oversight

Housing Authority of the City of Los Angeles Resident Management Corporations/Resident Advisory Councils - Procurement and Procurement-Related Activities

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-01-21.

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

                                                                 Issue Date
                                                                         January 21, 2005
                                                                 Audit Case Number
                                                                         2005-LA-1805




TO:            Cecilia Ross
               Director, Los Angeles Office of Public Housing, 9DPH



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

SUBJECT:       Housing Authority of the City of Los Angeles
               Resident Management Corporations/Resident Advisory Councils -
               Procurement and Procurement-Related Activities

                                      INTRODUCTION

We reviewed the Housing Authority of the City of Los Angeles’ (Authority) procurement
activities, including ongoing monitoring and management of resultant contracts, as they relate to
its Resident Management Corporations/Resident Advisory Councils (RMCs). The review was
initiated in response to several citizen complaints alleging irregularities with the Authority’s
Resident Management Corporations and related contracting activities. Complaints included
allegations of kickbacks, unfair bidding practices, nonprofessional and unethical conduct, and
conflicts of interest involving Authority employees and a contractor. Although we did not
verify any instances of kickbacks, we did identify serious problems in the Authority’s
procurement activities, as discussed in the findings of this memorandum report. Audit work
related to this review was performed from November 2001 through October 2002. However,
legal complications delayed issuance of the audit report until now.

In accordance with U.S. Department of Housing and Urban Development (HUD) Handbook
2000.06, REV-3, within 60 days, please provide us for each recommendation without a
management decision, a status report on (1) the corrective action taken, (2) the proposed
corrective action and the date to be completed, or (3) why action is considered unnecessary.
Additional status reports are required at 90 days and 120 days after the report is issued for any
recommendation without a management decision. Also, please furnish us copies of any
correspondence or directives issued because of the audit.

Should you or your staff have any questions, please contact me at (213) 894-8016, or Charles
Johnson, Assistant Regional Inspector General for Audit, at (602) 379-7243.
                                         SUMMARY

We performed a limited review of the Authority’s operations associated with its Resident
Management Corporations/Resident Advisory Councils. The review was limited to an
evaluation of the Authority’s contracting and management activities as they related to its
RMCs. We examined the Authority’s contracting activities with its RMCs for moving,
cleaning/detrashing, extermination, and security services, and the Authority’s and the RMCs’
procurement of business consulting services for the RMCs and the related management of the
resultant contracts. The review was initiated to determine the validity of allegations of
kickbacks, unfair bidding practices, nonprofessional and unethical conduct, and conflicts of
interest involving Authority employees and a contractor.

The Authority did not follow applicable procurement requirements when contracting with its
RMCs or monitor the contracts entered into. The Authority awarded all contracts
noncompetitively to the RMC of its choice, even after applicable Federal thresholds were
exceeded. More importantly, there was no documentation available showing that, before
entering into the contracts, the Authority performed independent cost estimates or price analyses
for the contracted services or determined whether the RMC officials and employees had the
capability to carry out the required contract services. Further, the Authority consistently
awarded RMC contracts that exceeded two years without obtaining prior HUD approval as
required. Consequently, the Authority had no assurance that the prices paid for the services
were reasonable or that the RMCs had the capacity to carryout the services required under the
contracts awarded. Based upon results of our review, the Authority noncompetitively awarded
more than $4.6 million in contracts to RMCs that did not have the capability to carry out the
services required, and the prices paid by the Authority for the services provided were not
reasonable. Additionally, due to a failure to adopt and implement monitoring procedures,
significant contract overpayments (of at least $397,960), ineligible payments ($451,055), and
unsupported payments ($844,750) were made. It should be noted that the ineligible and
unsupported payments we identified resulted from a review of a limited number of contracts. A
detailed review of the other RMC related contracts would likely identify significant additional
ineligible or potentially fraudulent payments. Other significant deficiencies noted during our
review include (1) the Authority’s awarding of contracts for $25,000 or less and, more recently,
$50,000 to bypass Board of Commissioners approval, followed by the issuance of substantial
amendments and (2) RMCs operating in a haphazard and wasteful manner. The above
significant deficiencies resulted in the waste of millions of tax dollars.

The Authority’s controls over the procurement of consulting services by both itself and its
RMCs were not sufficient to ensure that such services were necessary and obtained at a
reasonable price. Additionally, contract management was unable to offer assurance that
contracted services were provided and payments were made in accordance with the contracts.
As a result, competition was unreasonably restricted, the Authority and its RMCs paid excessive
prices for services often not provided, and duplicate payments were made for consulting
services. During our review, we identified ineligible contract payments to a consultant totaling
$439,803; questionable payments totaling $49,842; and an overall perception of favoritism in
the acquisition of RMC related consulting services. In our opinion, these problems resulted
from a failure by the Authority to institute sufficient controls over its procurement process and


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to develop and implement appropriate procedures for monitoring its RMCs’ operations and an
intentional disregard of applicable procurement policies and procedures.

There were serious problems with the Authority’s procurement activities and contract
management relating to its RMCs. Seemingly preferential treatment was provided to the one
consultant who received all of the Authority’s and the RMCs’ contracts for consulting
services to assist the RMCs in establishing and managing business operations. Additionally,
$13 million in noncompetitive contracts awarded to the RMCs over a 7-year period did not
significantly benefit the residents they represent. It appears the primary beneficiary of the
Authority’s contracting activity with its RMCs was the consultant, who received more than
$2.1 million to unsuccessfully train and mentor the RMC staff and Board members. Further,
the long-term personal and business relationship the consultant had with the Authority’s
former Assistant Executive Director/Director of Housing Services, who had almost complete
control over RMC contracting and management, presented an apparent conflict of interest,
which the Authority’s former Executive Director, who approved the majority of the
contracts, and former Board of Commissioners failed to address.

We discussed the findings with Authority officials at an exit conference held on December
16, 2004. We also provided the Authority with a copy of the draft audit report for comments
on December 18, 2004. We received their written response on January 17, 2005. In its
response, included in its entirety as Appendix F, the Authority agreed with the audit findings,
but requested that it not be required to reimburse the full amount of questioned costs from
non-federal funds currently on hand.

                                      BACKGROUND

The Authority was organized as a public housing authority in 1938 to provide low-cost
housing to individuals meeting established criteria. The Authority, one of the largest public
housing authorities in the Nation, has more than 60 developments with more than 8,000 units
and 20,000 residents in its conventional public housing program. The Authority also
administers Section 8 programs with more than 44,000 units and 95,000 residents. Programs
administered by the Authority are designed to enable low-income families, the elderly, and
persons with disabilities to obtain and reside in housing that is safe, decent, sanitary, and in
good repair.

Within several of the Authority’s public housing developments, resident organizations have
been created to encourage increased resident management of the housing developments and
to promote the formation and development of resident management entities and resident
skills.

We performed limited reviews at two of the Authority’s resident organizations: (1) Pueblo
Del Rio Resident Management Corporation (Pueblo) and (2) Jordan Downs Resident
Management Corporation (Jordan). During the period of our review, Pueblo and Jordan each
received more than $2.3 million in funding from the Authority.




                                               3
Authority Contracts with RMCs

The Authority used its Comprehensive Grant Program to fund contracts with RMCs. Under
these contracts, the RMCs, primarily through subcontractors, provided various services to the
public housing developments and their residents, including

       Moving services,
       Unarmed security services,
       Detrashing and cleaning services, and
       Extermination services.

During our review period, the Authority entered into five contracts with Pueblo and seven
contracts with Jordan totaling more than $2.3 million each.

OIG Hotline Complaint

In July and September 2001, the Office of Inspector General (OIG) received two separate
complaints alleging similar Authority contracting irregularities with its RMC contracts
including

        Kickbacks,
        Unfair bidding practices,
        Nonprofessional and unethical conduct, and
        Conflicts of interest.

Based on the nature of the complaints, OIG initiated a limited review focusing on the
allegations received.

                                   AUDIT OBJECTIVES

The overall objective of our review was to determine the validity of the two complaints. The
complaints alleged kickbacks, unfair bidding, nonprofessional and unethical conduct, and
conflicts of interest by Authority staff and a consultant. As part of this objective, we
performed a limited review of the Authority’s procurement and monitoring processes as they
related to its RMCs and the involved consultant. Additionally, although not considered
relevant to our original objectives, during our review, we noted significant weaknesses in the
Authority’s management of its legal affairs. This matter was reported in a previous report
(see Audit Report No. 2004-LA-1002, dated March 30, 2004).


                         AUDIT SCOPE AND METHODOLOGY

To accomplish our audit objectives, we

       Obtained and reviewed applicable Federal procurement regulations.
       Obtained and reviewed Authority procurement policies and procedures.



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       Obtained and reviewed contracts between the Authority and the RMCs, primarily
       Pueblo and Jordan.
       Obtained and reviewed contracts between the Authority and the named consultant.
       Obtained and reviewed the Authority’s independent audit reports for the years ending
       December 31, 1999, 2000, and 2001.
       Obtained and reviewed, where available, unaudited financial statements for the RMCs
       for the years ending December 31, 1999, 2000, and 2001.
       Obtained and reviewed payments from the Authority to the RMCs, primarily Pueblo
       and Jordan, and all available supporting documentation.
       Obtained and reviewed all available documentation relating to payments from the
       Authority and five RMCs (Pueblo, Jordon, Pico Aliso, Aliso Village, and San
       Fernando) to a consultant.
       Reviewed the Authority’s procurement process as it relates to its RMCs and the
       named consultant.
       Reviewed the RMCs’ procurement process for obtaining subcontractors.
       Reviewed the Authority’s monitoring process relating to its RMCs and the named
       consultant.
       Reviewed the Pueblo and Jordan RMCs’ subcontractor-monitoring process.
       Reviewed the Pueblo and Jordan RMCs’ financial records related to cash receipts and
       disbursements.
       Interviewed Authority staff and officials, RMC staff and officials, the RMCs’
       independent certified public accountant, Authority attorneys, Authority independent
       auditors, the attorneys for the named consultant, the attorney for the named
       complainants, past Authority employees, past members of the Authority’s Board of
       Commissioners, past RMC officials and staff, past and present RMC subcontractors,
       the HUD Los Angeles Public Housing staff, and HUD Headquarters Public Housing
       staff.

We conducted our audit at the Authority and the above-mentioned RMCs, located in Los
Angeles, California. Our review covered the period January 1, 1995, through December 31,
2001. Where appropriate, the review was extended to include other periods. Audit work was
performed from November 2001 through October 2002.

Our review was conducted in accordance with generally accepted government auditing
standards.




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FINDING 1 - THE AUTHORITY DID NOT COMPETITIVELY AWARD
            CONTRACTS, ENSURE PRICE REASONABLENESS OR CAPACITY
            BEFORE ENTERING INTO CONTRACTS, OR MONITOR
            CONTRACTS     WITH     ITS   RESIDENT    MANAGEMENT
            CORPORATIONS     (RMCS)    –  INELIGIBLE   - $451,055;
            UNSUPPORTED - $844,750

The Authority did not follow applicable procurement requirements when contracting with its
RMCs or monitor the contracts entered into. The Authority awarded all contracts
noncompetitively to the RMC of its choice, even after applicable Federal thresholds were
exceeded. More importantly, there was no documentation available showing that the Authority
performed independent cost estimates or price analyses for the contracted services or
determined whether the RMC officials and employees had the capability to carry out the
services required under the contracts before entering into the contracts. Further, the Authority
consistently awarded RMC contracts that exceeded two years without obtaining prior HUD
approval as required. Consequently, the Authority had no assurance that the prices paid for the
services were reasonable or that the RMCs had the capacity to carry out the services required
under the contracts awarded. Based upon results of our review, the Authority noncompetitively
awarded more than $4.6 million in contracts to RMCs that did not have the capability to carry
out the services required, and the prices paid by the Authority for the services provided were not
reasonable. Additionally, due to a failure to adopt and implement monitoring procedures,
significant contract overpayments (of at least $397,960), ineligible payments ($451,055), and
undocumented/questionable payments ($844,750) were made. It should be noted that the
ineligible and unsupported payments we identified resulted from a review of a limited number
of contracts. A detailed review of the other RMC-related contracts would likely identify
significant additional ineligible or questionable payments. Other significant deficiencies noted
during our review include (1) the Authority’s awarding of contracts for $25,000 or less and,
more recently, $50,000 to bypass Board of Commissioners approval, followed by the issuance
of substantial amendments and (2) RMCs operating in a haphazard and wasteful manner. The
above significant deficiencies resulted in the waste of millions of tax dollars.

Reasons for Procurement Deficiencies

The Authority’s deficient procurement process, nonexistent RMC monitoring, and other
deficiencies were a result of

•      The Authority’s decentralized procurement process, which provided the department
       head (former Director of Housing Services and the Authority’s former Assistant
       Executive Director) not only the authority to request the procured services, but also
       total oversight and control over the subject contracts and related billings, including
       price negotiation and billing approval, rather than these responsibilities remaining
       with its General Services Department’s procurement office.
•      Failure to develop and implement procedures to provide ongoing monitoring of the
       RMCs and their business operations, especially considering the complete lack of
       business experience of the RMC Board of Directors/managers.




                                                6
•      Allowing one consultant, who was the prime beneficiary of the RMCs’ contracts,
       complete control over the RMCs’ operations, including day-to-day management,
       billing, and subcontractor monitoring and control. Further, the long-term personal
       and business relationship between the consultant and the Authority’s former Assistant
       Executive Director/Director of Housing Services raises concerns about conflicts of
       interest and favoritism.
•      The lack of regard and controls exercised by the Authority’s former Executive
       Director, who approved the majority of the contracts, and former Board of
       Commissioners relating to the deficiencies and problems affecting the Authority’s
       contracts with its RMCs.

Governing Regulations and Requirements

In accordance with Section 3 of the Housing and Urban Development Act of 1968 (12 U.S.
Code 1701u), recipients of HUD assistance are to take affirmative actions to ensure that, to
the greatest extent feasible, employment and other economic opportunities generated by
HUD financial assistance are directed to low- and very low-income persons and to business
concerns which provide economic opportunities to low- and very low-income persons.
Regulations implementing these requirements are set out in 24 Code of Federal Regulations
(CFR) section 135. The Authority, in a claimed attempt to meet the intent of these
requirements, contracted with several of its RMCs (on a noncompetitive basis) to provide
services such as moving, security, extermination, and cleaning (referred to as detrashing in
the RMC contracts). Contracting requirements, applicable to all procurement actions
including these types of affirmative procurements, are set out in 24 CFR 85.36. Critical
procurement requirements include

•      Ensuring, before contract award, that contractors possess the ability to perform
       successfully under the terms and conditions of the proposed contract (24 CFR
       85.36(b)(8));
•      Conducting a cost or price analysis in connection with every procurement action (24
       CFR 85.36(f)(1)); and
•      Ensuring that contractors perform in accordance with contract terms (24 CFR
       85.36(b)(2)).

Additionally, as required by Office of Management and Budget Circular A-87, “Cost
Principles for State, Local, and Indian Tribal Governments,” for costs to be allowable under
Federal awards, they must be necessary and reasonable for proper and efficient performance
and administration of the funded activities.

The Authority did not follow the above requirements during its procurement and
management of the service contracts it entered into with its RMCs. Further, in relation to the
contracting process, 24 CFR 963 provides for noncompetitive contracting with resident-
owned businesses. However, such noncompetitive procurement is limited to a cumulative
maximum award of $1,000,000 (i.e., 24 CFR 963.10(d) states, “A resident-owned business is
not eligible to participate in the alternative procurement process provided by this part if the
resident-owned business has received under this process one or more contracts with a total


                                              7
combined dollar value of $1,000,000.”). The Authority violated this requirement by
continuing to contract with its RMCs on a noncompetitive basis after the threshold of
$1,000,000 was reached. Our concerns with the Authority’s procurement and management
of RMC service contracts and its monitoring of RMC activities are discussed below.

The Procurement Process

We performed a limited review of the five most recent contracts awarded to Pueblo Del Rio
Resident Management Corporation (Pueblo) ($2,325,539.69), the six most recent contracts
awarded to Jordan Downs Resident Management Corporation (Jordan) ($1,075,675.67), and one
older unarmed security service contract awarded to Jordan ($1,278,000). The total value of the
contracts reviewed exceeded $4.6 million as detailed below.


                                                    Total Amount of
                  Contracted                         Contract as of Original Contract
Name               Service          Contract Number   Review Date        Award
                                                                          (See note 1)
Pueblo        Moving                HA-2002-012          $565,805.98      $565,805.98
Pueblo        Moving                HA-2000-014          $646,568.31      $126,270.31
              Unarmed
Pueblo        security         HA-2000-013                       $980,190.40               $25,000.00
Pueblo        Extermination HA-2000-045                            $25,000.00              $25,000.00
Pueblo        Detrash/cleaning HA-98-040                         $107,975.00               $25,000.00
Pueblo        Total                                             $2,325,539.69
                                                                                          (See note 2)
Jordan        Moving                HA-2002-052                    $50,000.00             $50,000.00
Jordan        Security              HA-2001-032                   $471,017.60              $25,000.00
Jordan        Security              HA-2001-023                   $285,459.20              $25,000.00
Jordan        Detrash/cleaning      HA-2001-021                    $25,000.00              $25,000.00
Jordan        Moving                HA-2001-005                  $219,198.87               $25,000.00
Jordan        Detrash/cleaning      HA-2001-004                    $25,000.00              $25,000.00
Jordan        Security              HA-97-065                   $1,278,000.00              $25,000.00
Jordan        Total                                             $2,353,675.67
Note 1: This contract was awarded after the start of OIG’s review, in which we questioned the Authority’s
procurement methods, including the issuance of $25,000 contracts and the bypassing of Board of
Commissioners approval and later requests for large contract amendments.
Note 2: This contract was awarded after the Authority changed its procurement procedures, which raised the
contract threshold without the need for Board of Commissioners approval from $25,000 to $50,000. This contract
replaced moving contract HA-2001-022 for $25,000.




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Noncompetitive Awards

Our review of the above contracts disclosed that the Authority did not follow applicable
dollar limitations affecting noncompetitive procurement/contracting actions with its RMCs.
The Authority noncompetitively awarded contracts and amendments to Pueblo totaling $2.3
million (from 1998 through April 2002) and to Jordan totaling $1.1 million (from 2001
through 2002). Further, during the period 1996 through 2000, Jordan was noncompetitively
awarded contracts and amendments totaling an additional $4.8 million (including contract
HA-97-065 incorporated into the table above). The cumulative noncompetitive contract
awards to Pueblo and Jordan violate the requirements of 24 CFR 963, which provides for
noncompetitive contracting with resident-owned businesses but limits such procurements
with any one resident-owned business to a cumulative maximum award of $1,000,000. Once
the threshold of $1,000,000 is reached, additional procurements involving a resident-owned
business must be competitive. As discussed above, cumulative noncompetitive contracts
with both Pueblo and Jordan far exceeded this threshold. Consequently, existing contracts
with its RMCs should be evaluated for possible termination if the noncompetitive threshold
has been exceeded in violation of the requirements of 24 CFR 963.

Independent Cost Estimates

Although repeatedly asked, the Authority could not provide documentation showing that it
performed independent cost estimates or price analyses for the contracted services (24 CFR
85.36(f)) before entering into contracts with Pueblo and Jordan. Consequently, the Authority
had no assurance that the prices paid for the services provided by Pueblo or Jordan were
reasonable. In this regard, we noted that Pueblo and Jordan always subcontracted out their total
moving service responsibilities, and the price they paid their subcontractors for the actual
moving services was often less than one half of what they were being paid by the Authority.
For example, as of May 2002, the Authority had paid Pueblo more than $425,000 under moving
contract HA-2000-014. Pueblo in turn had paid its contractor, who carried out the moves, about
$195,000. Thus, Pueblo was paid approximately $230,000 to administer a $195,000 contract.
Our review disclosed that the move prices allowed by the Authority versus the actual costs
incurred by Pueblo were inflated by up to 159 percent (see the following table).

                                                      Actual Cost
                          Contract Price           Incurred (Paid to
    Bedroom Size            Allowed                 Subcontractor)         Markup %
 1 bedroom                         $397.00                    $230.00        73%
 2 bedroom                         $517.00                    $260.00        99%
 3 bedroom                         $601.00                    $290.00       107%
 4 bedroom                         $803.50                    $310.00       159%

As the table above shows, the move rates per unit were unjustifiably marked up and would more
than cover all of Pueblo’s administrative costs. However, within this same moving contract, the
Authority allowed and paid an additional $515 per unit moved for administration fees. For a
one-bedroom unit, the administrative fee ($515) was more than the amount the Authority paid
Pueblo for the move itself ($397.00). Total administrative fees allowed under this contract were



                                               9
about 30 percent of the total contract value. It should also be noted that at the time of our
review, Pueblo’s actual administrative costs were very limited. The Authority provided Pueblo
office space and an administrative staff person at no charge. The only significant administrative
cost relating to this contract was Pueblo’s consultant, who was charging from $125 to $140 per
hour to manage the contract (see finding 2). As of May 2002, the Authority had paid Pueblo
about $167,500 in administrative fees under the contract. These fees are unnecessary and
unreasonable, should have been covered by the contract values, and are, therefore, ineligible.

Besides the unreasonable and unnecessary moving rates and administrative fees allowed
under the subject moving contract, contractual charges for moving supplies (boxes, paper,
etc.) were often significantly more (up to 302 percent more) than the retail price for such
supplies. To provide an example, the Authority paid $24,445 to Pueblo for moving supplies,
but the invoices from the subcontractor, who provided the supplies, totaled only $8,760, a
$15,685 difference. The Authority’s moving contract with Pueblo allowed for these inflated
prices, with no support or independent cost estimate to justify the prices.

In addition to moving services, Pueblo and Jordan always subcontracted out their total
extermination service responsibilities, and the price they paid their subcontractors for the
extermination services was often one-half of what they were being paid by the Authority.
For example, as of August 2001, the Authority paid Pueblo $9,941 under extermination
service contract HA-2000-045. Pueblo in turn paid its contractor, who actually performed
the extermination services, only $6,129. Thus, the Authority allowed a 62-percent markup to
be incorporated into the original contract agreement with Pueblo. Further, the Authority’s
contract agreement also allowed for an administrative fee of 33 percent of the per-unit cost of
the extermination services. Had the Authority performed an independent cost estimate
before awarding this contract, these unreasonable and unnecessary costs would have been
prevented.

It should be noted that the same circumstances, subcontractor, and consultant were involved in
the Authority’s other RMC moving and extermination contracts, and it is probable that similar
unreasonable and unnecessary charges were incurred under these contracts. Accordingly,
payments made under these other contracts must be reviewed to determine whether they were
reasonable for the services provided.

The Authority provided OIG what it claimed to be independent cost estimates; however, they
were merely prices/quotes prepared by the RMCs’ consultant with no supporting
documentation. These quotes were ultimately incorporated, unchanged, into the final
Authority contract agreements with the RMCs. Accordingly, the service contracts awarded
to the RMCs were overpriced and unreasonable and should be terminated (if not yet done so)
and competitively reawarded in compliance with applicable Federal guidelines. An
independent cost estimate or price analysis must be performed to ensure that future service
contracts are priced fairly and reasonably.




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Capability

There was no documentation available showing that the Authority determined whether RMC
officials and employees had the capability to carry out the services required under the
contracts (24 CFR 85.36(b)(8)) before entering into the contracts. Based upon our review,
the RMC members did not have the capability to carry out the contracted services, or manage
the subcontracted services. Instead, the RMCs contracted with a consultant, who carried out
almost all of their management functions (see finding 2). Even with the services of the
consultant, the RMCs were unable to properly manage their contracts (see the Contract
Management section of this finding).

Pueblo did not have any employees with the experience and capabilities needed to carry out
the services required under the contracts they received from the Authority. For example,
moving services (as previously noted) were always contracted out as Pueblo had no moving
employees or equipment. Further, Pueblo officers and employees had only minimal
involvement in the management of the contracts. Almost all management functions were
carried out by the consultant, who was charging $140 per hour for his services (see finding
2), or by Authority employees. Pueblo officials and employees were not qualified to provide
moving services or to independently manage any of their service contracts (i.e., moving,
unarmed security, detrashing/cleaning, extermination). According to the consultant, he was
dealing with unsophisticated and unknowledgeable residents. In September 2000, he took
control of Pueblo’s checking account and other routine tasks necessary to maintain its
businesses as Pueblo officials and employees were not able to perform these functions. This
same consultant, for the most part, also managed all service contracts awarded to Jordan.

Contract Management/Monitoring Process

Monitoring of RMC Activities

The Authority could not provide evidence that it conducted any meaningful monitoring of
Pueblo’s or Jordan’s activities. Further, it did not adequately review contract billings
submitted by the RMCs or require sufficient supporting documentation to enable it to make a
reasonable determination as to the propriety of the billings. As a result, significant contract
overpayments (of at least $397,960), ineligible payments ($451,055), and unsupported
payments ($844,750) were made (these unsupported and ineligible payments are over and
above the previously discussed questionable unit prices incorporated into the contract
agreements).

As part of its management/monitoring process, the Authority did not require the RMCs to
obtain, and submit for its review audited financial statements (required by Office of
Management and Budget Circular A-133 for those RMCs receiving more than $300,000 from
the Authority), which could have assisted in monitoring the RMCs’ operations and activities.
However, unaudited statements were sometimes available for review, which, if reviewed,
should have raised questions about the RMCs’ activities and ability to manage their affairs.
For example, Pueblo’s unaudited financial statements for the year ending December 31,
2001, showed that 37 percent of its total (gross) income went to pay one consultant for his



                                              11
services. Essentially, these statements indicated that the primary beneficiary of the
Authority’s contracts with Pueblo was the consultant, not the residents as intended.

The Authority claimed to monitor RMC activities through the use of annual “Section 3
reports,” which it prepared and submitted to HUD. However, these reports merely showed
the number and types of jobs created by the RMCs, and how much the public housing
residents had earned as employees of the RMCs’ unarmed security and detrashing/cleaning
businesses. These reports were not intended to be used as a primary tool for monitoring a
RMC’s activities. However, a cursory review of Pueblo’s Section 3 reports for the period
July 1999 through June 2002 would have shown the Authority how little of the total contract
funds awarded for unarmed security and detrashing/cleaning services had been paid to
residents. According to Pueblo’s Section 3 reports, a total of $451,035 had been paid to
residents; representing only 41 percent of the amount awarded under the security and
cleaning contract agreements ($1,088,165). Similarly, according to Jordan’s Section 3
reports for the period July 2000 through June 2002 (only those contracts awarded under
Jordan’s new Board of Directors), a total of $192,708 had been paid to residents under its
unarmed security and detrashing/cleaning contracts, representing only 24 percent of the
amount awarded under contract agreements totaling $806,477. Since moving and
extermination services are subcontracted out by both RMCs, no jobs were created for Pueblo
or Jordan residents during these same periods, and, thus, no contract funds were used to pay
them. This indicates the minimal employment impact these RMC contracting activities had
on public housing residents.

Monitoring of Contract Billings

In addition to the lack of effective monitoring of RMC activities and operations, the
Authority did not adequately review contract billings submitted by the RMCs, or require the
submission of sufficient documentation to support these billings. The failure to implement
appropriate billing review and documentation procedures allowed contract overpayments,
ineligible billings, and unnecessary and unreasonable payments to go undetected. The
consultant for Pueblo (who was also the consultant for Jordan) prepared all RMC contract
billings, which were then finalized, signed by the President of the RMCs’ Board of Directors,
and submitted to the Authority for payment. These billings resulted in substantial contract
overpayments, payments for ineligible claims, and unnecessary and unreasonable payments
as discussed below.

Moving Service Contract - HA-2000-014 – Pueblo

This moving contract for relocating Pueblo residents was between the Authority and Pueblo.
All services to be provided by Pueblo under the contract were subcontracted out. The
subcontractor would provide the moving services, including materials (at a much lower cost
than Pueblo’s contract rates with the Authority), and then bill Pueblo. Based upon these
billings, Pueblo’s consultant would then prepare a billing to the Authority. A review of these
billings identified serious problems as follows:




                                             12
•      The contract allowed for 18 cases of packing tape at $90 per case (total of $1,620);
       however, Pueblo billed and the Authority paid for 105 cases of tape at various prices
       (total of $11,232). This resulted in a contract overpayment of $9,612. This
       overpayment includes an ineligible payment of $1,782 for 36 cases of tape billed at
       $144 per case, rather than at the allowable contract rate of $90 per case.
•      The contract allowed for 53 cases of paper at $38 per case (total of $2,014); however,
       Pueblo billed and the Authority paid for 172 cases of paper at various prices (total of
       $5,204). This resulted in a contract overpayment of $3,190.
•      Pueblo billed the Authority for quantities of tape and paper that were either not listed
       on the bill of the subcontractors who provided these supplies, or billed for twice the
       amount of actual quantities purchased. These ineligible billings totaled $5,042.
•      In addition, on January 28, 2002, Pueblo billed the Authority for material costs of
       $16,029 without explanation as to what materials were being charged. The only
       applicable Pueblo subcontractor material bill was for $2,115. Based upon material
       quantities listed on this subcontractor billing, Pueblo’s allowable material charge
       under the terms of its contract would have been $3,805 (an 80-percent markup).
       Accordingly, the $12,224 difference between the $16,029 charged and the $3,805
       eligible under the contract is ineligible.

The same type contract and management conditions existed with another Pueblo moving
contract and at Jordan for two other moving contracts so it is probable that similar problems
exist with these contracts.

Unarmed Security Service Contract - HA-2000-013 – Pueblo

•      Pueblo billed the Authority for more hours and employees than actually worked. The
       consultant prepared invoices that consistently billed the Authority the maximum
       amount allowed under the contract per week, without regard to the actual number of
       employees who worked or the total amount of hours worked. The ineligible billings
       under this contract totaled $166,045 through April 6, 2002 (22 percent of total
       payments).
•      As of April 6, 2002, the Authority had paid Pueblo $768,544 for unarmed security
       services provided under this contract, $73,813 more than the $694,731 maximum
       allowed under the contract.

The same type contract and management conditions existed at Jordan for two unarmed
security contracts so it is probable that similar problems exist at this RMC.

Extermination Service Contract – HA-2000-045 – Pueblo

A review of Pueblo’s contract billings for the period April 26, 2000, through March 9, 2001,
identified the following deficiencies:

•      The Authority paid Pueblo $2,915 in ineligible fees. This resulted from Pueblo
       charging more than three times the contract allowable unit rate ($145 versus $47) for



                                             13
       what was noted on the billing invoices as a “delay.” The contract agreement did not
       allow for these added fees, and, therefore, the $2,195 is considered ineligible.
•      In two instances, the Authority paid Pueblo for duplicate billings. In one instance,
       two Authority employees initially prepared and submitted to the Authority a billing
       reflecting the correct amount (via the “Request for Voucher Miscellaneous
       Disbursement” form), but an Authority Housing Services Department employee
       changed the amount and allowed a double payment of $327 to occur. In the other
       instance, Pueblo’s billing invoice clearly reflected a double charge of $47 for
       extermination services for the same unit. These duplicate payments totaling $373 are
       ineligible.
•      Pueblo claimed to have provided extermination services for the same units and
       buildings twice within 30 days even though, under the terms of the contract, it
       “guarantees the elimination of all cockroaches for thirty days after each application
       occurrence.” Individual instances of these ineligible claims totaling $373 are as
       follows:
           o Building 5307 was sprayed on 1/26/01 and 1/29/01 - only 3 days apart ($47
               ineligible).
           o Building 5413 was sprayed on 5/12/00 and 5/25/00 - only 13 days apart ($47
               ineligible).
           o Buildings 10349, 10501, and 10504 were sprayed on 7/10/00 and 7/24/00 -
               only 14 days apart ($140 ineligible). Additionally, Building 10504 was
               sprayed again on 8/25/00 (three times within 45 days)!
           o Units 27, 28, and 31 were sprayed on 7/10/00 and 7/24/00 - only 14 days apart
               ($140 ineligible). Additionally, Unit 31 was sprayed again on 8/25/00 (three
               times within 45 days)!
•      The contract agreement between the Authority and Pueblo clearly stated that the
       Authority would pay Pueblo $46.66 per unit/building exterminated, and of this
       amount, the contractor (Pueblo) would pay the subcontractor $31.33 for each
       unit/building exterminated. However, the Authority approved payments to Pueblo of
       up to $145 per unit (as discussed above), while Pueblo paid the subcontractor various
       amounts, ranging from only $23.33 to $87 per unit. This demonstrates the failure to
       properly review contract billings by both the Authority (of Pueblo), and Pueblo (of its
       subcontractor).
•      Before payment, the Authority never received, reviewed, or required any supporting
       documentation (i.e., subcontractor billing invoices) related to Pueblo’s billings for
       extermination services.

Detrashing /Cleaning Service Contract – HA-98-040 – Pueblo

We only reviewed one billing invoice (#6 - for the period December 1, 2001, through
January 18, 2002) (prepared by Pueblo’s consultant) submitted by Pueblo to the Authority for
cleaning and detrashing services rendered under this contract. However, our review
identified significant problems with the billing, which would indicate problems not only with
the billing reviewed, but also with the legitimacy of all billings under this contract. Problems
noted with this billing included




                                              14
•      Pueblo billed the Authority for more hours than were worked. The invoice billed the
       Authority for 376 staff hours at the fully burdened contract rate of $9.25 (employee
       pay rate of $7.25 per hour plus $2.00 per hour burden rate) for a total of $3,478 (this
       figure does not include supervisory hours billed). Payroll records at Pueblo support
       only 329 hours, 47 hours less than billed. This resulted in an overcharge of $434.75
       (47 hours x $9.25 per hour), which is ineligible.
•      Pueblo billed the Authority an additional $3,125 for 243.5 work hours required for
       unforeseen conditions at hotels and unforeseen conditions for detrashing. These
       unforeseen conditions were not described, and payroll records did not support the
       claimed additional hours worked. The $3,125 is, therefore, ineligible.
•      Pueblo billed $469 for cleaning stoves and refrigerators, not provided for in the
       contract agreement. This amount is not supported and, therefore, ineligible.
•      Pueblo billed the Authority $533 for materials for 32 units at $17 per unit cleaned.
       The contract required that materials and expenses be documented and billed at actual
       cost. Since there was no documentation submitted to support material costs, the $533
       charge is unsupported and, therefore, questionable.
•      The billing also included miscellaneous administration charges of $71 per unit (32
       units) totaling $2,283. Under the terms of the contract, Pueblo could charge up to $71
       per unit cleaned (equal to 26 percent of the estimated contract cost) for actual,
       documented miscellaneous administrative expenses. This contract allowance is
       unreasonable considering that, as previously discussed, Pueblo’s administrative
       expenses were minimal (other than its consultant fees) and the contract already
       allowed for separate payment of supervision, materials, and drug testing expenses.
       Further, the costs were not documented as required. Accordingly, the $2,283 charge
       is considered questionable until supporting documentation is provided.

We could not review any other invoices under this contract agreement as they did not contain
the dates of service. However, based upon the serious problems noted in this billing, other
billings under the contract are also questionable and must be reviewed to determine
eligibility.

The same type contract and management conditions existed at Jordan for two
detrashing/cleaning contracts so it is probable that similar problems exist at this RMC.

Unarmed Security Service Contract – HA-97-065 – Jordan

This contract was originally executed on March 3, 1997. For the period March 3, 1997,
through October 5, 1999, the contract called for one security guard, 24 hours a day, 7 days a
week (168 hours a week) at $14.50 per hour, plus administrative costs of $350 per week for a
total per-week contract maximum of $2,786. Based on the above, the maximum payable for
a 1-year period would be $144,872. Although, this appears to be a very basic contract, many
deficiencies were identified as follows:

•      None of the billings we reviewed contained supporting information sufficient to
       determine the bills’ accuracy, and the Authority should not have paid them until
       additional supporting documentation was provided.


                                             15
•      During the period January 1 through October 5, 1999, Jordan was paid $435,590
       under this contract. However, the maximum allowable under the then existing
       contract ($2,786 per week) would have been only $111,440. The contract
       overpayment of $324,150 is questionable. In this regard, a $75,968 billing invoice
       we examined claimed to be for the period May 7 through June 14, 1999, a period of 5
       weeks and 3 days. There was no documentation submitted to support this charge.
       Further, based upon the maximum payable under this contract (see above), the billing
       should not have exceeded $15,124. This payment is also questionable in that it was
       not paid until almost 6 months later, on December 10, 1999, and the payment check
       was not deposited/cashed until February 17, 2000.

       The check was made payable to Jordan but endorsed by the Authority’s former
       Assistant Executive Director/Director of Housing Services and used to open a for-
       profit corporate checking account in the name of Jordan Downs Resident Group, Inc.
       The Authority’s former Assistant Executive Director was the sole authorized signator
       for the account. Within a 1½-week period, five checks totaling $54,750 were written
       and cashed against the account. All of the checks were written and endorsed by the
       Authority’s former Assistant Executive Director. Two of the checks were made
       payable to Jordan Downs Security Service, while three of the checks were made
       payable to the consultant. The consultant’s billing invoices supporting two of the
       three check payments included time charged for meeting with a bank employee and
       the Authority’s former Assistant Executive Director to open this account. On March
       2, 2000 (13 days after the account was opened), a cashier’s check for $21,218,
       payable to the Authority, was issued to close out the account. However, this check
       was never cashed, and approximately 1 year later, February 23, 2001, a “stop
       payment” was placed on the cashier’s check. On March 8, 2001, 13 days after the
       stop payment, a new cashier’s check, payable to Jordan Downs Resident Management
       Corp., was issued for the same amount ($21,218). This check was deposited on
       March 9, 2001, into Jordan’s bank account. The above information brings into
       question the legitimacy of this $75,968 billing.
•      On October 6, 1999, the Authority and Jordan entered into an amended contract,
       calling for additional security guards, reducing the hourly charge per guard (salary
       and burden) from $14.50 to $9.25 per guard, and establishing an hourly rate for
       supervisors of $13.08 (previously they were paid through the allowance made for
       administrative support). However, Jordan continued to bill and was paid under the
       old contract rate of $14.50 per hour for security guard services. This is $5.25 per
       hour more than allowed under the contract for regular guard services. Jordan billed
       the Authority more than $282,000 under this amended contract, and a large portion of
       this would be ineligible because of the hourly overcharges. Also, during this period,
       we identified double billings totaling $1,740 in five instances in which Jordan billed
       twice for the same service.

Because of all the problems with this contract, including significant questionable payments in
1999 and an overall lack of documentation to support billings, we question all payments
under this contract totaling $830,914. To resolve this issue, the Authority must determine
eligible charges under the contract based upon documented hours worked by Jordan



                                             16
employees, including analysis of the significant questionable payments during the period
January 1 through October 5, 1999, and adjustment of billings/payments after October 5,
1999, to reflect the amended contract billing rates.

Extermination Service Contract – HA-96-074 – Jordan

In addition to the above-mentioned contracts, we reviewed a single invoice under Authority
contract HA-96-074 for extermination services. The Authority awarded this contract to
Jordan on September 18, 1996, for $25,000 for a term of 10 weeks. An amendment was
approved 1½ months later (October 31, 1996), extending the term of the contract to 3 years
and increasing the total contract price to $131,250.

•      Payments under the contract totaling $37,354 were made by the Authority to Jordan
       for invoices, dated October 15, 1996, through October 31, 1998, an average of
       approximately $1,500 per month (2-year period). Payments totaling $6,375 were
       later made to Jordan for invoices, dated from November 1, 1998, through June 30,
       1999 (7-month period). On April 18, 2001, Jordan’s consultant prepared and
       submitted an additional invoice to the Authority for $82,740, claiming it was for
       extermination services rendered by Jordan for a 7-month period between November
       1998 and June 1999. No supporting documentation was available to show that
       extermination services totaling this amount had been performed 2 years earlier by
       Jordan’s subcontractors and paid for by Jordan (all extermination services were
       subcontracted out). Further, based upon the previous payment history under this
       contract, average payments of approximately $1,500 per month, it is doubtful that
       $82,740 in billings, $12,000 per month, would have been incurred under the contract.
       Also, we interviewed two moving subcontractors and inquired whether their moving
       trucks had ever been sprayed since $33,726 of the $82,740 in retroactive
       extermination billing was allegedly for spraying (i.e., exterminating) their moving
       trucks. One subcontractor stated that his trucks were never sprayed, and the other
       stated that spraying occurred only once or twice because the fumes were too strong
       for his moving employees to tolerate. The above facts imply that the billing may
       have been prepared to use up the remaining balance under the contract; i.e., with this
       payment, total payments under the contract equaled $127,742, versus the adjusted
       contract award of $131,250. Based on the above information, the $82,740 billing is
       unsupported and appears to be a false billing created by the consultant. This billing
       is, therefore, ineligible.
•      The consultant charged Jordan $8,750 to prepare the $82,740 invoice. Based upon
       the questionable nature of the billing, this preparation fee is considered unreasonable
       and unnecessary and, therefore, ineligible.

Other Deficiencies Noted

Other significant deficiencies noted during our review include (1) executing contracts, which
exceeded two years, without prior HUD approval (2) the Authority’s awarding of contracts
for $25,000 (later raised to $50,000 at the time of our audit), which resulted in the issuance of
contracts that bypassed the need for Board of Commissioners approval, followed by the



                                               17
issuance of substantial contract amendments within 60 days or less and (3) RMCs operating
in a haphazard and wasteful manner.

Executing Contracts, Which Exceed Two Years, Without Prior HUD Approval

In accordance with paragraph 11-1.A.1.f of HUD Handbook 7460.8, “Procurement
Handbook for Public and Indian Housing Authorities,” “contracts for services whose initial
period exceeds two years, and any option, extension, or renewal of a contract for services
which makes the total length of the contract, as modified, exceed two years, require prior
HUD approval”. The Authority executed numerous service contracts with its RMCs that
exceeded two years, without obtaining prior HUD approval as required, including

•      HA-2000-014 (Pueblo moving)
•      HA-2000-013 (Pueblo unarmed security)
•      HA-98-040 (Pueblo [detrashing and cleaning) (Contract was in its fifth year)
•      HA-97-065 (Jordan unarmed security)
•      HA-96-074 (Jordan extermination)

The Authority needs to inform HUD of any existing RMC service contracts, which have
exceeded two years, and obtain the appropriate approval from HUD.

Bypassing of Board Approval

The Authority consistently awarded contracts to its RMCs for $25,000 (and more recently
$50,000) and then, within 60 days, made substantial increases to the contracts through
amendments. This practice served to bypass the original Board of Commissioners approval
requirement for contracts exceeding $25,000 (now $50,000). As the table on page 8 shows, The
Authority awarded 12 service contracts to Pueblo and Jordan, all but two of which were issued
at $25,000 (nine contracts) or $50,000 (one contract). The original value of the 10 contracts
totaled $275,000 but, through amendment, totaled more than $3.4 million, a greater than tenfold
increase. This is an inappropriate method of contracting and places undue pressure on the
Authority’s Board of Commissioners to approve the huge contract amendments since the
contracts are already in place and operating.

An example of this inappropriate contracting process was Pueblo’s unarmed security services
contract (HA-2000-013). The contract was originally issued on April 18, 2000, for $25,000, and
within 1 month, an amendment increased the contract to $409,272. Later amendments
increased the amount to more than $980,000. The original contract price approved by the
Authority was unreasonable, unsupported, and underpriced. To show the unreasonableness of
the original contract value, by taking the contract schedule of fees and contract term length, we
determined that $570,918 was necessary to implement the original contract term of 1 year (or
$10,979.20 per week); however, only $25,000 was awarded up front for the 1-year contract.
The original contract award of $25,000 would have been enough to carry out unarmed security
services for 21/4 weeks before the full contract award had been spent. This type of procurement
deficiency should have been identified and addressed before the award of the contract. Another
example of this contracting process was Jordan’s unarmed security service contract (HA-97-


                                               18
065). The initial contract award was $25,000, while the ultimate value of the contract, after six
amendments, reached $1,278,000. There was no documented support for the large contract
amendments.

RMC Operations

Over the last 7 years, the Authority’s RMCs have received millions of dollars in contracts from
the Authority, primarily through the Comprehensive Grant Program (i.e., Capital Fund). Our
review disclosed that many of these RMCs had not established accountability for the Federal
funds they received and operated in a haphazard, nonaccountable manner. They failed to
maintain adequate accounting records, and their Boards of Directors/staff were not capable of
effectively managing their operations. Consequently, substantial payments were made for
inappropriate or undocumented purposes, particularly by Jordan and Pueblo. This is especially
troubling because of the considerable amount of funds these two RMCs paid to a consultant
(over $1.3 million in hourly fees) who was to assist them in carrying out their day-to-day
activities. Below is a listing of some of the deficiencies identified in the operations of Pueblo
and Jordan:

•      $34,000 in unsupported payments were made to the President of the Pueblo Board of
       Directors and $21,000 to the current President of the Jordan Board of Directors.
       Pueblo and Jordan frequently disbursed checks payable to either “cash” or specific
       Board members, without any supporting documentation, for such items as school
       supplies, holiday events, cleaning supplies, Board meetings, etc.
•      At least $6,000 in inappropriate cash bonuses were given to current Board members
       (Pueblo and Jordan).
•      $4,200 in funeral/burial expenses was paid to residents (Pueblo and Jordan).
•      $2,780 in personal loans were made to Board members and the consultant with no
       record/accounting, including evidence that the loans were ever repaid (Pueblo and
       Jordan). Personal loans were made to residents and cash repayments kept in a
       drawer, rather than deposited into the bank account. It was also noted that the
       consultant was providing personal loans to the Board members (at least $2,000 at
       Pueblo).
•      Significant inappropriate payments were made to prior Jordan Board members,
       including $6,510 diverted at the end of their management term. However, records
       necessary for a detailed review of these payments were missing.
•      Jordan did not have financial statements prepared, file tax returns, or pay employment
       taxes for the years 2000 and 2001, although it paid a consultant to help it manage
       these activities.
•      Board members were empowered with signature authority and other controls;
       however, they did not have the background, expertise, or capability to perform
       effectively in their positions (Pueblo and Jordan).
•      Board stipends (up to $400 per month) were paid to Board members regardless of
       whether they attended board meetings (Pueblo and Jordan).
•      No records were maintained of Board meeting minutes (Pueblo and Jordan).
•      A combined savings/checking account was used as a petty cash fund with no
       accountability for expenditures, and checks were issued out of sequence (Pueblo).


                                               19
•      Board members with Authority jobs were being paid by the Authority but spending
       official time working on RMC activities (Pueblo and Jordan).
•      A Board member was paid as a RMC employee when in fact she was not an
       employee (Pueblo).
•      There was no competitive process in place to obtain subcontractors for moving and
       extermination services (Pueblo and Jordan). Both RMCs used the same moving
       subcontractors, whose services were obtained without benefit of competition.
•      Pueblo did not maintain the insurance coverages required under its contracts with the
       Authority.
•      The Internal Revenue Service was not notified of the consultant’s contract earnings
       through the RMCs’ filing of IRS Form 1099s. The consultant was the person
       responsible for ensuring appropriate IRS filings were made (Pueblo and Jordan).

Summary

As discussed above, the Authority’s procurement and contract management processes,
especially as they related to its RMCs, were seriously deficient. Since 1996, the Authority
has noncompetitively awarded all of its RMCs more than $13 million in service contracts;
i.e., moving, extermination, unarmed security and detrashing/cleaning. However, before
awarding these contracts, it did not determine cost reasonableness or whether the RMCs had
the capability to carry out the contract requirements. The costs were not reasonable and the
RMCs did not have the needed capability. Also, the Authority did not adequately monitor or
review the RMCs’ activities or the contract billings they submitted. As a result of these
weaknesses, more than $1.2 million in unsupported and ineligible costs were incurred at the
two RMCs we reviewed. The $13 million in contracts awarded to the RMCs did not
significantly benefit the Authority’s residents, as few of them were hired under the contracts
and, after 7years, none of the RMCs we reviewed were capable of managing their business
affairs. The primary beneficiary of these contracts was the consultant, whom the RMCs paid
more than $1.6 million (through a noncompetitive procurement process) to assist them in
carrying out their basic day-to-day operations. The consultant had a long-term business and
personal relationship with the Authority’s former Assistant Executive Director/Director of
Housing Services, who had almost total control over the RMCs and their contracts, including
initial award and ongoing monitoring. This relationship presented an apparent conflict of
interest, which the Authority’s former Executive Director and former Board of
Commissioners failed to address. Due to the significant problems identified with the RMC
contract and billing process, HACLA needs to review all current RMC contracts to determine
whether they should be cancelled and review all contract billings under all Authority service
contracts with its RMCs to ensure their credibility and accuracy. Any further unsupported,
questionable, and/or unnecessary and unreasonable payments need to be repaid by the
Authority from nonfederal funds.

AUDITEE COMMENTS

The Authority agreed with the audit finding.




                                               20
RECOMMENDATIONS:

We recommend that your office require the Authority to

1A     Obtain appropriate supporting documentation or repay all unsupported expenditures
       discussed above and itemized in appendix A ($844,750).

1B     Reimburse its Capital Fund, from nonfederal sources for the ineligible costs discussed
       above and itemized in appendix A ($451,055).

1C     Review all contract billings under all service contracts with all of its RMCs to ensure
       that payments were made only for fully supported expenses and were in accordance
       with contract requirements. This would include ensuring that claims for security and
       cleaning services are supported by employee time records and reimbursable material
       and administrative expenses are fully documented as required by the contracts.

1D     In an orderly manner, terminate any current contracts with Pueblo and Jordan. Any
       future service contracts with these RMCs should be awarded only through
       competition and in accordance with all applicable Federal procurement requirements;
       i.e., independent cost estimates/price analyses are performed and determination of
       capacity is made and fully documented.

1E     Enter into new or amend existing contracts with its RMCs only after HUD reviews
       and approves the contracts.

1F     Develop and implement a process to monitor RMC activities, which at a minimum
       include
       • Periodic, structured onsite monitoring reviews;
       • Remote monitoring efforts, including the review of audited or unaudited financial
           statements; and
       • Requiring supporting source documentation to be submitted (and appropriately
           reviewed) with every contract billing.

1G     Strengthen its contracting process by implementing controls to segregate
       responsibilities to ensure that no one person or department has full control over the
       procurement of individual goods and services and ensuring that questions arising
       during the procurement process are fully and fairly resolved.

1H     Ensure that the Authority’s Board of Commissioners is fully involved in relevant
       contract oversight activities, to include providing them with documentation
       supporting the reasons for issuing contracts which bypass their approval process and
       providing them with affirmation that price reasonableness and capacity
       determinations have been made before entering into any contracts with the RMCs.




                                             21
FINDING 2 - THE AUTHORITY DID NOT HAVE SUFFICIENT CONTORLS OVER
            THE     PROCUREMENT AND MANAGEMENT OF CONSULTING
            SERVICE CONTRACTS – INELIGIBLE - $439,803; UNSUPPORTED -
            $49,842

The Authority’s controls over the procurement of consulting services by both itself and its
RMCs were not sufficient to ensure that such services were necessary and obtained at a
reasonable price. Additionally, contract management was inadequate to offer assurance that
contracted services were provided and payments made in accordance with the contracts. As a
result, competition was unreasonably restricted; the Authority and its RMCs paid excessive
prices for services often not provided; and duplicate payments were made for consulting
services. During our review, we identified ineligible contract payments to a consultant totaling
$439,803, other questionable payments totaling $49,842, and an overall perception of favoritism
in the acquisition of RMC related consulting services. These problems resulted from a failure
by the Authority to institute sufficient controls over its procurement process, failure to develop
and implement appropriate procedures for monitoring its RMCs’ operations, and a disregard for
applicable procurement policies and procedures.

In accordance with Section 3 of the Housing and Urban Development Act of 1968 (12
U.S.Code 1701u), recipients of HUD assistance are to take affirmative actions to ensure that,
to the greatest extent feasible, employment and other economic opportunities generated by
HUD financial assistance are directed to low- and very low-income persons and to business
concerns which provide economic opportunities to low- and very low-income persons.
Regulations implementing these requirements are set out in 24 CFR section 135.
Additionally, contracting requirements, which would be applicable to all procurement actions
including these type of affirmative procurements, are set out in 24 CFR 85.36. Critical
procurement requirements include

•    Ensuring, before contract award, that contractors possess the ability to perform
     successfully under the terms and conditions of the proposed contract (24 CFR
     85.36(b)(8)).
•    Conducting a cost or price analysis in connection with every procurement action (24
     CFR 85.36(f)(1)).
•    Ensuring that “all pre-qualified lists of persons, firms, or products which are used in
     acquiring goods and services are current and include enough qualified sources to ensure
     maximum open and free competition” (24 CFR 85.36 (c)(4)).
•    Using time and material only when no other contract is suitable and only if the contract
     includes a ceiling price that the contractor exceeds at its own risk (24 CFR 85.36
     (b)(10)).
•    Prohibiting restriction of competition by noncompetitively awarding contracts to
     consultants that are on retainer (24 CFR 85.36(c)(1)(iv)).
•    Prohibiting the use of cost plus a percentage of cost contracting (24 CFR 85.36 (f)(4)).
•    Ensuring that contractors perform in accordance with contract terms (24 CFR 85.36
     (b)(2)).




                                               22
Additionally, as required by Office of Management and Budget Circular A-87, “Cost
Principles for State, Local, and Indian Tribal Governments,” for costs to be allowable under
Federal awards, they must be necessary and reasonable for proper and efficient performance
and administration of the funded activities.

During the period of our review, the Authority and its RMCs entered into numerous contracts
with one consultant. Many of these contracts were made in conjunction with an attempt to
provide economic opportunities to residents by providing business and operational training to
several RMC Boards of Directors to assist them in establishing resident-owned businesses.
Other contracts between the RMCs and the consultant called for the provision of
“Professional Consultant services” on an hourly basis related to contracts the RMCs’
businesses had entered into with the Authority to provide various services; i.e., moving,
security, extermination, and cleaning/detrashing (see finding 1). The Authority entered into
other contracts and procurement actions with the consultant related to program design,
moving, and other miscellaneous services. These contractual services were not obtained nor
managed in accordance with applicable procurement requirements as discussed below.

Consulting Services for Training Resident Management Corporation Board Members –
Ineligible - $237,222; Unsupported - $11,700

We identified 19 procurement actions (9 contracts and 10 purchase orders) in which either
the Authority or one of its RMCs entered into agreements with the consultant to provide
consulting services to the RMCs relating to Board of Directors governance and business
startup and operations. Contracts/purchase orders were either entered into directly between
the consultant and the Authority (12 purchases) or entailed contracts between the Authority
and the RMCs, in which the Authority provided funds to the RMCs to hire a consultant
(seven purchases). Payments under these agreements totaled more than $427,000.
Numerous irregularities in the awarding and management of these contracts were identified
as summarized below:

•    The Authority could provide no documentation showing that a cost or price analysis
     had been performed for any of these procurement actions.

•    All but one of the nine contracts we examined were issued at or about $25,000, the
     upper limit at which the Authority’s procurement policy required neither board
     approval nor use of formal bid procedures. This raises concerns that the contracts may
     have been issued at these amounts to avoid the Authority’s administrative and
     procurement requirements yet still provide the maximum amount available to the
     consultant.

•    We found no documentation showing that the Authority had determined whether the
     consultant had the experience and training necessary to provide business consulting
     services to RMCs. The consultant provided a resume to the Authority and several of
     the RMCs, listing a masters degree in business administration, which he did not have.
     He also claimed to have a consulting business with five employees. We could find no
     evidence that the consultant had ever provided consulting services to any entity other



                                             23
    than the Authority and its RMCs. Further, it appears that he never had any employees
    in his consulting business and that all claimed work could only have been done by the
    consultant, himself.

•   The Authority continued to award contracts to this consultant even after learning he had
    made false statements regarding his qualifications and education.

•   The Authority did not ensure that the consultant obtained and maintained insurance
    coverage as required by its contracts. It appears that, although the consultant began
    providing contractual services to the Authority in 1995, required liability insurance was
    not obtained until September 2000.

•   All of the procurements appeared to have been sole source and directed specifically
    toward the subject consultant. There was no prequalified list of consultant firms, which
    could have been used in soliciting proposals for needed consultant work. The
    Authority in several instances, claimed to have contacted other vendors. However, in
    only two instances, were the names of those vendors documented. The Authority
    claimed that no one other than the subject consultant responded to the requests for
    proposal. The Authority’s contracting department reportedly attempted to contact those
    who received the requests for proposal for the two contracts but could not verify that
    they had been contacted. We also attempted to contact these entities and were unable
    to verify any of them received the requests. One of the “consultants” was a medical
    management business, one was a tax and accounting firm that had not been at the
    mailing address for two years, and others denied having received a request for proposal
    from the Authority or could not be located at the given addresses. In an apparent
    attempt to avoid its own and HUD’s procurement requirements, the Authority would
    often contract with the RMC, which would then use the contract funds to hire a
    consultant. In relation to these instances (seven), there was also no evidence of
    competition and it is appears that the consultant was preselected. In four of the seven
    contracts, the consultant began work before the contract was issued, and in three
    instances, RMC staff claimed that Authority staff strongly suggested that they hire the
    consultant or they would not receive any future contracts from the Authority.

•   There was no evidence that the Authority made a determination as to the necessity of
    the proposed work, adequately determined and detailed the scope of work, or verified
    that work was completed. As a result, contracts were issued and payment made for
    unnecessary or duplicative services and services which were not provided. We
    identified $237,316 of ineligible payments and $11,700 in questionable payments under
    11 different procurements involving false procurement actions, payments for services
    not provided or not documented, payments for unnecessary services, and duplicative
    payments as discussed below (also see appendix B).

    o    In December 1995, the Authority entered into a $169,000 contract with Jordan.
         This contract (HA-95-066) was to provide Jordan funding necessary to assist in
         preparing residents to experience meaningful work and to hire a consultant(s) to
         establish a security company and help teach staff to manage it; develop a market



                                            24
    study of available business for the RMC; advise on organizational structure; train
    Jordan’s Board of Directors in its duties, bookkeeping principles, management of
    its community center, and staff supervision; and advise the Board on “how to get
    a firm grasp on organizational behavior.” Based upon a revised budget, dated
    December 8, 1995, Jordan was to use $56,035 of the contract funds to pay a
    consultant(s) for his services, with the remaining funds to be used for Jordan’s
    staff salaries and administrative expenses.

    We could find no evidence that Jordan attempted to competitively obtain consultant
    services under this contract. Instead, it appears that the consultant was preselected
    as he was already working for and billing Jordan for his services under the contract
    before it was executed. A review of billings under the contract showed that the
    consultant primarily provided day-to-day operational services to Jordan, rather than
    consulting services. Further, almost none of the $112,965 allocated for Jordan’s
    staff salaries and administrative costs were used for that purpose. Only $8,265 of
    the contractual payments were for the RMC; whereas payments for consultant
    services totaled $178,647. Contract overpayments of $17,913 ($186,913 versus
    $169,000) occurred under this contract because of accounting errors made by the
    Authority.

    Additionally, a minimum of $55,270 of ineligible payments were made under this
    contract. Two payments ($5,375 and $4,313) were paid directly to the consultant by
    the Authority. The consultant was contracted with Jordan and, thus, should not have
    been paid by the Authority since Jordan was already paying him for these services.
    Three additional payments were made to Jordan without supporting documentation
    and appeared to have been made simply because funds remained under the contract.
    There was no documentation available to show how these last three payments under
    the contract related to the original scope of work or were necessary for contract
    performance. These payments were – 1/24/97 - $13,563; 9/19/97 - $17,422; and
    10/23/97 - $14,600.

o   On October 24, 1997, the Authority issued a $10,000 purchase order to pay the
    consultant for “Training of the Jordan Downs Resident Management Corporation
    in Facility Management from January 1997 through September 1997.” This
    purchase order (49583) was issued after the purported services were provided and
    appears to be based upon a September 24, 1997, billing from the consultant with
    no documentation showing the work was ordered or completed. Further, these
    same services were to have been provided by the consultant under a previous
    contract, HA-95-066. This appears to be a false, ineligible billing, which clearly
    demonstrates the weaknesses in the Authority’s controls over its procurement
    process.

o   On December 17, 1998, the Authority entered into a $24,500 contract with the
    consultant to provide technical assistance to the Aliso Village Resident Advisory
    Council in the areas of resident training and development to prepare the residents
    for doing business in the private sector (contract HA-98-082). The Authority



                                       25
    claimed to have solicited requests for proposals for these services on October 6,
    1998, to have received more than one proposal, and that the consultant’s offer was
    considered “one of the most advantageous…” However, there was no
    documentation available supporting the claim that proposals were solicited and
    received from other parties. The contract called for provision of weekly written
    reports of results and recommendations. No written reports were provided, and as
    a result, it is not possible to determine whether required work items were
    accomplished. In this regard, a former Resident Advisory Council Board of
    Directors member claimed the consultant provided very few services for the
    $24,500 fee. This assertion is supported by the consultant’s billings, in which he
    claimed to have completed six of the seven tasks within 6 days. Because of the
    failure to document the reasonableness of the charges and specify the consulting
    work results and recommendations, the $24,500 paid under this contract is
    considered ineligible.

o   The Authority entered into a $24,999 contract (HA-99-076) with the consultant on
    October 25, 1999. The consultant was to provide the Pico Aliso Resident
    Advisory Council with business consulting services. The Authority claimed to
    have informally solicited responses from five firms to provide these services and
    stated that the only response received was from the consultant. However, the
    Authority’s contract administrator raised numerous questions regarding this
    contract, including whether any firms would have had time to respond to the
    request for services; type of work done by those contractors purportedly
    contacted; questionable price; i.e., just below the $25,000 threshold, which would
    require Board approval and formal bid procedures; lack of pricing information;
    and the failure to provide potential contractors with essential information. The
    Authority’s former Assistant Executive Director/Director of Housing Services
    responded that because of an emergency situation, she had instructed her staff to
    “solicit bids under $25,000.” This “emergency situation” was never identified.
    The contract administrator’s concerns were overridden by the former Assistant
    Executive Director and the contract executed.

    We attempted to verify that the firms who were purportedly contacted were
    contacted by the Authority and could provide the type of services required.
    However, we could not verify that any of them were contacted to respond to this
    request. Further, at least one of the firms’ business had nothing to do with providing
    the type of consulting work the Authority wanted – it was a medical management
    firm. The majority of the work (8 of the 11 work items) to be done under this
    contract were accounting related and accordingly should have been directed to a firm
    which provided accounting services, not to the consultant, who had to subcontract
    out the work.

    The consultant’s first billing ($18,900), submitted on October 27, 1999, 2 days after
    contract execution, indicated all of the accounting-related work had been completed.
    In relation to the accounting work, the consultant had submitted a letter to the
    Authority on October 15, 1999, requesting to use a specific accounting firm as a



                                       26
    subcontractor on the contract. However, all accounting work had already been done
    and the accountant was paid his $7,200 fee (versus the $18,900 charged by the
    consultant) on October 6, 1999. Since the contract was not executed until October
    25, 1999, it appears that the contractor was preselected and the Authority’s claim to
    have participated in an open and fair competition was untrue.

    In relation to services provided to this Resident Advisory Council, in August of
    1999, the consultant was paid $2,000 to evaluate the Resident Advisory Council’s
    systems and controls (purchase order 58451). Based upon this evaluation, he
    recommended the Resident Advisory Council hire an accountant and a consultant to
    assist in correcting accounting problems and train staff. Based upon his
    recommendations, he was hired as a consultant. Additionally, in September 1999,
    he was paid $2,500 under a separate purchase order (number 58696) to resolve
    business and licensing problems of the Resident Advisory Council. Under the
    subject contract, he again charged for providing the same services. The amount
    charged, $344, is ineligible as it represents a duplicate charge.

    In summary, it appears the consultant was preselected for this contract.
    Additionally, most of the contracted services should have been directly with an
    accounting firm, not with the consultant. Accordingly, the $11,700 excess amount
    paid ($18,900 versus $7,200) is a questionable charge. The duplicate charge of $344
    to resolve business and licensing problems is an ineligible charge.

o   On February 28, 2000, the Authority entered into a contract (HA-2000-006) with
    Pueblo in which the Authority agreed to provide Pueblo $25,000 to hire a consultant
    to evaluate and train Pueblo’s staff to operate a profitable business and develop
    business initiatives. On March 1, 2000, the consultant submitted a billing to Pueblo
    for $16,500, claiming that six of the nine work items included in Pueblo’s February
    28, 2000, contract had been completed. The consultant claimed to have previously
    entered a contract with Pueblo to carry out the exact work items that were included
    in the Authority’s contract with Pueblo, which was not executed until 1½ months
    later. These claimed work items were very general and included “train and assist
    RMC board members to understand the roles of CEO, CFO, and COO in business
    organization behavior,” and “Oversee and assist to implement selection of CEO,
    CFO, and COO.” It is unreasonable to claim to train individuals who have no
    previous business background in the relationships between a chief executive officer
    (CEO) chief financial officer (CFO), and chief operations officer (COO), and there
    would be no reason to do so. Further, there was no documentation available
    showing that the contractual work items were ever accomplished. Based upon the
    final report issued by the consultant on April 9, 2000, it appears that most of the
    work items were not accomplished. This final report merely provided generalities
    with only limited applicability to the original contract work items and made
    recommendations for future work, which the contractor was to have accomplished
    under this contract. The $25,000 in costs related to this contract were not reasonable
    and necessary and, accordingly, are ineligible.




                                       27
    During this same time period, the Authority issued two additional noncompetitive
    purchase orders to the consultant to provide business training assistance to Pueblo:
    purchase order 60267 for $2,500, dated February 14, 2000, to provide assistance in
    starting a moving company (consultant’s billing was dated the same day as the
    purchase order) and purchase order 510018 for $25,000, dated April 8, 2000, to
    provide training to Pueblo to start a security and extermination business (first billing
    by the consultant for $5,500 was dated the same day as the purchase order). There
    was no work statement for these purchase orders, and, thus, it is not apparent what
    work the consultant did. However, it appears that much of the work is a duplicate of
    what he was to perform under contract HA-2000-011 (see below); i.e., assist Pueblo
    to establish businesses to take over the Authority contracts previously handled by
    Jordan.

    One year earlier, the consultant had been contracted by Pueblo to evaluate and train
    it to operate as a “profitable” business (contract HA-99-026). This contract was a
    pass through from the Authority for $25,000. The contract between the Authority
    and Pueblo was effective April 12, 1999, yet the consultant began billing under the
    contract on January 12, 1999, and the claimed final report due under the contract
    was dated January 30, 1999, 2½ months before the contract was executed. It should
    be noted that this claimed final report had little value and little relationship to
    contract work requirements. Accordingly, the $24,906 paid under this contract is
    considered unreasonable and, therefore, ineligible.

    Despite all the training the consultant supposedly provided to Pueblo and for which
    he was paid more than $77,000, on September 28, 2000, he agreed to take over
    “…the routine functions necessary to maintain your business activities...” as Pueblo
    was incapable of doing so.

o   On April 10, 2000, the Authority entered into a $25,000 contract (HA-2000-011)
    with the consultant for assistance in the demobilizing and transfer of Jordan’s
    contracts for moving, detrashing, and security to the Authority or other RMCs.
    The Authority claimed to have solicited six firms on March 23, 2000, and to have
    received only one response. However, the consultant’s first billing was submitted
    on April 12, 2000, just 2 days after contract execution. In this billing, the
    consultant claimed to have begun work on the contract work items on March 20,
    2000, 3 days before the Authority claimed to have solicited proposals for the
    work. Further, the contract called for completion of the work items by April 10,
    2000, the date of the contract. Therefore, there was no solicitation involved in
    this matter as claimed by the Authority.

    In addition, the need for many of the work items to be completed under this contract
    is questionable as they were either already being performed under Authority
    purchase orders 60267 and 510018 or were unnecessary. These two purchase
    orders, as discussed above, were for setting up Pueblo’s moving, security, and
    extermination businesses, which took over the contractual services previously
    provided by Jordan. Work items 2, 5, 6, and 7 of the subject contract duplicated



                                        28
    these work items (total contract budget of $15,000). Further, work items 3 and 4
    were unnecessary and not related to the purpose of the contract, and there was no
    documentation available to indicate claimed work was done or could have been done
    (contract budget $5,000). These items called for training Authority staff to monitor
    former Jordan businesses and implementing a labor distribution and employment
    program for Jordan. This makes no sense as the Jordan businesses were being
    closed out. In summary, $20,000 of the amount paid under this contract is ineligible
    as the cost was not reasonable and necessary.

o   On July 18, 2000, the Authority entered into a $25,000 contract (HA-2000-024)
    with the San Fernando Gardens RMC to provide funds to hire a consultant to
    evaluate and train its staff to operate as a “profitable” business and develop
    business opportunities. The consultant entered into a contract with San Fernando
    Gardens on June 26, 2000, almost 1 month before it executed its funding contract
    with the Authority. The consultant submitted his first bill to San Fernando
    Gardens on August 1, 2000, for work performed during the period June 5 through
    July 31, 2000. These actions make it appear that the contractor was preselected.
    In this regard, a San Fernando Gardens representative stated that San Fernando
    Gardens attempted to obtain the services of another contractor but were almost
    forced to hire the subject consultant by the Authority’s former Director of
    Housing Services /Assistant Executive Director.

    The Authority’s contract with San Fernando Gardens required the production of a
    final report by the consultant, documenting findings and recommendations of needs.
    However, this report was not provided, making it difficult to determine what, if any,
    work required by the contract was provided. In this regard, $15,000 of the
    contracted work was for Board of Directors and staff training. However, the Board
    President stated that the consultant provided the San Fernando Gardens with almost
    no training. Further, it is questionable as to the effectiveness of any business
    consulting that may have been provided since the Board President and other
    members spoke and understood only limited English and the consultant did not
    speak Spanish. The consultant, for a fee of $5,000, was also to acquire permits and
    licenses to register San Fernando Gardens as a new business. We asked the
    consultant and the Authority what licenses and permits were obtained but received
    no response, and, accordingly, we cannot determine the reasonableness of this
    charge. Based upon the Authority’s inability to document the reasonableness of the
    previously discussed consulting services, the $15,000 applicable to training and
    $5,000 applicable to obtaining permits and licenses are considered ineligible.

o   The Authority paid Estrada Courts RMC $25,000 to hire a consultant to train its
    staff to operate as a “profitable” business and develop business initiatives
    (contract HA-2000-025, dated July 18, 2000). There was no reason for this
    contract as Estrada Courts had been operating its businesses successfully for
    several years previously. Further, Estrada Courts’ staff claimed the consultant,
    whom they were forced by the Authority to hire, did nothing for the $25,000 paid
    him other than look at their insurance policies and make suggestions for office



                                       29
           furniture and equipment. Services provided under this contract were typical of
           those provided under other contracts. This charge was not reasonable and
           necessary and, accordingly, is ineligible.

   o       The Authority entered into a contract with Jordan on April 4, 2001. The contract
           (HA-2001-009) provided Jordan $25,000 to hire a consultant to “develop and start
           a ‘profitable’ grounds maintenance business.” There was no evidence that Jordan
           competitively solicited proposals from any other consultant to carry out the work.
           At the time this contract was issued, the consultant was already working for
           Jordan on an hourly basis. No grounds maintenance business was started, and the
           final report maintained by Jordan and the Authority, dated December 15, 2001,
           was just two pages of generalities, and even inaccuracies. In response to a request
           for additional information, the consultant provided us with another version of a
           final report, this one dated November 21, 2001. In that neither the Authority nor
           Jordan had a copy of the November 21, 2001, final report in their files at the time
           of our onsite visits, its authenticity is questionable. Further, it does not provide
           any useful detailed recommendations and outcomes. In that the intent of the
           contract was not attained and because there was no explicit, identifiable work
           product, the $25,000 paid under this contract is considered unreasonable and
           unnecessary and, therefore, ineligible.

   o       On August 8, 2001, the Authority issued a purchase order (65102) to the
           consultant to provide Jordan “training on organizational behavior, contractual and
           operational activities.” There was no documentation indicating that the Authority
           obtained verbal quotes from other vendors as required by its procurement policy.
           In fact, it appears that the consultant was preselected as on August 11, 2001, 3
           days after the purchase order was issued, the consultant submitted a $7,200 bill
           claiming the contracted work had been accomplished. We could find no
           documentation indicating the work had been accomplished. We requested
           information from the consultant regarding this, and he indicated that a portion of
           the work was accomplished at a leadership training retreat in San Diego held on
           September 14 through 16, 2001,more than a month after the consultant’s billing
           for training. Further, the consultant was paid separately by Jordan for both his
           preparation and participation time for the retreat. We also noted separate hourly
           billings by the consultant to Jordan for other work supposedly accomplished
           under this purchase order with the Authority. Because of the lack of
           documentation supporting claimed accomplishments and indications of double
           billing for the work, the cost of $7,200 is considered unreasonable and
           unnecessary and, accordingly, ineligible.

Hourly Consulting and Accounting Services Provided to Resident Management
Corporations for Ongoing Business Operations – Ineligible - $33,411

In addition to the contractual services discussed above, the consultant entered into contracts
or was paid without benefit of a contract with various RMCs where he was to provide
consulting services on an hourly basis. There was no documentation available to suggest



                                             30
these services were obtained on a competitive basis. The pattern in all of these hourly
arrangements was that the consultant would first receive a noncompetitive contract from or
through the Authority to provide training and assistance in business development to a RMC.
The Authority would then noncompetitively contract with the RMC to provide moving,
security, extermination, and/or detrashing services. The consultant, once having obtained
access, would then enter an arrangement with the RMC to provide hourly consulting and, in
some instances, accounting services in conjunction with its new business operations. Under
these arrangements, the consultant was paid at least $1.6 million by six different RMCs
(through approximately May 2002). Significant problems were noted with the consultant’s
hourly contracts and his billing and payments under these contracts.

•       The hourly contracts provided no safeguards to the RMCs and effectively allowed the
        consultant to charge whatever he wished, without need for any documentation
        showing the need for claimed work or whether anything was accomplished for the
        claims made. The contracts were open ended, with a total scope of work listed as
        “Consultant services in all areas where business expertise is required” or similar
        wording. There was nothing in the contracts setting out specific work items to be
        accomplished, no contract upset price to limit the amount paid under the contract, or
        any method to ensure that the consultant performed any type of service for his
        compensation. The consultant demonstrated a serious lack of business integrity when
        he allowed his clients (the RMCs) to enter such open-ended uncontrollable contracts.

•       Since neither the Authority or the RMCs monitored the consultant’s charges to the
        RMCs, the consultant was able to double and even triple bill them for claimed
        services. During the period January 1999 through December 2000, we identified 78
        instances in which the consultant charged the Authority and/or two or more RMCs for
        the same periods of time. Total excessive charges for these duplicate charges totaled
        $18,656 (see appendix C). Total duplicate charges could be significantly more than
        we identified, but numerous billings to the RMCs could not be located, and toward
        the end of 2000, the consultant ceased identifying the specific hours he claimed to
        have worked. Instead, he billed for a specific number of hours per day. Accordingly,
        we could not identify specific hours claimed for comparison purposes. The $18,656
        in identified duplicate charges are ineligible.

•       The consultant billed several of the RMCs for accounting services. However, he did
        not provide these services. Rather, the accounting firm providing the services billed
        the consultant who then billed the RMCs a significantly higher amount. Ineligible
        overcharges we identified totaled $14,755 (see appendix D).
    •   Billing invoices provided by the consultant to the RMCs often lacked sufficient detail
        to allow an evaluation of the reasonableness of the charges being made. This was
        especially frequent for billings for 2001 and 2002. Billing invoices routinely stated,
        “worked on routine business issues,” with no additional information detailing what
        work was actually accomplished. For example, in October 2001, the consultant billed
        Jordan $10,150 for work supported only by the claim “worked on routine business
        issues.” The next billing in November 2001 for $5,390, with the exception of “visited




                                              31
       vehicle dealerships” and one other 1-hour charge, was supported only by the claim
       “worked on routine business issues.”

•      Based upon available information, charges under these contracts, which totaled more
       than $1.6 million, were typically for routine daily management of the RMCs’
       businesses. This was not the typical work for which a reasonable person would pay a
       consultant up to $140 per hour. Further, the consultant routinely charged for services
       which would typically be performed by a lower paid employee or for which there
       typically would be no charge. Examples include charges for

       o      Going to “office gift exchange and Christmas activity.” He charged $840 to
              attend a RMC Christmas party.
       o      Making bank deposits.
       o      Dropping off paper work at the Authority and the accountant’s office.
       o      Shopping for a vehicle.
       o      Shopping for turkeys.
       o      Shopping for supplies.
       o      Searching for a van windshield.
       o      Going to a music store.
       o      Going on a march.
       o      Picking up checks from the Authority.
       o      Discussing funding of consultant contract (which he received).

The above services either were not necessary or were routine services, which could have
been handled through the mail or by someone who was not charging $140 per hour. Other
questionable charges noted included charging for services without allowance for meal breaks.
For example, one day he charged 14 hours straight with no break for either lunch or supper.

•      In August 2001, the consultant unilaterally increased his hourly consulting fee from
       $125 to $140 per hour without the RMCs’ formal approval and without contract
       modifications.

•      Neither the consultant or the RMCs maintained documentation to support more than
       $600,000 in hourly consultant billings. Accordingly, we could not determine whether
       these charges were reasonable and necessary.

Miscellaneous Contracts – Ineligible - $169,170; Unsupported - $38,142

In addition to the business consulting services discussed above, the consultant charged the
Authority and the RMCs $207,312 for development of a preoccupancy training program,
developing procedures and guidelines for operating resident-owned businesses, and moving
services. Significant problems were also noted with these procurement activities as
discussed below.




                                             32
Preoccupancy Training Program

In March 1995, the Authority entered into a $25,000 contract with the consultant to develop
a preoccupancy training program for Jordan residents (contract HA-95-027). In May 1997,
the Authority entered into another contract (HA-97-045) with the same consultant to design a
preoccupancy training program for Jordan residents. Work items under this $88,320 contract
duplicated many of the work items to have been provided under contract HA-95-027.
Further, the work product finally produced under the two contracts was not useful. It
consisted of written generalities and provided no specific, meaningful procedures or
recommendations. As a result, in June 2002, the Authority again went out to bid on another
contract to implement a preoccupancy training program and a good housekeeping education
program. This included providing substantive comments to enhance the “Housing
Authority’s Residential Housekeeping Standards and the Proposed PreOccupancy Education
and Support Training Program Design.” In other words, the contract was to convert the
generalities, for which the Authority had previously paid more than $113,000, into a
workable program. This proposal was cancelled so the Authority has nothing to show for the
$113,220 it paid the consultant under these contracts. Accordingly, the amounts paid under
these contracts were not reasonable and necessary and, therefore, ineligible.

Procedures and Guidelines for Operating Resident Businesses

On April 2, 2001, the Authority entered into a $24,950 contract (HA-2001-010) with the
consultant to “develop procedures and guidelines that will govern the operation of public
housing resident businesses agency-wide.” The Authority’s Housing Services Division
claimed to have solicited proposals from seven other firms but to have received a proposal
only from the subject consultant. Having concerns about Housing Services’ claim to have
solicited proposals from the other firms, the Authority’s Contracts Administrator
unsuccessfully attempted to contact these other firms and concluded that no solicitation was
made. We also attempted to contact three of the firms and determined that none of them had
received the purported solicitation. Thus, the Authority’s claim to have solicited other firms
was false.

The contract was to be completed within 3 months of contract execution; i.e., by July 2,
2001. However, the consultant’s first billing under the contract was not made until
November 5, 2001, and the final billing was made on February 15, 2002 (a contract
amendment to extend the term of the contract through December 31, 2001, was executed on
December 7, 2001). The only work product available was not dated and consisted of
meaningless generalities that did not meet the intent of the contract. For example, one of the
contract work items was to “Determine and develop procedures for the transferring of power
and assets from one elected body to another within the same development.” In essence, the
consultant’s work product for this (for which he was paid $3,000) consisted of stating the
books, records, and assets of a RMC are to be transferred to the newly elected Board of
Directors, and if the old Board fails to do so, it will be subject to all remedies available by
law. The $24,950 paid under this contract for a product, which in effect is worthless, is
unreasonable and, therefore, ineligible.




                                              33
Moving Services – The Authority and Aliso Village Resident Advisory Council

The Authority paid the consultant $38,142 for resident moving services (purchase orders
60980, 61505, and 63566). The consultant did not have a moving company and, accordingly,
was not qualified or capable of performing these contractual services. It is questionable as to
why the Authority would contract with the consultant, knowing he would just have to
subcontract-out the moving activity, rather than contracting with one of the movers who was
actually providing moving services to Authority residents. Such actions insert a middleman
into the process and result in higher costs. Accordingly, the eligible cost for these moves
should be limited to the amount the consultant paid those who actually made the moves. We
asked the consultant for this information but he did not provide it. In that we cannot
determine the actual cost of the moves, the full $38,142 is unsupported until documentation
is supplied which documents the actual cost of the moves.

In addition to the above, the consultant entered into a contract with Aliso Village Resident
Advisory Council to assist in obtaining a contract with the Authority for moving residents at
the William Mead housing development, specifically to provide “Consultant Services and
Bid Documents and Bid Quotes for moving residents at William Mead Housing
Development.” The consultant’s contract called for payment of 10 percent of the value of the
moving contract between Aliso Village and the Authority. Payments made to the consultant
under this contract totaled $31,000. The consultant’s contract would be considered a
percentage of cost contract, which is prohibited under applicable procurement requirements
(reference - Section 44c of Office of Management and Budget Circular A-110, “Uniform
Administrative Requirements for Grants and Agreements with Institutions of Higher
Education, Hospitals, and Other Non-Profit Organizations”). Costs paid under an
unallowable contracting method are ineligible. Other problems were also noted with this
contract, including

•    During the period the contractor was being paid under this contract, he was also being
     paid on an hourly basis by Aliso Village for services provided to its moving company
     (more than $36,000). Accordingly, payments under this contract appear to be a double
     billing and would be considered unreasonable and unnecessary.

•    The contract between Aliso Village and the Authority was an amendment to an existing
     contract, and the increased value of the contract was $135,649, which at 10 percent,
     would be $13,565. Yet the consultant billed and was paid $31,000 based upon an
     unsupported contract value of $310,000.

Although the above ineligible costs affect Aliso Village, the Authority should assist Aliso
Village in obtaining a refund of the $31,000 of ineligible payments from the contractor.

Summary

As discussed above, there are serious issues and concerns with the Authority’s procurement
of consultant services related to its RMCs. Based upon available information, it appears that
the consultant received preferential treatment both in the original contract process and during



                                              34
the management phase of his contracts. The consultant had a long-term personal and
business relationship with the Authority’s former Assistant Executive Director/Director of
Housing Services, who was in charge of obtaining and managing the contracts related to the
consultant. In this regard, RMC staff informed us that if they questioned any of the
consultant’s actions, the Authority’s former Assistant Executive Director/Director of
Housing Services would threaten to cancel their Authority contracts.

As a result of the lack of controls over these activities, more than $2.1 million was expended
on Resident Management Corporation business consulting services without any of them
becoming successful and capable of managing their own businesses as a result of the
consultant’s services. Once the Authority’s contracts (see finding 1) were finished, the
RMCs’ businesses ceased to exist. The contracts primarily benefited the consultant, who was
able to charge up to $140 per hour for services, which could not be measured or defined and
in many cases, could have been performed by almost anyone. In one instance, we noted that
36 percent of a RMC’s gross income went to the consultant. Through these contracts, which
appear to be the consultant’s only business employment and were set up for his benefit, he
was able to earn more than $400,000 per year to provide minimal day-to-day oversight of the
RMC’s businesses. The consultant also had an office, provided rent free by the Authority at
one of its developments (other than his home, the consultant had no other business location).
Because of the failure of this program, the Authority needs to reevaluate its RMC contracting
process.

AUDITEE COMMENTS

The Authority agreed with the audit finding.

RECOMMENDATIONS

We recommend that your office require the Authority to

2A   Repay to its low-rent housing program, using nonfederal sources, the $408,803 in
     ineligible payments made for business consulting services (appendixes B, C, and D).

2B   Obtain documentation to support the eligibility of the $49,842 of unsupported costs set
     out in appendix B and repay the low-rent housing program, using nonfederal sources,
     those costs which cannot be supported.

2C   Assist the Aliso Village Resident Advisory Council in obtaining a refund from the
     consultant of the $31,000 inappropriately charged to it for moving-related services at
     William Mead.

2D   Evaluate its procurement process and related controls and in light of the failures
     identified in this finding, implement procedures which will ensure that procurement
     requirements are followed, including development of appropriate and measurable
     contract work requirements, meaningful and real competition, and appropriate ongoing
     contract monitoring and management.



                                               35
                               MANAGEMENT CONTROLS

In planning and performing our audit, we considered the management controls relevant to our
review, not to provide assurance on the controls. Management controls include the plan of
organization, methods and procedures adopted by management to ensure that its goals are met.
Management controls include the processes for planning, organizing, directing, and controlling
program operations. They include the systems for measuring, reporting, and monitoring
program performance.

We determined the following management controls were relevant to our audit objectives:

◊    Procurement policies and procedures as they relate to contracting with consultants and
     RMCs, including determining the necessity of the procurement.
◊    Contract management and monitoring.
◊    Contract payment process.

We assessed the relevant controls identified above.

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

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

◊   Procurement policies and procedures were circumvented (findings 1 and 2).
◊   Contract management was inadequate to ensure required work product was obtained
    (finding 2).
◊    Payments were made for services not provided (findings 1 and 2).

Additionally, although not considered relevant to our original audit objectives, during our
review, we noted significant weaknesses in the Authority’s management of its legal affairs.
This matter was reported in a previous audit report (see Audit Report No. 2004-LA-1002, dated
March 30, 2004).




                                               36
                           FOLLOWUP ON PRIOR AUDITS

The most recent OIG audit of the operations and activities of the Authority was completed in
1992 and did not address RMCs. This is OIG’s initial review of the Authority’s contracting
and management activities as they relate to its RMCs.




                                            37
                                                                 Appendix A

      HOUSING AUTHORITY OF THE CITY OF LOS ANGELES
           RESIDENT MANAGEMENT CORPORATIONS
 INELIGIBLE AND UNSUPPORTED SERVICE CONTRACT PAYMENTS


Contract #   Unsupported   Ineligible              COMMENTS

HA2000-014                   $167,502 Unreasonable and unnecessary
                                      administration fees
                  $7,830        1,782 Tape quantities in excess of contract
                                      limit and excessive unit costs
                   3,190              Billings for paper in excess of contract
                                      limits
                                5,042 Ineligible billings for tape and paper
                               12,224 Billings for materials in excess of
                                      subcontractor billings.
HA2000-013                    166,045 Ineligible time billings
HA2000-045                      2,941 Extermination contract billings in
                                      excess of contract limits and
                                      provisions and double billings
HA1998-040                      4,029 Ineligible charges for hours not
                                      worked
                   2,816              Undocumented charges for materials
                                      and administrative expenses
HA1997-065       830,914              Questionable charges under security
                                      contract – claimed hours not
                                      supported
HA1996-074                     82,740 False extermination service claim
                                8,750 Unreasonable and unnecessary charge
                                      by consultant to prepare false claim
TOTALS          $844,750     $451,055




                                38
                                                                           Appendix B



            HOUSING AUTHORITY OF THE CITY OF LOS ANGELES
                 QUESTIONABLE PROCUEMENT ACTIONS
          NOVEMBER 1995 THROUGH DECEMBER 2001
       Procurement of Resident Management Corporation-Related Consultant Services
   Contracts/Purchase Ineligible Unsupported        Evidence of      Indication Services
     Orders/Invoices                                Competition        Initiated Before
                                                                        Contract Date
HA-95-027                $24,900                        No
HA-95-066                $55,272                        No                     X
HA-97-045                $88,320                       Yes
HA-98-082                $24,500                        No
HA-99-026                $24,906                        No                     X
HA-99-076                $ 344 $11,700                  No                     X
HA-2000-006              $25,000                        No                     X
HA-2000-011              $20,000                        No                     X
HA-2000-024              $20,000                        No                     X
HA-2000-025              $25,000                        No
HA-2001-009              $25,000                        No
HA-2001-010              $24,950                        No
PO #49583                $10,000                        No                     X
PO #60267                                               No                     X
PO #65102                $ 7,200                        No                     X
PO #510018                                              No                     X
PO #60980 (Moving
Services)                          $ 4,187              No                     X
PO #61505 (Moving
Services)                          $19,142              No
PO #63566 (Moving
Services)                          $14,813              No

Total                    $375,392 $ 49,842




                                          39
                                                                                   Appendix C

             HOUSING AUTHORITY OF THE CITY OF LOS ANGELES
            CHARGES TO MORE THAN ONE ENTITY FOR SAME TIMES
                     January 1999 through December 2000

  Date       Time Period                Affected Entities             Hours Duplicate Charges

1/12/99    11:00a-12:30p    Pueblo del Rio, Jordan Downs                   1.5 $      187.50
1/12/99    3:30p-3:45p      Pueblo del Rio, Jordan Downs                  0.25 $       31.25
1/13/99    2:30p-6:30p      Pueblo del Rio, Jordan Downs                     4 $      500.00
1/14/99    10:30a-3:30p     Pueblo del Rio, Jordan Downs                     5 $      625.00
1/15/99    8:00a-4:30p      Pueblo del Rio, Jordan Downs                   8.5 $    1,062.50
2/10/99    12:00p-2:30p     Pueblo del Rio, Jordan Downs                   2.5 $      312.50
2/23/99    8:00a-10:00a     Pueblo del Rio, Jordan Downs                     2 $      250.00
2/24/99    10:00a-10:45a    Pueblo del Rio, Jordan Downs                  0.75 $       93.75
2/25/99    4:30p-5:30p      Jordan Downs, Aliso Village                      1 $      125.00
3/16/99    3:30p-4:00p      Pueblo del Rio, Jordan Downs                   0.5 $       62.50
3/16/99    8:00a-10:00a     Pueblo del Rio, Jordan Downs                     2 $      250.00
3/18/99    8:15a-9:15a      Pueblo del Rio, Jordan Downs                     1 $      125.00
4/10/99    9:30a-10:30a     Aliso Village, Pueblo del Rio                    1 $      125.00
4/13/99    3:30p-4:30p      Aliso Village, Pueblo del Rio                    1 $      125.00
6/10/99    1:00p-2:00p      Aliso Village, Pueblo del Rio                    1 $      125.00
6/19/99    10:00a-1:00p     Charged Pueblo twice on separate invoices        3 $      375.00
6/28/99    8:00a-8:45a      Jordan Downs, Aliso Village                   0.75 $       93.75
7/6/99     1:00p-2:00p      Jordan Downs, Aliso Village                      1 $      125.00
7/13/99    3:00p-3:30p      Jordan Downs, Aliso Village                    0.5 $       62.50
7/14/99    3:30p-5:00p      Pueblo del Rio, Jordan Downs                   1.5 $      187.50
7/15/99    8:00a-9:00a      Pueblo del Rio, Jordan Downs                     1 $      125.00
7/16/99    1:30p-2:00p      Aliso Village, Jordan Downs                    0.5 $       62.50
7/16/99    12:00p-12:30p    Pueblo del Rio, Jordan Downs                   0.5 $       62.50
7/16/99    12:30p-1:30p     Pueblo, Jordan Downs, Aliso Village       (2 x1) 2 $      250.00
7/20/99    10:00am-11:15a   Jordan Downs, Aliso Village                   1.25 $      156.25
7/27/99    11:00a-11:30a    Jordan Downs, Aliso Village                    0.5 $       62.50
8/3/99     8:00a-11:30a     Jordan Downs, Aliso Village                    3.5 $      437.50
8/13/99    2:00p-2:45p      Jordan Downs, Aliso Village                   0.75 $       93.75
8/17/99    10:00a-11:00a    Jordan Downs, Aliso Village                      1 $      125.00
8/19/99    12:00p -1:30p    Jordan Downs, Aliso Village                    1.5 $      187.50
9/15/99    8:15a-8:30a      Jordan Downs, Aliso Village                   0.25 $       31.25
9/16/99    2:30p-4:15p      Jordan Downs, Aliso Village                   1.75 $      218.75
10/4/99    9:00a-1:00p      Jordan Downs, Aliso Village                      4 $      500.00
10/5/99    9:00a-10:45a     Jordan Downs, Aliso Village                   1.75 $      218.75
10/8/99    9:00a-9:30a      Jordan Downs, Aliso Village                    0.5 $       62.50
10/19/99   12:30p-1:00p     Jordan Downs, Aliso Village                    0.5 $       62.50
10/19/99   2:30p-3:30p      Jordan Downs, Aliso Village                      1 $      125.00
11/2/99    10:00a-12:30p    Jordan Downs, Aliso Village                    2.5 $      312.50



                                              40
   Date       Time Period                 Affected Entities            Hours      Duplicate Charges
11/12/99   8:00a-12:00p     Charged Jordan on two separate invoices           4   $      500.00
11/16/99   12:30p-1:30p     Jordan Downs, Aliso Village                       1   $      125.00
11/18/99   9:30a-1:30p      Jordan Downs, Aliso Village                       4   $      500.00
11/23/99   12:30p-3:00p     Jordan Downs, Aliso Village                     2.5   $      312.50
12/2/99    8:00am-12:00p    Jordan Downs, Aliso Village                       4   $      500.00
12/8/99    7:00a-7:30a      Jordan Downs, Aliso Village                     0.5   $       62.50
12/9/99    4:30p-5:30p      Jordan Downs, Aliso Village                       1   $      125.00
12/9/99    6:30p-7:00p      Jordan Downs, Aliso Village                     0.5   $       62.50
12/10/99   12:45p-2:30p     Jordan Downs, Aliso Village                   1.75    $      218.75
12/10/99   9:00a-10:00a     Jordan Downs, Aliso Village                       1   $      125.00
12/15/99   7:30a-10:15a     Jordan Downs, Aliso Village                   2.75    $      343.75
1/5/00     1:30p-2:15p      Pico Aliso, Jordan Downs                      0.75    $       93.75
1/13/00    2:30p-4:00p      Pico Aliso, Jordan Downs                        1.5   $      187.50
1/19/00    6:00p-7:00p      Charged Jordan on two separate invoices           1   $      125.00
1/19/00    8:30a-3:00p      Jordan Downs, Aliso Village                     6.5   $      812.50
1/20/00    5:00p-7:00p      Charged Jordan on two separate invoices           2   $      250.00
1/21/00    9:00a-12:00p     Charged Jordan on two separate invoices           3   $      375.00
1/27/00    8:00a-10:00a     Pico Aliso, Jordan Downs                          2   $      250.00
2/3/00     8:00a-8:45a      Pico Aliso, Jordan Downs                      0.75    $       93.75
2/4/00     11:00a-12:00p    Jordan Downs, Aliso Village, Pico Aliso   (2 x 1) 2   $      250.00
2/4/00     8:30a-11:00a     Jordan Downs, Aliso Village                     2.5   $      312.50
2/7/00     11:00a-12:30p    Pico Aliso, Jordan Downs                        1.5   $      187.50
2/8/00     8:30a-11:30a     Jordan Downs, Aliso Village                       3   $      375.00
2/14/00    9:00a-12:00p     Pico Aliso, Jordan Downs                          3   $      375.00
2/15/00    12:00p-1:30p     Jordan Downs, Aliso Village                     1.5   $      187.50
2/16/00    1:00p-3:30p      Pico Aliso, Jordan Downs                        2.5   $      312.50
2/23/00    9:30a-12:30p     Pico Aliso, Jordan Downs                          3   $      375.00
3/6/00     10:00a-11:00a    Aliso Village, Pico Aliso                         1   $      125.00
3/8/00     10:00a-12:00p    The Authority, Pico Aliso, Aliso Village  (2 x 2) 4   $      500.00
3/8/00     12:00p -2:00p    The Authority, Pico Aliso                         2   $      250.00
3/14/00    9:00a-10:00a     Aliso Village, Pico Aliso                         1   $      125.00
6/5/00     10:30a-11:00a    San Fernando, Aliso Village                     0.5   $       62.50
6/5/00     12:00p-12:30p    San Fernando, Aliso Village                     0.5   $       62.50
6/26/00    11:00a-1:00p     San Fernando, Aliso Village                       2   $      250.00
7/21/00    11:00a-11:30a    San Fernando, Aliso Village                     0.5   $       62.50
10/12/00   Not detailed     Charged Pueblo twice on separate invoices       8.5   $    1,062.50
10/27/00   11:00a-12:00p    San Fernando, Aliso Village                       1   $      125.00
11/14/00   10:00a-10:30a    San Fernando, Aliso Village                     0.5   $       62.50
12/8/00    10:00a-10:45a    Jordan Downs, Aliso Village                   0.75    $       93.75
12/21/00   10:00a-2:00p     Jordan Downs, Aliso Village                       4   $      500.00

           Totals                                                       149.25 $      18,656.25




                                               41
                                                                  Appendix D

   HOUSING AUTHORITY OF THE CITY OF LOS ANGELES
       RESIDENT MANAGEMENT CORPORATIONS
CONSULTANT’S OVERCHARGES FOR ACCOUNTING SERVICES


 Accountant’s Billings to    Related Consultant           Overcharge
 Consultant for Resident     Billings to Resident         Markup by
Management Corporation Management Corporation             Consultant
          Work
Ck/Billing     Ck/Billing
   Date          Amt.
                             Date         Amount
 03/26/99    $    1,733.36 03/12/99     $ 2,233.36    $          500.00
 06/10/99    $      400.00 06/19/99     $    840.00   $          440.00
 06/29/99    $    1,050.00 07/19/99     $ 1,755.00    $          705.00
 07/06/99    $      550.00 06/19/99     $    924.00   $          374.00
 10/05/99    $    1,200.00 10/11/99     $ 2,025.00    $          825.00
 01/29/00    $    1,600.00 02/01/00     $ 2,700.00    $        1,100.00
 03/03/00    $    6,000.00 02/24/00     $ 9,420.00    $        3,420.00
 03/03/00    $      800.00 02/29/00     $ 2,850.00    $        2,050.00
 04/25/00    $      400.00 04/27/00     $    675.00   $          275.00
 06/08/00    $      800.00 06/08/00     $ 1,350.00    $          550.00
 07/18/00    $      400.00 07/06/00     $    675.00   $          275.00
 07/27/00    $      875.00 07/20/00     $ 1,500.00    $          625.00
 09/01/00    $      800.00 08/31/00     $ 1,350.00    $          550.00
 10/23/00    $      400.00 10/13/00     $ 1,350.00    $          550.00
 11/07/00    $      400.00
 11/09/00    $      492.22 01/04/01     $    819.30   $          327.08
 01/05/01    $    2,460.00 01/04/01     $ 4,099.00    $        1,639.00
 01/16/01    $      800.00 01/04/01     $ 1,350.00    $          550.00


  Total     $   21,160.58             $ 35,915.66     $       14,755.08




                                 42
                                                                               Appendix E

 SCHEDULE OF QUESTIONED COSTS AND FUNDS PUT TO BETTER USE



Recommendation                   Type of Questioned Cost                Funds Put to
   Number                 Ineligible 1/         Unsupported 2/           Better Use 3/

        1A                                               $844,750
        1B                       $451,055
        2A                        408,803
        2B                                                  49,842
        2C                         31,000


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 policies or regulations.

2/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program or
   activity, and eligibility cannot be determined at the time of audit. The costs are not
   supported by adequate documentation, or there is a need for a legal or administrative
   determination on the eligibility of the costs. Unsupported costs require a decision by
   HUD program officials. This decision, in addition to obtaining supporting
   documentation, might involve a legal interpretation or clarification of departmental
   policies and procedures.

3/ “Funds Put to Better Use” are costs that will not be expended in the future if our
   recommendations are implemented.




                                          43
                   Appendix F

AUDITEE COMMENTS




       44
45
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