oversight

Benton Harbor Housing Commission; Benton Harbor, Michigan; The Commission Lacked Supporting Documentation and Did Not Follow Procurement Requirements Regarding Its Public Housing Capital Fund Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-05-18.

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

               AUDIT REPORT




     BENTON HARBOR HOUSING COMMISSION
    PUBLIC HOUSING CAPITAL FUND PROGRAM

            BENTON HARBOR, MICHIGAN

The Commission Lacked Supporting Documentation and Did
Not Follow Procurement Requirements Regarding Its Program

                     2006-CH-1010

                     MAY 18, 2006

                OFFICE OF AUDIT, REGION V
                    CHICAGO, ILLINOIS
                                                               Issue Date
                                                                        May 18, 2006
                                                               Audit Report Number
                                                                            2006-CH-1010




TO:        Robert E. Nelson, Director of Public Housing Hub, 5FPH


FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: Benton Harbor Housing Commission; Benton Harbor, Michigan; The
           Commission Lacked Supporting Documentation and Did Not Follow
           Procurement Requirements Regarding Its Public Housing Capital Fund
           Program

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Benton Harbor Housing Commission’s (Commission) Public
             Housing Capital Fund program (program). The audit was conducted based upon a
             request from the U.S. Department of Housing and Urban Development’s (HUD)
             Detroit Office of Public Housing. Our objectives were to determine whether the
             Commission operated its program in a manner that provides reasonable assurance
             that (1) expenditures were adequately supported and eligible and (2) procurement
             transactions met the Commission’s and HUD’s requirements.

 What We Found


             The Commission lacked documentation to support more than $200,000 in
             program expenditures and improperly used $500 in program funds to pay
             expenses related to its Housing Choice Voucher program. Further, the
             Commission’s procurement activities were not conducted according to its and
             HUD’s requirements. These deficiencies existed because the Commission failed
             to implement adequate procedures and controls, and the Commission’s board of
             commissioners (board) did not exercise appropriate oversight of the program.
           We informed the Commission’s acting executive director and the director of
           HUD’s Detroit Office of Public Housing of minor deficiencies through a
           memorandum dated May 5, 2006.

What We Recommend


           We recommend that the director of HUD’s Detroit Office of Public Housing
           require the Commission to (1) provide documentation to support the unsupported
           expenditures or reimburse its program from nonfederal funds for the applicable
           portion (2) provide documentation that it reimbursed its program from its Section 8
           housing administrative fees for the improper payment of expenses related to its
           Housing Choice Voucher program, and (3) implement adequate procedures,
           controls, and board oversight to correct the weaknesses cited in this report.

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

Auditee’s Response


           We provided our discussion draft audit report to the Commission’s acting executive
           director, its board president, and HUD’s staff during the audit. We held an exit
           conference with the Commission’s acting executive director on April 27, 2006. We
           asked the Commission’s acting executive director to provide comments on our
           discussion draft audit report by May 4, 2006.

           The Commission’s acting executive director provided written comments, dated
           May 2, 2006. The acting executive director agreed with our findings, and agreed
           to implement procedures and controls to address our findings. The complete text
           of the auditee’s response can be found in appendix B of this report.




                                            2
                             TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
        Finding 1: The Commission Lacked Supporting Documentation and Improperly
                   Used Program Funds                                              5
        Finding 2: The Commission’s Procurement Activities Were Not Conducted
                   According to Its and HUD’s Requirements                         9

Scope and Methodology                                                              14

Internal Controls                                                                  15

Followup on Prior Audits                                                           17

Appendixes
   A.   Schedule of Questioned Costs                                               18
   B.   Auditee Comments                                                           19
   C.   Federal Requirements and Commission’s Procurement Policy                   23
   D.   Summary of Services Procured and Related Payments                          25




                                            3
                     BACKGROUND AND OBJECTIVES

The Benton Harbor Housing Commission (Commission) was created for the purpose of
providing decent, safe, and sanitary living conditions for low-income individuals. It was
organized under the laws of the State of Michigan. A five-member board of commissioners
(board) oversees the Commission. The executive director is responsible for managing the
Commission’s day-to-day operations.

The Commission manages 370 federally assisted low-income housing units in three complexes
and scattered sites. It also manages 128 Section 8 Housing Choice Voucher units. In its annual
contributions contract with the U.S. Department of Housing and Urban Development (HUD), the
Commission agreed to operate each project solely for the purpose of providing decent, safe, and
sanitary housing for eligible families in a manner that promotes serviceability, economy,
efficiency, and stability of its projects.

The Public Housing Capital Fund program (program) is administered by HUD’s Office of Public
and Indian Housing’s Office of Capital Improvements. Capital funds are for the development,
financing, and modernization of public housing developments and for management
improvements. The Public Housing Reform Act of 1998 converted HUD’s Comprehensive
Grant and Comprehensive Improvement Assistance programs to the Public Housing Capital
Fund program.

HUD awarded the Commission more than $2.6 million in program grants for fiscal years 2002
through 2005. As of March 3, 2006, the Commission had drawn down more than $1.4 million in
program funds.

Between July and September 2004, HUD assessed the Commission’s public housing
performance based upon HUD’s regulations at 24 CFR [Code of Federal Regulations] Part 902
and gave the Commission a score of less than 60, making the Commission a “troubled” agency.
A consulting firm, MDStrum Housing Services, Inc., conducted an assessment of the
Commission from March 28 through April 1, 2005, to identify key issues/problems or concerns
affecting the Commission. As a result of these assessments, HUD executed memorandums of
agreement with the Commission, dated October 2004 and August 2005, requiring it to improve
its score to 60 or above.

Our objectives were to determine whether the Commission operated its program in a manner that
provides reasonable assurance that (1) expenditures were adequately supported and eligible and
(2) procurement transactions met its and HUD’s requirements.




                                               4
                               RESULTS OF AUDIT

Finding 1: The Commission Lacked Supporting Documentation and
                  Improperly Used Program Funds
The Commission lacked documentation to support $206,224 in program expenditures and
improperly used $500 in program funds to pay expenses related to its Section 8 Housing Choice
Voucher program. These problems occurred because the Commission did not implement
adequate procedures and controls over program disbursements. As a result, HUD and the
Commission lack assurance that program funds were efficiently and effectively used.



 The Commission Lacked
 Support for More Than
 $200,000 in Program Funds
 Disbursed

              The Commission was unable to support the use of funds from its program. It
              lacked support for its use of $206,224 from its fiscal year 2002 program. The
              Commission’s former executive director requisitioned the funds via voucher
              #092-223370 from HUD’s Line of Credit Control System on April 2, 2005, and
              the funds were deposited into the Commission’s operating account. In April
              2005, the Commission prepared three checks totaling $199,896 to be paid from
              the $206,224 in program funds. The three checks were payable to First
              Contracting, Inc., a window and carpet replacement contractor; however, the
              checks were voided at HUD’s request.

              All funds drawn under any housing program, except for the Housing Choice
              Voucher program, are deposited in the Commission’s operating account and then
              transferred to accounts designated for the Commission’s various programs. The
              Commission continued disbursing funds from its operating account without
              transferring the April 2005 draw to its program account thereby expending the
              $206,224 in fiscal year 2002 program funds. The Commission was unable to
              provide supporting documentation for the use of the draw. As a result, it could
              not support whether the $206,224 was used in accordance with HUD’s
              requirements.

 An Improper Expense Was
 Charged to the Program


              Contrary to HUD’s regulations, the Commission charged an improper expense of
              $500 to its program. It inappropriately used $500 in program funds to pay for



                                              5
          consulting services that directly benefited its Housing Choice Voucher program.
          Regulations at 24 [Code of Federal Regulations] 968.112(n)(3) provide that when
          physical or management improvement would benefit programs other than public
          housing, such as the Housing Choice Voucher program, eligible costs should be
          limited to the amount directly attributable to the public housing program.

          The Commission paid a consultant, Management Resource Group Inc., $1,400 for
          submission of updated utility allowance estimates for its public housing ($900)
          and Housing Choice Voucher ($500) programs. According to a HUD public
          housing engineer at the Detroit Office of Public Housing, the Commission could
          charge disbursements made to the consultant to its program under budget line
          items 1408 or 1410, management improvement or administration, respectively, as
          long as the services were related to public housing activities. However, the
          portion of the disbursement to the consultant related to the Housing Choice
          Voucher program was not eligible; that portion should have been paid with funds
          from the Commission’s Section 8 administrative fees.

The Commission Did Not
Always Comply with Its
Controls


          The Commission did not always properly implement its disbursement controls
          when approving check disbursements. According to the Commission’s financial
          management/internal financial controls policy, a check should be signed by the
          executive director and the Commission’s treasurer. The Commission’s treasurer
          is one of its board members. For example, the Commission issued check number
          1368, dated March 10, 2004, under its program to the architects James Childs
          Architects, which was signed by the former executive director but not signed by
          the Commission’s treasurer or board member.

          For at least five program check disbursements, the Commission could not support
          whether it followed its controls by ensuring that the executive director and/or the
          treasurer signed the checks. Copies of the five checks on file at the Commission
          did not reveal the signature of one or two of the signers and the cancelled checks
          for the disbursements were not available for review.

          The Commission generally lacked evidence that its former or acting executive
          director reviewed the invoices for payments or that its accounts payable clerk
          approved invoices by comparing them to contracts as required by the
          Commission’s financial controls policy. According to the accounts payable clerk,
          she did not receive the invoices for the program. Instead, the former executive
          director received the invoices and instructed the accounts payable clerk on the
          checks to write for the program, including vendor and dollar amount.
          Additionally, the former executive director did not always indicate the appropriate
          account number and “approved for payment” on the invoices.



                                           6
The Commission and Its
Commissioners Did Not
Implement Adequate
Procedures and Controls

           The Commission did not implement adequate procedures and controls for its
           disbursements. It did not implement adequate controls to ensure funds were
           properly spent for program activities by regularly reviewing program budgets
           before incurring expenses or making check disbursements. Additionally, the
           Commission did not transfer funds drawn from HUD’s Line of Credit Control
           System into the appropriate program account when received or in a timely manner
           to ensure the funds were used as designated for the program.

           According to the former executive director, the Commission’s board fired her
           before she had the opportunity to transfer the program funds from the
           Commission’s operating account to its program account. Additionally, she said
           she was not provided the opportunity to update the Commission’s staff or its
           board on the activities in progress or outstanding at the time she was fired. The
           acting executive director, who was previously the Commission’s deputy director,
           said she had no knowledge of the drawdown until the former executive director
           left the Commission. After that, the Commission did not transfer the funds
           because the amount of the program funds differed from the amount remaining in
           its operating account. The acting executive director believes the Commission
           spent the funds on items other than program activities.

           The Commission’s board did not adequately monitor the activities of its former
           executive director and the overall operations of the Commission. The board
           relied on information provided by the former executive director without obtaining
           or performing independent verifications.

           One former commissioner, who was on the Commission’s board for more than 10
           years and left the board in September 2005, said she was not that familiar with
           HUD’s requirements and only became more familiar with them after the
           assessments conducted by HUD in July and September 2004, and MDStrum
           Housing Services, Inc., in April 2005. One of the current commissioners also
           informed us that he did not always closely review the information provided the
           Commission for the board’s review.

           Based on our review of the Commission’s program bank account statements and
           its board meeting minutes, the board was generally approving the Commission’s
           check disbursements after the checks had cleared its bank account. For example,
           according to the Commission’s August 11, 2004, board meeting minutes, check
           number 1381 was included in the list of bills for approval and was approved for
           payment via board resolution #2074; however, this occurred after the check
           cleared the Commission’s bank account on April 15, 2004. Additionally, there



                                            7
          was no evidence that the board reviewed the applicable invoice for approval of
          payment.

          As a result, HUD funds were not used efficiently and effectively.

Recommendations

          We recommend that the director of HUD’s Detroit Office of Public Housing
          require the Commission to

          1A.     Provide documentation to support the $206,224 in unsupported program
                  disbursements cited in this finding or reimburse its program from nonfederal
                  funds for the applicable amount.

          1B.     Provide documentation that it reimbursed its program $500 from its Section
                  8 housing administrative fees for the improper allocation of the consultant
                  study cited in this finding.

          1C.     Implement adequate procedures and controls to ensure program expenditures
                  meet its and HUD’s requirements. The procedure and controls should
                  include but not be limited to requisitioning program funds from HUD’s
                  Line of Credit Control System for actual program expenses, depositing
                  program funds into the Commission’s appropriate bank account,
                  disbursing program funds for expenses related to the Commission’s
                  program with supporting documentation, appropriate check signatures by
                  the Commission’s personnel, comparison of contractor invoices to ensure
                  that expenses are appropriate program obligations according to
                  contractors’ contracts, notating contractor invoices as approved for
                  payment to avoid duplicate payment, and appropriate oversight by the
                  Commission’s board over program activities.




                                            8
Finding 2: The Commission’s Procurement Activities Were Not
         Conducted According to Its and HUD’s Requirements
The Commission’s procurement activities were not conducted according to its and HUD's
requirements. It did not (1) maintain sufficient records detailing significant procurement
histories, (2) have written selection procedures for all procurement transactions, (3) procure
architectural services in a manner providing for full and open competition, (4) perform a cost or
price analysis for every procurement transaction including contract modifications or independent
cost estimates, and (5) have a purchase order or a properly executed contract for services
procured with six contractors reviewed for its program. Additionally, the Commission could not
provide evidence that it had an approved procurement policy for the period October 2003
through July 2005. These problems existed because the Commission lacked adequate
procurement procedures and controls. As a result, HUD lacks assurance that the Commission’s
procurement awards were conducted through full and open competition.


 Procurement Histories Were
 Not Supported by Sufficient
 Records


               The Commission did not maintain sufficient records detailing the significant history
               of its procurement activities or transactions for the period October 2003 through July
               2005 with at least 10 contractors. The files or records for its procurement activities
               generally did not include the rationale of the method of procurement, selection of
               contract type, contractor selection or rejection, and basis for the contract price. Due
               to the lack of sufficient documentation, the Commission could not support whether
               there was any change orders related to these procurements or whether they were
               properly approved by its board.

               We also reviewed the Commission’s procurement activities with eight contracts for
               the period August 2005 through January 2006 to determine whether the Commission
               had improved on its procurement procedures and its activities met HUD’s
               requirements. The Commission had contracts for all eight contracts; however, it
               lacked sufficient records detailing the significant history of its procurement activities
               for at least two contracts.

 The Commission Generally Did
 Not Have Written Selection
 Procedures


               The Commission lacked written selection procedures for all procurement
               transactions. It did not incorporate or have a clear and accurate description of the
               technical requirements for the material, product, or service to be procured and



                                                  9
            identify all requirements which the offerors must fulfill and all other factors to be
            used in evaluating bids or proposals.

Architectural Services Were
Procured without Full and
Open Competition


            The Commission did not procure architectural services in a manner providing for
            full and open competition. Instead, it sole sourced the services for several years
            with one architectural firm, James Childs Architects. According to the president
            of James Childs Architects, the firm provided services to the Commission for 10
            years before it was terminated in January 2005. After the initial selection of the
            firm, the Commission contacted the firm when architectural services were needed
            for various projects.

The Commission Provided No
Support for Cost or Price
Analysis or Independent Cost
Estimates


            The Commission did not perform a cost or price analysis for every procurement
            transaction including contract modifications. It also did not always make
            independent estimates before receiving bids or proposals. According to the
            Commission’s former executive director, the architectural firm performed cost
            analysis for the Commission. However, the Commission lacked evidence to
            support that the cost or price analysis or independent cost estimates were
            performed. The president of James Childs Architects said his firm performed the
            cost or price analysis for the Commission, but he would have to locate the
            documentation to support his claim. The president subsequently provided us
            documentation of the cost or price analysis; however, the documentation related
            to cost estimates for professional services and construction costs related to the
            Commission’s HOPE VI program, not its Public Housing Capital Fund program.
            As a result, the Commission and HUD could not be assured that contract prices
            were reasonable.

The Commission Did Not Enter
into Contractual Agreements
for Services Received


            The Commission lacked a purchase order or a properly executed contract for
            services procured regarding six program contracts for the period October 2003
            through July 2005. For example, the Commission only possessed a proposal,
            dated October 2003, from a contractor, The Schiff Group, for consulting services



                                             10
             concerning the Commission’s HOPE VI application preparation. There was no
             contract with The Schiff Group, although the Commission made payments of
             more than $60,000 to the contractor in April 2004. Additionally, the Commission
             procured advertising services with the local newspaper, Herald-Palladium, on
             various dates between October 2003 and July 2005 by placing advertisements for
             such items as receiving bids, professional help, and the sale of vehicles.
             However, it did not prepare purchase orders for the advertising services.

             The Commission initially entered into a contract for security guard services with
             Rover Security Guard Agency, Incorporated (Rover Security), on April 27, 1994.
             The contract was valid for only six months from the execution date. In April
             2000, the Commission advertised for bids concerning security guard services and
             sent out three bid requests, but only received one bid from Rover Security. The
             Commission had a partially completed protective services contract, dated 2000,
             for its Harbor Towers project with information on Rover Security including a
             compensation rate of $14 per hour, which was signed by the president of the
             agency. However, the Commission did not sign the contract.

The Commission’s
Documentation Was Not Clear
Regarding the Effective Date of
Its Procurement Policy


             The Commission had a procurement policy and procedures required by HUD for
             the period October 2003 through July 2005. The policy generally followed
             HUD’s regulations. However, it was not clear whether the policy was established
             by board resolution number 1349 during the Commission’s board meeting held on
             July 17, 1990. The Commission’s capital funds coordinator was not sure of the
             policy’s effective date.

Conclusion

             The commissioners did not adequately monitor the activities of the former
             executive director or the overall operations of the Commission. They relied on
             information provided by the former executive director.

             One former commissioner, who was on the Commission’s board for more than 10
             years and left the board in September 2005, said she was not that familiar with
             HUD’s requirements and only became more familiar with them after the
             assessments conducted by HUD in July and September 2004, and MDStrum
             Housing Services, Inc., in April 2005. One of the current commissioners also
             informed us that he did not always closely review the information provided to the
             Commission for the board’s review.




                                             11
          The Commission did not possess a contract and/or change order register to track and
          control its contracts and change orders. It also did not properly organize its contract
          documentation for goods or services procured into separate files for easy access.
          Documentation such as proposals, agreements, and applications for payments were
          generally mixed together for various vendors or contractors.

          The Commission maintained the documentation for contracts or services in various
          locations, including the interim executive director’s office at the Commission’s
          administrative offices and the capital funds coordinator’s office located at the
          Commission’s Buss project. During our audit, the Commission’s human resources
          assistant located some procurement-related documentation such as notices and bids
          in unmarked boxes at the Commission’s maintenance supervisor’s office located at
          the Virginia Edwards Community Center. According to the human resources
          assistant, who was formerly the administrative assistant, the items were boxed up
          and placed in the storage space after the former executive director left the
          Commission.

          The former executive director told us that she had organized contract or procurement
          documentation at the Commission by contracts and in filing cabinets. However, the
          Commission was unable to locate the procurement documentation for the majority
          of the procurement activities reviewed. According to the president of James Childs
          Architects, the Commission did not require any specific form or documentation from
          his firm for recordkeeping. For instance, the architectural firm sometimes provided
          either verbal or written cost estimates during meetings with the Commission.

          The capital funds coordinator, who gradually got involved in the Commission’s
          procurement activities starting in October 2004, was not formally trained in
          procurement activities until July 2005. According to the former executive
          director, individuals assigned to Commission’s procurement activities did not
          receive much formal training on procurement. Instead, they read up on the related
          items and attended HUD workshops that were not necessarily focused on
          procurement.

          As a result, HUD lacks assurance that the Commission’s procurement awards
          were conducted through full and open competition. Additionally, HUD cannot be
          assured that funds were used effectively and efficiently for the Commission’s
          procurement activities or that the costs charged for the procured services were
          reasonable.

Recommendations

          We recommend that the director of HUD’s Detroit Office of Public Housing
          require the Commission to




                                            12
2A.   Implement adequate procedures and controls to ensure that its
      procurement policy approved by its board and HUD’s requirements are
      met, including conducting contract awards through full and open
      competition.

2B.   Implement an adequate filing system for its contracted goods or services
      to ensure that required documentation is properly maintained and
      complete.

2C.   Implement contract and change order registers to properly track and control
      the Commission’s contracts and change orders.

2D.   Implement procedures and controls for its board concerning the procurement
      process and continually monitor the Commission’s contracting and
      procurement activities to ensure compliance with its and HUD’s
      requirements.




                               13
                        SCOPE AND METHODOLOGY

We performed our audit at HUD’s Detroit Office of Public Housing and the Commission’s
administrative offices located at 721 Nate Wells Drive, Benton Harbor, Michigan. We
performed our on-site audit work between September 2005 and March 2006.

To accomplish our audit objectives, we reviewed HUD’s regulations at 24 CFR [Code of Federal
Regulations] Parts 85, 905, and 968, HUD Handbook 7460.8 and Guidebook 7485.3, State of
Michigan’s Public Act 18 of 1933, HUD’s Public Housing Capital Fund Processing Notices for
fiscal years 2003 through 2005, Office of Management and Budget Circular A-87, data from
HUD’s Line of Credit Control System for fiscal years 2002 through 2005, the Commission’s
annual contributions contract with HUD, board meeting minutes for October 2003 through
September 2005, the Commission’s procurement policy, bank statements and canceled checks,
HUD’s 2004 management review report, the Commission’s annual audited financial statements
for the period ending September 30, 2003, and 2004, HUD’s files for the Commission, and the
Commission’s procurement files and documentation. We also interviewed HUD’s staff and the
Commission’s former and current employees, former and current commissioners, contractors,
and former fee accountant.

We initially selected a random sample of procurement activities with 15 contractors or vendors
out of a universe of 18 for review to determine whether the Commission followed its own
procurement policy and HUD’s requirements, using the U.S. Army Audit Agency’s Statistical
Sampling System. However, upon further review of the procurement documentation possessed
by the Commission, we determined that services were procured with several vendors outside of
our audit period or services were not procured with the vendors. Therefore, we reviewed the
Commission’s procurements activities with 14 vendors or contractors under the program from
October 1, 2003, through July 31, 2005. We also reviewed check disbursements totaling
$670,509 from the Commission’s fiscal years 2002 and 2003 program for the period October 1,
2003, through July 31, 2005.

The audit covered the period October 1, 2003, through July 31, 2005. We adjusted the period as
necessary. We performed our audit in accordance with generally accepted government auditing
standards.




                                              14
                              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, and
   •   Safeguarding resources.

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 objectives:

              •       Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

              •       Validity and reliability of data - Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

              •       Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

              •       Safeguarding resources - Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

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




                                                15
Significant Weakness


           Based on our review, we noted the following significant weakness:

           •   The Commission lacked adequate procedures and controls over its program
               disbursements and procurement activities (see findings 1 and 2).




                                           16
                       FOLLOWUP ON PRIOR AUDITS

This is the first audit of the Commission’s program by HUD’s Office of Inspector General (OIG).
The most recent independent auditor’s report covered the year ending September 30, 2004. The
report contained seven findings, one of which concerning invoice approval and dual signatures,
relates to finding 1 in this audit report.




                                               17
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS
                    Recommendation
                        number           Ineligible 1/   Unsupported 2/
                           1A                                 $206,224
                           1B                     $500
                           1C
                          Totals                  $500        $206,224


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     polices or regulations.

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.




                                             18
Appendix B

             AUDITEE COMMENTS




                    19
Auditee Comments




       20
Auditee Comments




Auditee Comments




       21
Auditee Comments




       22
Appendix C

         FEDERAL REQUIREMENTS AND COMMISSION’S
                  PROCUREMENT POLICY

Office of Management and Budget Circular A-87, C(1)(j), “Factors Affecting Allowability of
Costs”, states that costs must be adequately documented.

Regulations at 24 CFR [Code of Federal Regulations] 85.20, “Standards for Financial
Management Systems,” requires the Commission’s financial management systems to meet
standards concerning financial reporting, accounting records, internal control, budget control,
allowable cost, source documentation, and cash management. For example, the Commission is
required to maintain adequate records identifying the source and application of funds provided
for financially-assisted activities. Additionally, the Commission must compare actual
expenditures or outlays with budgeted amounts for each grant or subgrant.

HUD's Program Integrity Bulletin, issued in November 1990, defines the roles and
responsibilities of public housing authority commissioners. The commissioners are to

•   Establish and approve by-laws, resolutions, and policies and procedures for internal and
    external monitoring controls and for detecting and preventing program fraud, waste,
    mismanagement, and abuse.
•   Review and monitor budgets and other documents to ensure expenditures are in compliance
    with federal and local laws, and other requirements.
•   Ensure that the public housing authority is acting legally and with integrity in its daily
    operations.
•   Understand their responsibilities and roles in relation to the executive director.
•   Provide clear and concise policy guidelines to the executive director.
•   Perform their ultimate responsibility to (a) make policy decisions for determining how
    programs are administered, (b) obtain funds from various resources, and (c) protect funds
    needed to keep the public housing authority operating.
•   Be responsible for the actions and decisions made by the executive director and the other
    authority staff.

Regulations at 24 CFR [Code of Federal Regulations] 85.36(b)(9) require a grantee to maintain
sufficient records detailing the significant history of a procurement, including the rationale of the
method of procurement, selection of contract type, contractor selection or rejection, and the basis
for the contract price. Regulations at 24 CFR [Code of Federal Regulations] 85.36(c)(1) require
all procurement transactions to be conducted in a manner that provides for full and open
competition.

Regulations at 24 CFR [Code of Federal Regulations] 85.36(f)(1) require that a cost or price
analysis be performed in connection with every procurement action including contract



                                                 23
modifications. Additionally, a grantee is required to make independent estimates, as a starting
point, before receiving bids or proposals.

Regulations at 24 CFR [Code of Federal Regulations] 968.112(n)(3) provide that when physical
or management improvement would benefit programs other than public housing, such as a
Section 8 program, eligible costs should be limited to the amount directly attributable to the
public housing program.

HUD Handbook 7460.8, REV-1, “Procurement Handbook for Public Housing Agencies and
Indian Housing Authorities,” requires the Commission to plan its contracts in advance and
attempt to obtain full and open competition to ensure that quality goods and services are obtained
at a reasonable price.

The Commission’s procurement policy provides that the executive director or designee shall
ensure that contracts and modifications are in writing and are supported by sufficient
documentation covering the procurement history, including the method of procurement selected,
the selection of the contract type, the rationale for selecting or rejecting offers, and the basis for
the contract price.




                                                  24
Appendix D

       SUMMARY OF SERVICES PROCURED AND RELATED
                      PAYMENTS

                                       Estimated             Services or          Contract
                       Contract      amount paid on        activities under       exists (yes      Contract
    Contractor         amount           contract               contract             or no)           date
First Contracting,                                       Carpet/flooring
Inc.                   $259,720         $256,418         replacement                 Yes         June 17, 2004
First Contracting,                                       Window
Inc.                   $514,000         $522,285         replacement                 Yes         June 17, 2004
Five Star Heating                                                                                2003; exact
and Air                                                                                          date
Conditioning           $13,830           $13,830         Chimney repairs             No          undetermined
Five Star Heating                                                                                2004; exact
and Air                                                  Wind damage                             date
Conditioning            $3,250           $3,250          repairs                     No          undetermined
                                     Various amounts                                No (No
                         Various      ($1,726 with                                 purchase
Herald-Palladium        amounts      program funds)      Advertising                order)       Various dates
Industrial             $3,422 per
Sanitation, Inc.          month            $0            Trash removal               Yes         June 30, 2005
                       $1,750 plus
                        maximum
                      reimbursable   $1,895 (includes    Design professional         Copy
James Childs           expense of     reimbursable            services for       received, not    January 30,
Architects                $250          expenses)          chimney repairs          signed           2003
                         $10,000                         Design professional
James Childs           (excluding                             services for                         March 1,
Architects           reimbursable)       $10,000               compactor             Yes            2003
                         $9,250                          Design professional
James Childs           (excluding                        services for security                   September 1,
Architects           reimbursable)       $8,325                  system              Yes            2003
                         $33,500                         Design professional
James Childs           (excluding                        services for window                      October 27,
Architects           reimbursable)       $28,860             replacement             Yes             2003
                                                         Design professional
                        $16,410                               services for
James Childs           (excluding                           carpet/flooring                       October 27,
Architects           reimbursable)       $11,285             replacement            Yes              2003
                        $22,250                          Design professional     Yes (letter
James Childs           (excluding                         services for HOPE          of           January 13,
Architects           reimbursable)       $23,250            VI application       agreement)          2004
                                                         Design professional
James Childs                                                  services for                       September 29,
Architects              $8,500           $6,500                generator             Yes             2004




                                                        25
                                        Estimated          Services or        Contract
                     Contract         amount paid on     activities under     exists (yes
  Contractor         amount              contract            contract           or no)        Contract date
J&G                                                                           Yes (work     June 14, 2004;
Construction         $11,828             $11,828       Roof installation     agreements)    August 19, 2004
J&G                                                                          Yes (signed
Construction         $11,001              $8,521       Roof installation      proposals)    October 14, 2005
                                                                                 Yes        Undetermined –
                                                       Painting at Harbor     (purchase     purchase order
James Lee              $985               $985         Towers                   order)      not dated
                                                       Submission of
Management                                             updated utility
Resource Group    Undetermined            $1,400       allowances                No         Undetermined
                                                       Agency plan and
                                                       submission of 2004
Management                                             public housing
Resource Group    Undetermined            $995         agency plan               No         Undetermined
                 $920/initial setup
                       and                             Pest control
                  $435/monthly                         services at Harbor
Orkin                service              $1,355       Towers                    Yes        May 25, 2005
Reznick Fedder                                         Consulting services
& Silverman                                            for HOPE VI
CPA                                                    application and                      November 26,
Corporation          $230,000            $58,072       implementation            Yes        2003
                 $14/hour; $16 for                                                          April 27, 1994;
                 holiday rate (not-                                                         June 27, 1995;
Rover Security       to-exceed                                                 No (not      2000 (not signed
Guard Agency,      $75,264/one-                        Security guard          properly     or completed by
Inc.                   year)             $100,783      services               executed)     Commission)
Scans, Inc.
D/B/A Security                                         Security upgrade at                  November 10,
Systems             $67,215              $67,215       Harbor Towers             Yes        2004
                  Not-to-exceed                        Consulting services
The Schiff        $100,000 plus                        – grant writing for
Group               expenses             $67,139       HOPE VI                   No         Undetermined
Wood,
Wenham,
Henderson        $6,800 / $100 per
Consultants      hour of face time        $3,400       Consulting services       No         Undetermined




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