Broadway 3 Floor 5/20/03 9/12/03 4 2,348 Yes Grand Total 391 $280,628 *An asterisk indicates that deficiencies have not been corrected as of December 31, 2003. 115 Appendix E SCHEDULE OF QUESTIONED ADMINISTRATIVE FEES AUTHORITY RECEIVED TO MANAGE SUBSTANDARD HOUSING Address Months of Admin. Questioned Abatement Fees Fees 27 Lansdale Avenue 2 $65.67 $131 27 Lansdale Avenue 4 67.83 271 71 Bridgeport Avenue 3 65.67 197 27 Wildwood Avenue 11 67.83 746 27 Broadway, 2nd 2 65.67 131 27 Broadway, 2nd 6 67.83 407 52 A Locust Street 2 67.83 136 52 A Locust Street 7 67.83 475 43 Laurel Avenue 13 65.67 854 12 Bridgeport Avenue 1 67.83 68 180 Melba Street #218 2 67.83 136 308 Meadowside #201 1 65.67 66 308 Meadowside #201 1 67.83 68 137 Edgefield Avenue 15 65.67 985 757 Milford Point Road 1 65.67 66 152 Broad Street Rear 5 67.83 339 118 Naugatuck Avenue 2nd 5 67.83 339 22 Darina Place 1 67.83 68 22 Darina Place 19 67.83 1,289 68 Cooper Avenue 4 65.67 263 101-103 Bridgeport Avenue 8 67.83 543 155 West Main Street 3 65.67 197 183 Broadway Street 3 67.83 203 33 Broadway #3 12 65.67 788 33 Broadway #3 1 67.83 68 33 Broadway #3 2 67.83 136 92 Opal Street 22 67.83 1,492 95 Naugatuck Avenue 2 65.67 131 4 Elm Street #1 2 65.67 131 4 Elm Street #1 7 67.83 475 300 Meadowside #208 7 67.83 475 58 Laurel Avenue 2 67.83 136 121 Seemans Lane #14 2 67.83 136 82 West Town Street 3 67.83 203 180 Melba Street #303 2 65.67 131 180 Melba Street #303 3 67.83 203 218 West Main Street 1st 1 67.83 68 107 Bridgeport Avenue 3 65.67 197 19 James Street 4 67.83 271 138 Melba Street 1st 2 65.67 131 116 Appendix E SCHEDULE OF QUESTIONED ADMINISTRATIVE FEES AUTHORITY RECEIVED TO MANAGE SUBSTANDARD HOUSING Address Months of Admin. Fees Questioned Fees Abatement 105 Bridgeport Avenue 4 $67.83 $271 44 Harkness Avenue 19 67.83 1,289 49 A Fairwood Avenue 19 67.83 1,289 601 Milford Point Road 1st 8 67.83 543 27 Peck Street 2 67.83 136 1 Park Circle #2 2 65.67 131 33 Broadway, Rear 2 65.67 131 54 A Naugatuck Avenue 12 67.83 814 92 B Robert Treat Drive 8 67.83 543 194 A Cherry Street 1 67.83 68 216 Naugatuck Avenue 1st 3 65.67 197 91 C Robert Treat Drive 1 65.67 66 91 C Robert Treat Drive 7 67.83 475 27 Broadway 1st Floor 3 65.67 197 27 Broadway 1st Floor 5 67.83 339 122 Naugatuck Avenue 4 65.67 263 122 Naugatuck Avenue 7 67.83 475 273 Seaside Avenue 2nd 3 65.67 197 27 Kittery Street 1st Floor 4 67.83 271 106 C Merwin Avenue 19 67.83 1,289 52 Hawley Avenue #6 2 65.67 131 76 Dunbar Road 6 65.67 394 76 Dunbar Road 8 67.83 543 308 Meadowside Road 103 3 67.83 203 180 Melba Street #301 5 67.83 339 180 Melba Street #301 5 65.67 328 16 Wall Street 2nd Floor #2 2 65.67 131 36 Beechland Avenue 3 65.67 197 36 Beechland Avenue 2 67.83 136 180 Melba Street #309 2 67.83 136 519 Naugatuck Avenue 2nd 2 65.67 131 24 Lenox Avenue 2nd Floor 2 65.67 131 24 Darina Place 5 65.67 328 1070 New Haven Ave #76 1 67.83 68 106 B Merwin Avenue 8 67.83 543 180 Melba Street #105 2 67.83 136 27 Broadway 3rd Floor 4 67.83 271 Total 391 $26,280 117
Audit of Milford, CT, Housing Authority's Capital Fund Program, Development Grants for Scattered Sites, Section 8 Voucher Program, and Specific Administrative Policies and Procedures
Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-04-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)