oversight

Inglewood Housing Authority, Inglewood, California, Did Not Follow Proper Salary Allocation and Procurement Procedures for the Housing Choice Voucher Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-07-11.

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

                                                                   Issue Date
                                                                                July 11, 2005
                                                                   Audit Report Number
                                                                            2005-LA-1005




TO:         Cecilia J. Ross, Director, Los Angeles Office of Public and Indian Housing,
              9DPH




FROM:       Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: Inglewood Housing Authority, Inglewood, California, Did Not Follow Proper
            Salary Allocation and Procurement Procedures for the Housing Choice
            Voucher Program

                                    HIGHLIGHTS

 What We Audited and Why

             We audited Inglewood Housing Authority (Authority) in Inglewood, California,
             in response to a request for audit from the U.S. Department of Housing and Urban
             Development’s (HUD) Los Angeles Office of Public and Indian Housing.

             Our objectives were to determine whether the Authority accurately tracked and
             allocated its salary expenses among its various HUD programs and whether the
             Authority’s procurement policies and procedures complied with HUD
             requirements.

             This is one of four audit reports resulting from our audit of the Authority.
What We Found


           The Authority did not track its employees’ time by program activity or implement
           a cost allocation plan to allocate its salary expenses between HUD programs.
           Therefore, the Authority could not provide documentation to support the portion
           of the $1,836,282 in salary expense for fiscal years 2001 through 2003 that should
           have been charged to the Housing Choice Voucher program.

           In addition, the Authority did not comply with HUD’s procurement policies and
           procedures and, therefore, could not support the basis for its purchase of two
           software packages totaling $31,279.

What We Recommend


           We recommend that HUD require the Authority to develop and implement
           procedures to track its staff time spent on its HUD programs, as well as
           developing and submitting a cost allocation plan to HUD for approval. In
           addition, we recommend that HUD require the Authority to determine the portion
           of the $1,836,282 in salary expenses applicable to each of its HUD programs and
           make any necessary adjustments to its accounting system to accurately reflect the
           expenses incurred for each program. Furthermore, we recommend that HUD
           require the Authority to submit a Financial Data Schedule to HUD.

           We also recommend that HUD require the Authority to develop and implement
           procurement policies and procedures that are specifically for the Authority’s use
           and that comply with HUD requirements.

           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 provided the Authority a draft report on May 27, 2005, and the Authority
           provided written comments on June 23, 2005. The Authority generally agreed
           with our report findings.

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




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                              4

Results of Audit
      Finding 1: The Authority Did Not Track Staff Time and Allocate $1.8 Million in   5
      Salary Expenses Among Its HUD Programs
      Finding 2: The Authority Improperly Procured Software Totaling $31,279           7

Scope and Methodology                                                                  10

Internal Controls                                                                      12

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                   14
   B. Auditee Comments and OIG’s Evaluation                                            15




                                             3
                      BACKGROUND AND OBJECTIVES


The City of Inglewood, located at Inglewood City Hall, One Manchester Boulevard, Inglewood,
California, was incorporated in 1908. The city administrator is responsible for setting operational
goals, implementing legislative action, making policy decisions approved by the mayor and City
Council, monitoring the annual operating budget, overseeing the personnel system, and providing
direction to all city departments to ensure they meet the needs of the community. The Inglewood
Housing Authority (Authority) is a blended component unit of the Community Development
Department. The governing body of the Authority is comprised of members of the City Council
and the mayor. Among its duties, it approves the Authority’s budget and appoints its management.
The financial activities of the Authority are reported as a special revenue fund.

The Authority has a baseline allocation of 1,002 Section 8 housing choice vouchers and an
additional 1,100 vouchers from portable tenants. Portable tenants are eligible families who have
been issued a housing choice voucher in one jurisdiction but have chosen to lease a unit in
another jurisdiction. The U.S. Department of Housing and Urban Development’s (HUD)
approved budget authority for the Authority’s Housing Choice Voucher program is as follows:

                  Fiscal year            Amount
                      2001             $6,634,342
                      2002             $6,786,996
                      2003             $6,564,723
                      2004             $7,033,835

The City of Inglewood’s Finance, Payroll, and Accounts Payable Departments perform many of
the financial responsibilities for the Authority. The financial responsibilities include maintaining
the portable receivable account, submitting the Summary of Voucher for Payment of Annual
Contribution and Operating Statement to HUD, and issuing housing assistance payments.

This audit report is one of four audit reports resulting from our audit of the Authority.

Our audit objectives for this report were to determine whether the Authority accurately tracked
and allocated its salary expenses among its various HUD programs and whether the Authority’s
procurement policies and procedures complied with HUD requirements.




                                                 4
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Track Staff Time and Allocate $1.8
Million in Salary Expenses Among Its HUD Programs

The Authority did not track its employee’s time by program activity or implement an indirect
cost allocation plan to allocate its administrative salary expenses between HUD programs. This
occurred because the responsible Authority and City of Inglewood personnel lacked adequate
knowledge of the financial reporting requirements for HUD programs. As a result, the Authority
could not provide documentation to support the portion of the $1.8 million in salary expense the
Authority reported to HUD for fiscal years 2001 through 2003 for the Housing Choice Voucher
program.



 The Authority Did Not Allocate
 Salaries of $1.8 Million Among
 Its HUD Programs

              The Authority did not track its employee’s time by program activity or implement
              an indirect cost allocation plan to allocate its administrative salary expenses
              between HUD programs. The City of Inglewood’s financial director explained
              that the Authority’s staff did not document their timesheets to show how much of
              their time they spent working on the Housing Choice Voucher program, versus
              how much time they spent on other HUD programs. Instead, before fiscal year
              2003, the city’s financial director would calculate the total amount spent on
              salaries and then allocate that amount according to the fund balance at the end of
              the previous fiscal year. As a result of the high volume of tenants moving from
              other public housing authorities, the finance director opted to change this
              allocation method from using fund balance to using “percentage of HAP [housing
              assistance payment] expenditures in each program” beginning in fiscal year 2003.
              The change in the allocation method gave the appearance on the operating
              statement of an increase in salaries from fiscal year 2002 to 2003. However, we
              could not determine whether the voucher program salaries increased or decreased
              because the Authority has never allocated the salaries between two different HUD
              programs based on the actual time spent by the Authority’s employees on each of
              the programs.




                                               5
The Authority Did Not Submit
a Financial Data Schedule to
HUD

             We also found that the Authority did not submit a Financial Data Schedule to
             HUD, required by 24 CFR [Code of Federal Regulations] Part 5, Subpart 801, and
             the Statement on Auditing Standards 29. Therefore, we did not have an accurate
             way of determining the breakdown of administrative salaries between the Housing
             Choice Voucher program and other HUD programs.


Conclusion


             The salary allocation issue occurred because the responsible Authority and City of
             Inglewood personnel lacked adequate knowledge of the financial reporting
             requirements for HUD programs. As a result, the Authority could not provide
             documentation to support the portion of the $1,836,282 in administrative salary
             expense the Authority reported to HUD for fiscal years 2001 through 2003 (on the
             Voucher for Payment of Annual Contributions and Operating Statements and the
             corresponding Balance Sheet for Section 8 and Public Housing) that should have
             been charged to the Housing Choice Voucher program.


Recommendations



             We recommend that the director of the Los Angeles Office of Public and Indian
             Housing require the Authority to

             1A.    Develop and implement a system to track its administrative employees’
             time spent on various HUD programs.

             1B.    Develop and submit an indirect cost allocation plan to HUD for approval.

             1C.     Determine the correct allocation of the $1,836,282 in administrative
             salaries for fiscal years 2001 through 2003, make the related accounting
             adjustments to its books and records, and transfer the funds to correct the
             allocation.

             1D.    Submit a Financial Data Schedule to HUD.




                                              6
Finding 2: The Authority Improperly Procured Software Totaling
$31,279

The Authority did not comply with HUD’s procurement requirements when it purchased two
software packages totaling $31,279. This occurred because the Authority did not develop and
implement procurement policies and procedures that met HUD’s requirements. As a result, there
was no assurance that the software packages were cost-effective purchases and fully met the
needs of the Authority.




 The Authority Did Not Follow
 Proper Procurement
 Procedures


              The Authority did not comply with HUD’s procurement requirements when it
              purchased two software packages totaling $31,279. The Authority’s housing
              manager, who was responsible for conducting the research for the Market Vision
              Partners rent reasonableness software, claimed that he obtained quotes before
              purchasing it, but he was unable to show us any of the quotes received, nor could
              he support which companies he contacted. The Authority’s administrative
              assistant was responsible for the research for the purchase of the HAPPY software
              but could not provide documentation supporting the other housing authorities
              surveyed before purchasing the software. The City of Inglewood’s Finance and
              Information Technology and Communications Department director was
              responsible for signing the HAPPY purchase agreement. We noted that these
              employees were not appointed as contracting officers by the Authority’s executive
              director as they should have been, according to HUD requirements.


   The City’s Procurement
   Procedures Did Not Include
   or Meet HUD Requirements



              The responsible Authority personnel informed us that they used the City of
              Inglewood’s local procurement policies when they purchased the software. We
              found, however, that these local procedures did not comply with HUD
              requirements because they did not contain required provisions to ensure the
              Authority




                                              7
             •   Obtains the required bidders’ security, according to the amount of the
                 contract;

             •   Completes the post award phase after awarding a formal contract above the
                 small purchase limitation;

             •   Maintains records sufficient to detail the significant history of a procurement;

             •   Follows correct procurement procedures when completing a contract for
                 $2,500 to $7,500. (The Authority’s policies and procedures do detail the
                 proper steps to take for contracts for less than $2,500 and for contracts for
                 more than $7,500; however, we could not identify any sections in these
                 procedures that specified what selection process to follow for contracts equal
                 to or between $2,500 and $7,500);

             •   Obtains oral or written quotations from at least three sources when following
                 “small purchase” procedures. According to the HUD Handbook, “small
                 purchases” shall cost no more than $25,000 per transaction unless otherwise
                 specified by state or local law. According to the Authority’s policies, it uses
                 $2,500 as its “small purchase” dollar limit; and

             •   Procures all contracts only through the executive director or through other
                 housing authority employees only when the executive director appoints the
                 employee, in writing, as the contracting officer for that purchase.


The Authority Did Not Follow
City’s Procurement Procedures


             We found that contrary to its claim, the Authority did not follow the city’s
             procurement policies and procedures when it procured the HAPPY contract for
             $23,780. The Authority should have completed the informal bidding process as
             required by section 2-197 of its procurement policies and procedures, which states
             that for contracts exceeding $7,500, “sealed bids shall be required.” However,
             based on our interviews with the Authority’s administrative assistant and housing
             manager, we concluded that no bidding process took place.


Conclusion


             The noncompliance with its procurement policies and procedures occurred
             because the Authority did not have knowledge of the HUD Procurement
             Handbook and was not aware the handbook existed. Consequently, the Authority


                                               8
          did not develop and implement procurement policies and procedures that
          specifically met HUD’s requirements. As a result, there was no assurance that the
          $31,279 spent by the Authority for the software packages was cost effective and
          fully met the needs of the Authority.

Recommendations


          We recommend that the director of the Los Angeles Office of Public and Indian
          Housing require the Authority to

          2A. Develop and implement procurement procedures specifically for the Authority
              that comply with HUD requirements.




                                          9
                        SCOPE AND METHODOLOGY

We performed the audit work from September 2004 through February 2005. The audit covered
the contracts and transactions during the audit period of October 1, 2003, through September 30,
2004. We expanded the scope when necessary. We reviewed applicable guidance and discussed
operations with management and staff personnel at the Authority and key officials at the City of
Inglewood.


The primary audit methodologies included

    •   Reviewing payroll registers for calendar years 2001 through 2003.

    •   Obtaining a list of current employees to prepare a list for each active employee during
        fiscal years 2001 through 2003.

    •   Obtaining the Authority’s master payroll files and comparing them to the current
        employee list to determine whether any discrepancies exist.

    •   Interviewing the management and the staff responsible for payroll procedures.

    •   Interviewing the management responsible for allocating the Authority’s salaries for
        fiscal years 2001 through 2003.

    •   Evaluating the controls over the purchase of goods.

    •   Reviewing the allocation methods for administrative salaries from fiscal years 2002 to
        2003.

    •   Reviewing 100 percent of the $31,279 payments the Authority made for the two
        software procurement contracts.

    •   Reviewing the Authority’s procurement policies and procedures. The procedures
        reviewed included procurement manuals and guides to determine whether the Authority

              •   Maintains procedures that reflect applicable state, local, and federal
                  procurement standards,
              •   Maintains a contract register,
              •   Maintains a contract administration system, and
              •   Has written selection procedures.




                                               10
    •   Reviewing all documentation provided by the Authority to support its payments for the
        Market Vision Partners and HAPPY software contracts. Documentation reviewed
        included the management reports submitted to upper management, briefing them on the
        problems with their previous software, the Authority’s software survey documenting the
        selection process for both the Market Vision Partners and HAPPY proposal, and
        contracts.

    •   Interviewing the management and staff responsible for obtaining and administering the
        procurement activities and the procurement policies and procedures.


We conducted our audit in accordance with generally accepted government auditing standards
and included tests of management controls that we considered necessary under the
circumstances.




                                              11
                              INTERNAL CONTROLS

Internal controls are 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:

                      •   Policies and procedures to ensure the Authority is establishing and
                          maintaining complete and accurate books and records that show the
                          allocation of payroll and attendance records in compliance with Office of
                          Management and Budget Circular A-87.
                      •   Policies and procedures to ensure the Authority is maintaining complete
                          and accurate books and records to facilitate timely and effective audits in
                          accordance with the Authority’s annual contributions contract with
                          HUD.
                      •   Policies and procedures to ensure the Authority is conducting all
                          procurement transactions in accordance with federal procurement
                          regulations.

              We assessed the relevant controls identified above.

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




                                                12
Significant Weaknesses


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

           The Authority did not

           •   Have a system to maintain complete and accurate books and records, ensuring
               that costs charged among its various programs were properly allocated and
               supported (finding 1).
           •   Develop and implement procurement procedures that complied with HUD
               requirements (finding 2).




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                                   APPENDIXES

Appendix A

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

                           Recommendation        Unsupported 1/
                               number
                                  1C               $1,836,282


1/   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.




                                            14
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Ref to OIG Evaluation   Auditee Comments




                         16
Ref to OIG Evaluation                Auditee Comments




Comment 2




                                       17
                        Name has been redacted for privacy
Ref to OIG Evaluation   Auditee Comments




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6



Comment 7




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 8




                         21
                       OIG Evaluation of Auditee Comments



Comment 1   The Authority did not submit its allocation system to HUD for approval
            for fiscal years prior to or after 2003; thus, HUD cannot determine
            whether the allocation method used was appropriate. Even though the
            two programs are both HUD-funded, they are different activities and
            therefore the costs related to the two activities should be tracked and
            allocated separately. Otherwise, there is no assurance that the allocation
            of salary expenses contained in the operating statement to HUD is
            accurate.

Comment 2   The e-mail from the Housing Manager described the process; however,
            in our interview with the Housing Manager, he stated that other Housing
            Authorities were checked for references and that the Housing Manager
            obtained quotes. The Authority was unable to provide any supporting
            documentation showing which, if any, housing authorities were
            contacted, or which quotes were obtained. “24 Code of Federal
            Regulations 85.36(b) states that the “common rule” on grantee
            procurement provides HAs shall use their own procurement procedures
            that reflect applicable State and local laws and regulations, provided they
            conform to applicable Federal law.” Therefore, the Authority needs to
            include procurement policies that include elements from HUD Handbook
            7460.8.

Comment 3   The City of Inglewood’s Administrative Manual Section 3310 and
            Ordinance 99-03 does not contain any reference to a delegation of
            authority nor include any reference to the appointment in writing of
            another person to administer the procurement transaction other than the
            Contracting Officer/Executive Director or any reference to the
            Contracting Officer, as HUD requires.

Comment 4   HUD Handbook 7460.8 details what bidders security 24 Code of Federal
            RegulationsOIG
                         85.36Evaluation
                               recommends,  according
                                         of Auditee   to the amount respective of
                                                    Comments
            the contract. However, these requirements were not all included in the
            City of Inglewood’s procurement procedures.




                                           22
Comment 5   Contrary to the Authority’s contention, we do not believe there was
            sufficient documentation to support the basis for the purchase of the
            two software packages. The Administrative Assistant purportedly
            conducted a telephone survey of numerous housing authorities but
            could not provide any support for the authorities contacted.


Comment 6   The Authority’s selection procedures did not specify the procedures to
            be followed for contracts between $2,500 and $7,500. Section 2-197
            specifies that the informal bidding process is required for every
            purchase or contract involving expenditure $40,000 or less, but more
            than $2,500. However, step 2 of 2-197 specifies, “Sealed bids shall be
            required to be submitted in order to exceed a contract estimated to
            exceed $7,500. “

Comment 7   The $2,500 requirement was not included in HUD Handbook 7460.8
            however, according to the Authority’s policies, $2,500 is used as the
            small purchase limit. The Authority still needs to obtain oral or written
            quotes from at least three sources.

Comment 8   The City of Inglewood’s Administrative Manual Section 3310 and
            Ordinance 99-03 does not contain any reference to a delegation of
            authority nor include any reference to the appointment in writing of
            another person to administer the procurement transaction other than the
            Contracting Officer/Executive Director or any reference to the
            Contracting Officer, as required. The Administrative Manual does not
            contain any delegation of authority.




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