oversight

The Housing Authority of the City of Pittsburgh, PA, Did Not Effectively Implement Its Moving to Work Demonstration Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2005-03-24.

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

                                                                 Issue Date
                                                                       March 24, 2005
                                                                 Audit Report Number
                                                                       2005-PH-1008




TO:         Milan M. Ozdinec, Deputy Assistant Secretary, Office of Public Housing
             Investments, PI



FROM:       Daniel G. Temme, Regional Inspector General for Audit, Mid-Atlantic Region,
              3AGA

SUBJECT: The Housing Authority of the City of Pittsburgh, PA, Did Not Effectively
           Implement Its Moving to Work Demonstration Program


                                   HIGHLIGHTS

 What We Audited and Why

             As part of our charter to review the U.S. Department of Housing and Urban
             Development’s (HUD) Public and Indian Housing programs, we audited the
             Housing Authority of the City of Pittsburgh’s (Authority) Moving to Work
             demonstration program to evaluate the effectiveness of the Authority’s
             implementation of the program.

 What We Found


             The Authority did not develop and implement an effective strategy to fully use the
             freedom and flexibility of the Moving to Work program. Since entering the
             program in November 2000, the Authority has accumulated more than $81.4
             million of HUD funds over the first 4 years of its 5-year Moving to Work
             agreement. We estimate the Authority will accumulate an additional $21.2
             million in the fifth and final year of its agreement. The audit showed the



                                             1
           Authority could more effectively use those funds to assist needy families through
           HUD’s traditional programs.

           The Authority’s original Moving to Work plan incorporated strategies to achieve
           the goals of the program. However, the Authority made a number of revisions to
           the plan and delayed implementing the plan. In the third year of the agreement,
           the Authority decided to operate its low-rent housing assistance programs under a
           conventional approach.

           Under the Authority’s Moving to Work agreement, HUD waived many of its
           traditional program requirements including those that would have ensured the
           Authority used HUD funds timely. The audit showed that without these
           traditional HUD requirements, the Authority did not plan or execute an adequate
           housing modernization program and it delayed using all of its available Section 8
           vouchers. Further, since the Authority lacked the capacity to implement both its
           modernization and replacement housing programs concurrently, it focused its
           efforts almost entirely on its replacement housing program. As a result, it
           accumulated funds that could be used to modernize its more than 6,700 low-rent
           housing units and provide housing to nearly 3,000 households on its Section 8 and
           low-rent waiting lists.

What We Recommend


           We recommend that HUD not renew or extend the Authority’s agreement beyond
           its scheduled termination date of December 31, 2005, and that HUD and the
           Authority work collaboratively to create a comprehensive workout plan to
           maximize the use of $78.7 million of capital funds and operating subsidies not
           used by the Authority while under Moving to Work. We also recommend that
           HUD initiate procedures to recapture $18.4 million of accumulated excess Section
           8 reserves from the Authority and direct the Authority to immediately begin
           leasing up its unused Section 8 vouchers, valued at $5.5 million.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We discussed the report with the Authority during the audit and at an exit
           conference on February 3, 2005. The Authority provided written comments to
           our draft report on March 2, 2005. The complete text of the Authority’s response,
           along with our evaluation of that response, can be found in Appendix B of this
           report.



                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                           4

Results of Audit

      Finding 1: The Authority Did Not Implement an Effective Strategy To Use the   5
      Freedom and Flexibility of the Moving to Work Program

Scope and Methodology                                                               13

Internal Controls                                                                   14

Appendixes
   A. Funds To Be Put to Better Use                                                 15
   B. Auditee Comments and OIG’s Evaluation                                         16
   C. Photographs From Physical Inspections                                         36




                                            3
                         BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Pittsburgh (Authority) was established as a public
corporation in 1937 under the Housing Authority Law of the Commonwealth of Pennsylvania to
provide decent, safe, and sanitary housing in the most efficient and economical manner, as
defined by its Annual Contributions Contracts with the U.S. Department of Housing and Urban
Development (HUD). A seven-member Board of Directors appoints the Authority’s Executive
Director and governs the Authority. The current Executive Director is Keith Kinard. The
Authority’s main administrative office is located at 200 Ross Street, Pittsburgh, PA.

In 1996, Congress authorized Moving to Work as a HUD demonstration program. The program
allowed certain housing authorities to design and test ways to promote self-sufficiency among
assisted families, achieve programmatic efficiency, reduce costs, and increase housing choice for
low-income households. Congress exempted the participants from much of the Housing Act of
1937 and associated regulations as outlined in the Moving to Work agreements. Participating
housing authorities have considerable flexibility in determining how to use Federal funds. For
example, participants may combine operating subsidies provided under Sections 8, 9, and 14 of
the U.S. Housing Act of 19371 to fund HUD-approved Moving to Work activities. Initially,
HUD’s Office of Policy, Programs, and Legislative Initiatives was responsible for implementing,
managing, and monitoring the program. In May 2002, HUD transferred the responsibility to the
Office of Public Housing Investments.

Initially, HUD selected participants based on management performance and potential to plan and
carry out a program under the demonstration. However, the Authority did not apply to HUD’s
initial solicitation. Rather, language in the Departments of Veterans Affairs and Housing and
Urban Development and Independent Agencies Appropriations Act of 1999 (Public Law 105-
276, 112 Stat. 2461), dated October 21, 1998, specifically named and authorized the Authority to
join the demonstration. In November 2000, HUD signed a 5-year Moving to Work agreement
with the Authority.2 The Agreement gave the Authority flexibility in using Federal funds, did
not require the Authority to return unused funds, and significantly reduced HUD’s oversight. On
October 15, 2004, the Authority submitted a request to HUD for a 5-year extension of its Moving
to Work agreement. For years 2001 to 2004, HUD provided the Authority $293 million of
financial assistance under its Moving to Work agreement. HUD provided

    •    $116.4 million of operating subsidy funds,
    •    $68.6 million of capital improvement funds, and
    •    $108 million of rental voucher housing funds.

The overall objective of our audit was to evaluate the effectiveness of the Authority’s
implementation of the Moving to Work program.

1
  Funds provided under Section 8 are for rental housing assistance, Section 9 funds are for housing authority
operations, and Section 14 funds are for public housing modernization.
2
  The term of the agreement is five years commencing on January 1, 2001, the start of the Authority’s next fiscal
year.



                                                         4
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Implement an Effective Strategy To
Use the Freedom and Flexibility of the Moving to Work Program
The Authority did not implement a workable strategy for a successful Moving to Work program
and could better use $102.6 million by reverting to traditional HUD programs. The Authority
did not use the freedom and flexibility of Moving to Work to design and implement plans to
achieve the larger goals of the program. This occurred because the Authority’s leadership
changed during the term of its Moving to Work agreement, resulting in a major shift in the focus
of the program. Additionally, the Authority lacked the capacity to implement both its
modernization and replacement housing programs concurrently. As a result, it accumulated
funds that it could have used to modernize its more than 6,700 low-rent housing units and
provide housing to nearly 3,000 households on its Section 8 and low-rent waiting lists.




 Authority Did Not Use the
 Flexibility the Program
 Provided


             From 2001 through 2004, the Authority was not able to successfully develop and
             implement a workable strategy to take advantage of the freedom and flexibility
             available under the Moving to Work demonstration program to design and test
             innovative ways to promote self-sufficiency among assisted families, achieve
             programmatic efficiency, reduce costs, and increase housing choice for low-income
             households. Instead, the audit showed the Authority is operating traditional housing
             assistance programs that neither use nor require the freedom and flexibility of
             Moving to Work. Further, although the Authority has reverted to traditional
             programs, it has had difficulty implementing those programs as well.

             The Authority’s leadership changed during the term of its Moving to Work
             agreement, and with it came a major shift in the focus of the program. Contrary to
             the approach taken by its predecessors, the new leadership took a more traditional
             view of providing housing assistance to moderate- and low-income families. For
             example, the Authority decided not to pursue the core component of its original
             plan, which was to create a separate nonprofit entity to manage its properties.
             Rather, the Authority believed that it could more effectively deliver all of the
             required property management services and that it was not necessary to contract for
             property management.




                                               5
Authority Accrued $56.8
Million by Not Modernizing
Public Housing


          The audit showed the Authority accumulated $56.8 million in capital funds because
          it planned and executed only a minimal housing modernization program starting in
          2001. Although the Authority increased its planned modernization in the third year
          of the agreement, it did not spend the modernization funds in accordance with its
          plans. Congress exempted the Authority from much of the Housing Act of 1937
          and associated HUD regulations as outlined in its November 17, 2000, Moving to
          Work agreement. The Authority had considerable flexibility in using its Federal
          funds. It could combine subsidies provided under Sections 8, 9, and 14 of the U.S.
          Housing Act of 1937 to fund HUD-approved Moving to Work activities. Rather
          than putting the funds to work to assist families in need of housing, however, the
          Authority allowed its modernization program to stagnate.

          The relaxation of requirements under Moving to Work allowed the Authority to
          plan and execute a minimal modernization program without penalty. Under normal
          procedures, HUD generally would have required the Authority to obligate its
          modernization funds within 2 years from the date of the grant and spend the funds
          within 4 years of that date. HUD normally assesses housing authorities a 1-month
          penalty for violating the 2-year obligation rule. Rather than modernize, the
          Authority concentrated on using funds that HUD provided for replacement housing.
          These funds were subject to HUD’s normal obligation and expenditure rules. The
          following chart illustrates the Authority’s usage of replacement housing funds that
          HUD provided in years 2001 through 2004.


                             Replacement Housing Fund Usage
                                      as of 9/30/04

            $8,000,000

            $6,000,000
                                                                   Grant amount
            $4,000,000
                                                                   Amount disbursed
            $2,000,000

                   $0
                          2001      2002          2003   2004
                                           Year



          The following chart illustrates the Authority’s usage of capital funds HUD provided
          for years 2001 through 2004.




                                             6
                                Capital Fund Use as of 9/30/04

             $20,000,000

             $15,000,000

             $10,000,000                                             Grant amount
                                                                     Amount disbursed
              $5,000,000

                     $0
                            2001      2002          2003   2004
                                             Year



          As shown in the charts, starting in 2001, the Authority concentrated its focus on its
          replacement housing funds and did not use $56.8 million of capital funds HUD
          provided.

Condition of the Authority’s
Public Housing Was Poor


          Although the Authority had the flexibility to use HUD funds in innovative ways, it
          accumulated large surpluses of these funds despite the fact that many of its public
          housing developments needed repairs. In 2003, HUD’s Real Estate Assessment
          Center conducted physical inspections of the Authority’s 44 developments and
          assigned scores below 70 out of a possible 100 points to 16 of the 44 developments
          (36 percent) under the Public Housing Assessment System. These low scores
          indicated the condition of the housing units was not good. The following chart
          shows the physical assessment scores for these developments for 2003.




                                               7
                                 Property                   Units       2003 Score
                             Addison Terrace                 775            69
                            Northview Heights                666            68
                             St. Clair Village               635            69
                             Garfield Heights                588            67
                            Bedford Dwellings
                            (project ID #1002)              417             62
                       Hamilton-Larimer/Auburn *            322             41
                           Allegheny Dwellings              281             68
                            Addison Addition                186             69
                            Bedford Dwellings
                            (project ID #1008)              185             50
                            Homewood North                  135             67
                       Glen Hazel Heights Low Rise          104             61
                              Scattered Sites
                            (project ID #1022)               82             60
                            Broadhead Manor                  63             68
                              Scattered Sites
                            (project ID #1039)               59             56
                          Glen Hazel Heights *               39             60
                              Scattered Sites
                            (project ID #1050)               25             54

                      * development scheduled for demolition


                  We performed physical inspections of 23 low-income housing units located in 4 of the
                  developments listed above, which were not scheduled for demolition, and noted
                  serious deficiencies in 10 of the 23 units inspected (43 percent). We noted numerous
                  instances in which units were run down and an excessive number of units that were
                  vacant and boarded up. Our inspections further demonstrated that many of the
                  Authority’s developments were in need of repair. Appendix C contains photographs
                  from our physical inspections documenting the conditions we found.

                  The Authority's lack of attention to its housing modernization program may constitute
                  substantial default of its Consolidated Annual Contributions Contract 4 with HUD.
                  The Consolidated Annual Contributions Contract requires the Authority to carry out
                  modernization in a timely, efficient, and effective manner and to maintain and operate
                  its projects in a decent, safe, and sanitary manner. The Authority’s Moving to Work
                  agreement superseded the terms and conditions of its Annual Contributions Contracts
                  but only to the extent necessary for the Authority to implement its Moving to Work

4
    Part B, section 17, “Notices, Defaults, Remedies”


                                                        8
               plan. Therefore, although the Authority was participating in Moving to Work, it was
               also bound by the terms of its Consolidated Annual Contributions Contract with HUD
               to sustain its housing modernization program.


    Authority Accumulated $26.9
    Million Needed To Assist Low-
    Income Families


               The Authority increased its Section 8 and operating fund reserve accounts by $26.9
               million from 2001 through 2004. In large part, the Authority accumulated these large
               reserves because it did not fully use all of the Section 8 vouchers that HUD provided.
               The Authority did not lease up about 1,300 vouchers despite the fact that there were
               more than 1,700 families on its Section 8 waiting list and more than 6,600 habitable,
               vacant rental units in the Pittsburgh metropolitan area.5 Rather than allowing those
               funds to accumulate, the Authority could have used them to assist low-income
               families. Similarly, the Authority did not use all of the operating funds HUD
               provided. The following chart shows the balances in the Authority’s operating and
               Section 8 reserve accounts for 2001 through 2004 and the Authority’s projection for
               2005.6


                                            Reserve Balances as of 12/31

                   $25,000,000

                   $20,000,000
                                                                                          Public Housing
                   $15,000,000
                                                                                          reserves
                   $10,000,000                                                            Section 8 reserves

                     $5,000,000

                              $0
                                    Beg. 2001 2002 2003 2004 2005
                                    bal.



               As the chart above also shows, the Authority’s reserve fund balances increased
               significantly while the Authority was under Moving to Work. Under the
               agreement, the Authority does not have to abide by HUD’s Section 8 reserve
               account limits, which, in 2004, limited the Authority to a Section 8 reserve equal to

5
  Source: U.S. Census Bureau, Census 2000. The actual number of potential units will be less because not all of the
units will meet HUD’s housing quality standards and some landlords may not choose to participate in the program.
6
  Source: Authority’s 2001 through 2005 Moving to Work plans and reports.


                                                         9
         one-twelfth of the annual subsidy. HUD does not limit housing authority operating
         fund reserves. Therefore, considering the Authority had complete freedom and
         flexibility to use all of the funds HUD provided under Moving to Work we
         conservatively estimated that the amount of excess reserves the Authority
         accumulated under the program was $24.6 million.


The Authority Lacked Capacity
To Execute Its Programs


         We believe the Authority lacked the capacity to implement its various low-income,
         modernization, and replacement housing programs concurrently. The Authority did
         not hire staff to replace the personnel it lost after it developed its original Moving to
         Work plan. Further, the Authority’s overall staffing has been on the decline. It had
         593 employees as of December 2002 and 557 employees as of September 2004.
         Moreover, the Authority has not filled the position of Chief Operating Officer,
         which has been vacant since February 2004. Also, because of the limited expertise
         available in-house, the Authority had to hire outside consultants to implement
         significant components of its revised Moving to Work plans. However, it hired the
         outside consultants in June 2004, 3½ years into the Authority’s 5-year Moving to
         Work agreement.

HUD’s Consultant Noted
Similar Deficiencies



         HUD hired a consulting firm to conduct onsite monitoring reviews of the Authority’s
         Moving to Work program. Based on its November 2003 onsite monitoring visit, the
         firm reported to HUD that the Authority was doing little that it could not do without
         Moving to Work. The consultant reported the Authority did not

             •   Develop a definitive plan of action to address distressed and high-capital need
                 projects over the next 5 years,
             •   Correct major deficiencies with respect to the delivery of effective and
                 efficient property management services,
             •   Prevent its operating costs from being substantially higher than the other
                 providers of subsidized housing in the area,
             •   Develop a unique case management plan in either the resources committed or
                 in the program structure, and
             •   Demonstrate it leveraged the potential freedoms under Moving to Work to
                 advance the Authority’s larger goals.




                                             10
HUD Funds Totaling $102.6
Million Could Be Put to Better
Use


        By taking steps now and transitioning the Authority back to normal HUD program
        rules and regulations as quickly as possible, funds totaling $102.6 million can be put
        to better use; that is, $81.4 million of funds already made available to the Authority
        under Moving to Work but not used and $21.2 million of additional funds we
        estimated HUD will provide the Authority in 2005, the fifth and final year of the
        Authority’s Moving to Work agreement. The audit demonstrated the need for the
        Authority to upgrade and improve its housing stock using the funds HUD provided.
        The Authority needs to aggressively address its distressed housing developments and
        ensure it fully uses its Section 8 vouchers to assist families in need. The following
        table shows the details of funds that the audit showed could be put to better use.

                                      Amount
              Fund Type             (in Millions)                Source
                Capital                   $56.8            Accumulated from
                                                              2001–2004
               Section 8                  $18.4            Accumulated from
                                                              2001–2004
               Operating                  $ 6.2            Accumulated from
                                                              2001–2004
                Capital                   $15.7             2005 block grant
                                                           (estimate based on
                                                               2004 grant)
               Section 8                  $ 5.5                 2005 grant
                                                           (estimate based on
                                                             the Authority’s
                                                            action to lease up
                                                              1,031 unused
                                                                vouchers)
                 Total                    $102.6


Recommendations


            We recommend that the Office of Public Housing Investments:




                                            11
1A.   Not renew or extend the Authority’s agreement beyond its scheduled
      termination date of December 31, 2005.

1B.   Work collaboratively with the Authority to develop a comprehensive
      workout plan to immediately transition the Authority from Moving to
      Work. The comprehensive plan should include targeting specific housing
      developments for renovation, rehabilitation, and/or demolition; specific
      timelines for implementation; a definite completion date; limited
      fungibility; and the recapture of any unused funds, thereby putting $78.7
      million of funds to better use.

1C.   Recapture accumulated excess Section 8 reserves and, thereby, put $18.4
      million of funds to better use.

1D.   Direct the Authority to immediately begin leasing up its unused Section 8
      vouchers and, thereby, put $5.5 million of funds to better use.

1E.   Evaluate the Authority’s staffing to determine if it has the capacity to
      simultaneously carry-out its HUD programs, and if not, take appropriate
      corrective actions.




                               12
                         SCOPE AND METHODOLOGY

We performed the audit of the Authority from May 2004 through February 2005. The audit was
conducted in accordance with generally accepted government auditing standards and included tests
of internal controls that we considered necessary under the circumstances.

The audit covered transactions representative of operations current at the time of the audit and
included the period January 2000 through June 2004. We expanded the scope of the audit as
necessary. We reviewed applicable guidance and discussed operations with management and
staff personnel at the Authority and key officials from HUD’s Pittsburgh area office.

To determine that the Authority did not effectively implement its Moving to Work program we

    •   Reviewed HUD’s Moving to Work agreement with the Authority.

    •   Reviewed the Authority’s Annual Moving to Work plans for years 2001 through 2005 and
        its Moving to Work reports for years 2001 through 2003.

    •   Interviewed Authority personnel.

    •   Reviewed files, records, plans, and other reports maintained by the Authority.

    •   Reviewed Real Estate Assessment Center inspection summary reports and performed
        physical inspections of 23 units at four Authority-owned low-income housing projects.

    •   Interviewed personnel from HUD’s Office of Public Housing Investments.

    •   Interviewed representatives from the consulting firm hired by HUD to provide support
        services, including review and comment on the Authority’s Moving to Work annual
        plans and reports and onsite monitoring services.

    •   Reviewed files, records, plans, and other reports maintained by HUD.

    •   Interviewed a key former Authority employee who was instrumental in the development
        of the Authority’s initial Moving to Work plan.




                                                13
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


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

              •       Policies, procedures, control systems, and other management tools the
                      Authority established to effectively implement its Moving to Work program.

              We assessed the relevant controls identified above.

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

 Significant Weaknesses


              Based on our review, we believe the following item is a significant weakness:

              •       The Authority did not establish adequate controls to ensure it effectively
                      implemented its Moving to Work program.




                                               14
                                 Appendixes
Appendix A

                  FUNDS TO BE PUT TO BETTER USE

                           Recommendation        Funds To Be Put
                                 Number           to Better Use 1/
                                          1B          $78,700,000
                                          1C          $18,400,000
                                          1D           $5,500,000
                                        Total        $102,600,000



1/   “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
     Office of Inspector General (OIG) recommendation is implemented, resulting in reduced
     expenditures at a later time for the activities in question. This includes costs not incurred,
     deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of
     unnecessary expenditures, loans and guarantees not made, and other savings.




                                                15
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1
Comment 2
   “
   “
   “
   “
   “
   “




                         16
Comment 3




Comment 2




Comment 4




    “




            17
Comment 5


    “




    “




    “




    “


    “

    “




            18
Comment 5




    “




    “


    “




    “




    “




            19
Comment 5


    “




    “




    “




    “

    “

Comment 6

    “
    “




            20
Comment 6

Comment 7




    “



Comment 8


Comment 9



    “




    “




            21
Comment 9

    “




Comment 10




Comment 11




Comment 12


Comment 13




             22
Comment 10




Comment 14




Comment 15



    “


Comment 16




Comment 17




             23
Comment 18




    “


    “




    “




    “


Comment 19




             24
Comment 19




Comment 2




Comment 20




             25
Comment 20




Comment 21




    “



    “




    “




             26
Comment 22




Comment 23




Comment 24



    “



Comment 25




Comment 1




             27
Comment 2

     “

     “


     “

Comment 23




             28
Comment 10




             29
Comment 10


                  C




             30
                        OIG’s Evaluation of Auditee Comments


Comment 1   Under the Moving to Work program, Congress exempted the Authority from
            much of the Housing Act of 1937 and associated HUD regulations as outlined in
            its November 17, 2000, Moving to Work agreement. Our audit objective
            therefore, was not to evaluate compliance, but to evaluate the effectiveness of the
            Authority’s implementation of the Moving to Work program. In response to our
            audit objective, we concluded that the Authority did not implement a workable
            strategy for a successful Moving to Work program and could better use $102.6
            million by reverting to traditional HUD programs.

Comment 2   The Authority did not provide adequate evidence to support these statements.
            Contrary to the Authority’s assertion, we have a full understanding of the
            Authority’s planned strategies. However, the audit evidence showed that none of
            the Authority’s strategies were effectively implemented. In addition, a recent
            November 2004 monitoring review from HUD’s consultants continued to support
            our audit findings that the Authority has taken little advantage of opportunities for
            creativity and flexibility available under the program. The consultant concluded
            that, as the Authority enters its final year under its 5-year Moving to Work
            agreement, most elements of its capital program remain well behind schedule, few
            innovative operational changes have been implemented, and no meaningful
            planning for the transition from the program appears to have occurred.

Comment 3   Determining funds put to better use is a matter of professional audit judgment
            based on the audit evidence. The audit concluded based on the audit evidence
            that the Authority did not implement a workable strategy for a successful Moving
            to Work program and could better use $102.6 million by reverting to traditional
            HUD programs. The audit also concluded the Authority accumulated funds that it
            could have used to modernize its more than 6,700 low-rent housing units and
            provide housing to nearly 3,000 households on its Section 8 and low-rent waiting
            lists. The report does not opine that the best use of funds is modernization and
            leasing up vouchers as stated in this reply. It is our professional audit judgment
            however, that using HUD funds to modernize and provide housing to needy
            families is substantially preferable to the Authority’s current practice of
            accumulating funds without a workable strategy to use them effectively.

Comment 4   The Authority cites several factors that it believes were beyond its control that
            caused it to delay implementing the Moving to Work program. None of the
            factors cited in any way justify the Authority’s inability to implement a workable
            strategy for a successful Moving to Work program over a 4-year period. Many of
            the issues the Authority cited are relatively minor, and others were definitely
            within its control. For example, it was within the Authority’s control to propose
            its initial plans, and it was within the Authority’s control to modify them in year-
            3. In addition, it is incomprehensible that the Authority would cite our audit, or
            brief visits by the HUD consultant, as justification for not adequately
            implementing its program. The Authority had a window of opportunity, which it


                                             31
            did not adequately use as evidenced by the significant amount of funds it
            accumulated. An extension to the Authority’s Moving to Work agreement is not
            justified based on the Authority’s lack of performance under the previous 5-year
            agreement. On the contrary, the Authority needs to begin working collaboratively
            with HUD to develop a comprehensive workout plan to immediately transition
            from Moving to Work.

Comment 5   Our audit objective did not require us to perform a detailed comparison of the
            Authority’s original Moving to Work plan to the one it proposed in year-3.
            Rather, our audit objective was to evaluate the overall effectiveness of the
            Authority’s implementation of the Moving to Work program. The audit showed
            that neither plan was adequately implemented. Regardless of the merits of each
            plan, our audit showed that overall the Authority did not implement a workable
            strategy for a successful Moving to Work program.

Comment 6   Although the Authority hadn’t passed the traditional deadline for expenditures of
            its capital funds, our audit showed it missed the deadline for obligating those
            funds from 2001 and 2002, and the Authority was not likely to meet the
            obligation deadline for its capital funds from 2003. These funds would have been
            subject to a penalty. Under traditional procedures, HUD would have required the
            Authority to obligate its modernization funds within 2 years from the date of the
            grant. Under traditional procedures, HUD would have also assessed the Authority
            a 1-month penalty for violating the 2-year obligation rule.

Comment 7   Our audit objective was to evaluate the effectiveness of the Authority’s
            implementation of its Moving to Work program. Therefore, we did not perform a
            detailed review of funds that were not applicable to the program. However, we
            acknowledge the Authority expended substantial capital funds that HUD provided
            prior to its participation in the Moving to Work program.

Comment 8   In order to quantify the effect of the Authority’s inability to implement a
            workable strategy for a successful Moving to Work program, it was necessary to
            calculate the amount of funds it had unnecessarily accumulated while under the
            program. Under traditional procedures, HUD would have assessed the Authority
            a penalty for not obligating capital funds within 2 years from the date of the grant.
            This penalty would have applied to years 2001 and 2002 and would have likely
            applied to 2003. The audit concluded the Authority could have used these funds
            to modernize its more than 6,700 low-rent housing units and provide housing to
            needy families.

Comment 9   The audit clearly showed the Authority concentrated its activity on using
            replacement housing factor funds, which were subject to HUD’s normal rules and
            regulations. The modernization funds provided under Moving to Work were not
            subject to HUD’s normal rules and regulations. While the Authority planned to
            use increased levels of modernization funds in 2003, 2004 and 2005, the audit
            found that as of September 2004 it had not done so.




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Comment 10 As our report illustrates, the Authority did not place a high emphasis on using its
           available funding to modernize its existing projects. For example, the Authority
           had not obligated or used the majority of its available capital funds since 2001 and
           as result accumulated more than $56 million of capital funds from 2001 through
           2004. It will also likely accumulate another $15 million in 2005. We listed the
           inspection scores for 16 of the Authority’s 44 projects to simply illustrate that
           many projects are in need of repair and, as appropriate, should be modernized
           with the capital funds HUD provided the Authority.

              We did not intend to imply the physical inspection scores were the sole indicator
              as to whether a project should be modernized or not. The Authority has a
              responsibility to ensure all occupied projects meet HUD’s minimum standards at
              all times by routinely maintaining the units. However, when items that ordinarily
              would be performed on a regular basis in the upkeep of a property become
              substantial, modernization of the property should be considered. Further, by
              performing routine maintenance, and paying close attention to exigent health and
              safety deficiencies, an Authority can certainly significantly improve its inspection
              scores on its properties; however, the property may still be a good candidate for
              modernization.

              Also, the scoring methodology HUD uses to assess the physical condition of a
              unit/property has changed a number of times since 2000. As such the scores in
              and by themselves may not be a good indicator as to whether the overall condition
              of a property has improved or declined from year to year. For example, in 2002,
              the inspectable areas were reduced from five to two. This change caused property
              scores to fluctuate significantly. The fact remains that HUD provided significant
              modernization funds to the Authority that it failed to use to make much needed
              physical improvements to existing public housing units and for improvements to
              its management and operational practices.

Comment 11 Our report states the Authority’s units are in poor condition, but does not
           direct the Authority to modernize these communities. Our inspections merely
           validated the fact that many of the projects administered by the Authority were in
           need of repair and may be good candidates for modernization. We recommended
           that HUD and the Authority work together to develop a comprehensive workout
           plan but did not recommend how the funds should be spent. Further, we used a
           July 29, 2004, Moving to Work Implementation Status Report, provided to us by
           the Authority, to identify the developments scheduled for demolition. The report
           did not show the Bedford Dwellings Addition development was scheduled for
           demolition.

Comment 12 Contrary to the Authority’s statement, only one photo presented in the report was
           from a vacant unit. Nevertheless, the photographs merely provided examples of
           the poor conditions we observed.

Comment 13 The report does not direct the Authority to modernize these units or modernize in
           general. The photos merely document conditions we observed; that the
           Authority’s housing developments were in need of repair.


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Comment 14 According to Section 17 (B) of the Annual Contributions Contract, failure to carry
           out modernization in a timely, efficient, and effective manner may be grounds for
           default of the contract. Modernization should be an ongoing activity. Although
           the Authority states that its physical assessment scores are passing scores, some of
           the Authority’s properties did not in fact have passing scores. Moreover, low
           scores in 2003 for 16 of its 44 developments indicated the overall condition of the
           housing units was not good. Lastly, the Authority should not be satisfied with
           scores that are merely passing, especially in light of the fact that significant HUD
           funds were available to improve its developments.

Comment 15 The statements made in the report are accurate. The Authority accumulated
           reserves in large part because it did not fully use all of the Section 8 vouchers and
           funding that HUD provided. Further, the Authority did not provide adequate
           evidence to support its statement that it was serving 5,219 families with Section 8
           vouchers as of February 2005.

Comment 16 The Bureau of the Census categorized the units as habitable. As noted in the audit
           report, we acknowledge that some of the units may not be desirable for Section 8
           tenants. However, the Authority provided no evidence to support its assertion that
           the majority of the housing units in the City of Pittsburgh are not favorable for
           leasing under the Section 8 Program.

Comment 17 Under Moving to Work, the Authority had flexibility to use operating fund
           reserves to help families in need of assistance. The accumulation of $81.4 million
           over the first 4 years of its Moving to Work agreement and possibly another $21.2
           million in the final year of its agreement indicated the Authority was not
           adequately serving the families it was intended to serve. In addition, the
           Authority’s claim that it accumulated the funds as a result of prudent trimming of
           excess costs, careful planning, and will result in benefiting low-income families in
           Pittsburgh for decades is unsupported.

Comment 18 Our audit showed that none of the Authority’s strategies, regardless of
           terminology, were effectively implemented. Further, most of the Authority’s
           claims that it proceeded with its efforts to reorganize, streamline operations, and
           address weaknesses over the years is inaccurate and misleading. As the audit
           demonstrated, the Authority was not able to develop and implement a workable
           Moving to Work strategy during its first 4 years under the program and in fact
           significantly revised its Moving to Work plan several times. As such it is
           understandable why the Authority had a difficult time in deciding what positions
           were needed to implement its Moving to Work program. The fact that the
           Authority created a number of positions in early 2004 does not demonstrate it was
           based on a well thought out strategy nor that it will be effective in moving its
           program forward. Also, it should be noted that HUD’s consultant concluded the
           Authority lacked the capacity to carry out a successful program.

Comment 19 The fact that the Authority claims it hired an outside consultant in April 2001 is
           irrelevant. The Authority significantly revised its Moving to Work plan in 2003.
           Further, as the Authority acknowledged, it only recently procured the services of


                                               34
              two firms in June 2004. This was well into its fourth year of its Moving to Work
              agreement with HUD.

Comment 20 Determining funds put to better use is a matter of professional audit judgment
           based on the audit evidence. Accumulating significant amounts of funds in an
           environment of unprecedented freedom and flexibility does not adequately serve
           families in need of housing assistance in the Pittsburgh area. The Authority
           accumulated $81.4 million over the first 4 years of its Moving to Work agreement
           and may accumulate another $21.2 million in the final year of its agreement. We
           recommended the Authority use these funds to assist families by working
           collaboratively with HUD to develop a comprehensive workout plan to
           immediately transition the Authority from Moving to Work.

Comment 21 It is not prudent to extend the agreement for another 5 years considering the
           Authority’s lack of progress in its first 5 years. Over the first 4 years, the
           Authority accumulated $81.4 million, and it may accumulate another $21.2
           million in the final year of its agreement. As an alternative, we recommend the
           Authority keep most of the available funds, because there is a need, and work
           collaboratively with HUD to put the funds to use as quickly as possible; certainly
           within an additional 5 years because there are families waiting for assistance.

Comment 22 The Authority believes the results of the review actually support its request for an
           extension to its agreement. However, the audit showed the Authority does not
           need the freedom and flexibility of Moving to Work to execute the program it’s
           set forth. Moreover, given the freedom and flexibility, the Authority did not use
           $81.4 million of HUD funds to assist families in need of housing and it may
           accumulate another $21.2 million in the final year of its agreement.

Comment 23 As we point out in our report the Authority has not been able to develop and
           implement a workable strategy during its first 4 years under its 5-year agreement,
           and has in fact significantly changed its strategy a number of times. The mere fact
           the Authority developed another plan does not guarantee it will be successful. A
           comprehensive workout plan needs to be coordinated with and approved by HUD.

Comment 24 The Authority did not provide adequate evidence to support these statements.
           Nevertheless, the Authority accumulated large reserves because it did not fully
           use all of the Section 8 vouchers and funding that HUD provided.

Comment 25 The Authority did not provide adequate evidence to support these statements.
           Further, the Authority needs to work collaboratively with HUD to evaluate its
           capacity and take appropriate actions as needed.




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Appendix C

     PHOTOGRAPHS FROM PHYSICAL INSPECTIONS




              Damaged Refrigerator (St. Clair Village)




              Damaged Kitchen Area (St. Clair Village)




                                  36
Damaged Bathroom Ceiling (Garfield Heights)




   Damaged Bathtub (Garfield Heights)




                    37
Peeling Paint on Ceiling (Garfield Heights)




 Damaged Wall (Addison Terrace)




                   38
  Damaged Kitchen Cabinet (St. Clair Village)




Boarded-up Housing Units (St. Clair Village)




                      39