oversight

The Omaha Housing Authority Did Not Follow Required Procurement Procedures

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-05-30.

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

                                                                  Issue Date
                                                                           May 30, 2006
                                                                  Audit Report Number
                                                                               2006-KC-1010




TO:        Debra L. Lingwall, Coordinator, Public Housing Program Center, 7DPHO

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 7AGA

SUBJECT: The Omaha Housing Authority Did Not Follow Required Procurement
           Procedures


                                   HIGHLIGHTS

 What We Audited and Why

            We audited the Omaha Housing Authority (Authority) in Omaha, Nebraska, due
            to our risk assessment of the larger housing authorities in Region VII and in
            response to several citizen complaints.

            Our objectives were to determine whether the Authority followed the U.S.
            Department of Housing and Urban Development’s (HUD) and its own
            procurement requirements.

            This is the third report resulting from our audit of the Authority.


 What We Found


            The Authority did not follow required procurement procedures because its
            management was not effectively involved in the process. It used $5,419 in HUD
            funds to purchase ineligible goods and services, and it could have saved at least
            $970,000 when it purchased $1.9 million in other goods and services.
What We Recommend


           We recommend that HUD require the Authority to repay its low rent program for
           the ineligible purchases and improve controls over its procurement process.

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

Auditee’s Response


           We provided the draft audit report to the Authority on April 4, 2006 and received
           its written response on April 26, 2006. The Authority agreed with the finding and
           recommendations.

           The auditee’s response, along with our evaluation of that response, can be found
           in appendix B of this report. We also reviewed the attachments provided by the
           auditee but did not include them in this report.




                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                      4

Results of Audit
      Finding: The Authority Did Not Follow HUD’s or Its Own Requirements in   5
             Procuring $1.9 Million in Goods and Services

Scope and Methodology                                                          9

Internal Controls                                                              10

Followup on Prior Audits                                                       11

Appendixes
   A. Schedule of Questioned Costs                                             12
   B. Auditee Comments and OIG’s Evaluation                                    13




                                           3
                      BACKGROUND AND OBJECTIVES

The Omaha Housing Authority (Authority) began operations in 1935. The Authority receives
funding for its rental assistance programs from the U.S. Department of Housing and Urban
Development (HUD), tenant rents collected, and the City of Omaha. The rental assistance
programs include HUD’s public housing program and the Section 8 Housing Choice Voucher
program. The Authority also receives funding for other housing programs through federal,
private, and contractual agreements.

A five-member board of commissioners governs the Authority. An executive director manages
its day-to-day operations. The Authority’s administrative office is located at 540 South 27th
Street, Omaha, Nebraska. Its public housing/Section 8 Housing Choice Voucher program office
is located at 3003 Emmett Street, Omaha, Nebraska.

From January 1, 2003, through August 31, 2005, the Authority awarded 132 contracts worth
more than $17 million.

In 1999, the Office of Inspector General (OIG) conducted an audit of the Authority and
identified issues similar to those contained in this report (see Followup on Prior Audits).

The objectives of our audit were to determine whether the Authority followed HUD’s and its
own procurement requirements.




                                                 4
                                RESULTS OF AUDIT


Finding: The Authority Did Not Follow HUD’s or Its Own
          Requirements in Procuring $1.9 Million in Goods and
          Services

The Authority did not follow HUD’s or its own requirements in procuring $1.9 million in goods
and services. The Authority’s management was not effectively involved in the procurement
process. As a result, the Authority expended $5,419 for ineligible goods and services and could
have saved at least $970,000 when purchasing $1.9 million in eligible goods and services.


The Authority’s staff used purchase orders instead of contracts and awarded contracts without
the knowledge of the procurement department.


 Small Purchase Orders Used
 Extensively


              The Authority’s staff improperly used the small purchase method to pay for more
              than $1.2 million in goods and services. The Authority’s small purchase policy
              allows the staff to buy between $1,000 and $10,000 in goods and services using
              purchase orders without open competition as long as they get three bids.
              However, the policy prohibits splitting purchases to avoid more complicated
              contracting rules for purchases over $10,000.

              The following table identifies the amounts of small purchases that totaled more
              than $10,000 per type of service each year. These purchases should have been
              opened to competition and contracted out to obtain the best price.

                                                          Number of          Number of
                Goods and services        Amount
                                                        purchase orders       vendors
              Miscellaneous               $565,722             409                 8
              Plumbing                    $358,138             403                 5
              Cleaning                    $332,789             471                 4
              Totals                     $1,256,649           1,283               17

              For example, the Authority issued 403 small purchase orders to five vendors
              totaling $358,138 in plumbing services. One vendor billed the Authority for




                                               5
           $309,693 or 86 percent of the total amount. The Authority should have
           consolidated these purchases to obtain the best price.


           The Authority also did not always obtain three quotes for purchase orders over
           $1,000 but not exceeding $10,000. For example, the human resources manager
           purchased two laptop computers for $4,601 without the three required bid quotes.


Contract Awarded by
Unauthorized Personnel


           Unauthorized staff awarded contracts totaling $654,311 to vendors. The
           Authority’s procurement policy requires that all procurement transactions be
           administered by the executive director or authorized contracting officers.

           Although not an authorized contracting officer, the human resources manager
           signed contracts for $433,254 in temporary staffing services and $103,899 for
           cellular telephone services without requests for proposals or invitations for bid.
           In addition, unauthorized personnel in the legal department procured $31,627 in
           legal service contracts with five law firms in March 2004 and paid $85,531 for
           legal services to a single law firm without competition.


Summary of Improper
Procurements



                   Goods and services                Amount             Deficiencies

                                                                       Ineligible items
           Ineligible goods                           $5,419
           Miscellaneous                             $565,722
                                                                    Purchase orders used
           Plumbing                                  $358,138        instead of contracts
           Cleaning                                  $332,789
                                                                    Requirements for bid
           Computers                                  $4,601          quotes not met
           Temporary agencies                        $433,254
                                                                    Contracts awarded by
           Cellular telephones                       $103,899      unauthorized personnel
           Legal                                     $117,158
                           Total                    $1,920,980




                                            6
Authority Management Not
Effectively Involved in the
Procurement Process


             The Authority’s management did not emphasize the importance of the
             procurement process. It did not
                • Ensure that staff followed HUD requirements.
                • Establish a quality control process to ensure that staff followed
                    procurement policies and procedures.
                • Ensure that only authorized staff procured goods and services.
                • Have a written credit card policy.
                • Ensure that staff received adequate training.
                • Appoint a procurement manager until April 2005.

             From February 21, 2004, through March 2005, the Authority did not assign a
             manager to oversee the procurement process.

Ineligible Items Purchased and
Could Have Saved $970,000


             Authority staff expended $5,419 for ineligible goods and services. The human
             resources manager improperly used an Authority travel credit card to purchase
             $5,419 in ineligible items. The items included Internet services, Halloween items,
             a football banquet, and cheerleading uniforms. These items are not eligible
             according to HUD’s or the Authority’s requirements.

             The Authority could have saved at least $970,000 on the purchases identified in
             this report. This estimate is based on the Authority’s actual savings achieved
             from contracting out plumbing and cellular telephone services (see conclusion
             below) and projecting similar savings to the other identified goods and services.

Conclusion


             The $975,419 in ineligible costs and potential savings could have been used to
             further assist the tenants and the Authority’s rental programs.

             The Authority did not have adequate management involvement over its
             procurement function. As a result, staff expended funds for ineligible goods and
             services. The Authority also wasted money because it did not have an effective
             procurement process.



                                              7
          During the audit, the Authority began to improve its procurement process. The
          new procurement manager completed contracts for plumbing and cellular
          telephone services. The Authority will save more than $250,000 over the next
          year by using these contracts. The manager is issuing contracts for other routine
          services as well. The manager estimated that by following all appropriate
          procurement rules, the Authority would save more than $1 million over the next
          year.


Recommendations

          We recommend that the coordinator of the Public Housing Program Center
          require the Authority to

          1A.     Repay the Authority’s low rent programs for the ineligible costs of $5,419.
          1B.     Develop and maintain a quality control process to monitor procurements
                  to ensure that it gets the most economical prices available, resulting in
                  savings of $970,000.
          1C.     Establish a credit card policy.
          1D.     Provide additional training to procurement personnel.




                                           8
                         SCOPE AND METHODOLOGY

To accomplish our audit objectives, we reviewed applicable HUD and Authority criteria. We
interviewed Authority staff and reviewed Authority contracts. In addition, we reviewed vendor
files, bank/credit card statements, check registers, purchase orders, vendor ledgers, and other
related documentation.

We selected a sample of vendors to review based on high dollar payments. The selected sample
was not intended to be representative of the universe of vendors. The sample allowed us to focus
our review efforts on the vendors that posed an inherent risk and/or risk of noncompliance with
HUD’s and the Authority’s procurement policies. We elected not to use a 100 percent selection
as the number of vendors doing business with the Authority precluded the examination of each
transaction.

We identified and selected for review most of the vendors with high dollar payments in excess of
$5,000. We looked at the number of purchase orders issued to determine whether the Authority
should contract for these services. We selected all purchase orders over $1,000 of the vendors
selected to determine whether the Authority received three bids/quotes.

We relied on computer-processed data obtained from the Authority for our audit. The data
included check registers and vendor ledgers. We evaluated the reliability of the data and
concluded the data were sufficiently reliable for use in meeting our objectives.

We estimated the potential savings by using the actual savings received from contracting out for
plumbing services and cellular telephones. We used the percentage of savings and projected
similar savings to the amount for other goods and services identified in the report. We validated
our estimate by comparing it to the Authority’s estimate of future savings.

Our review period was January 1, 2003, through August 31, 2005. We conducted our audit work
from September through October 2005 at the Authority’s administrative office in Omaha,
Nebraska.

We performed our review in accordance with generally accepted government auditing standards.




                                                9
                               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:

                    •   Management controls over procurement;
                    •   Safeguards over assets and records and compliance with applicable laws,
                        regulations, and contractual agreements; and
                    •   Annual planning and reviewing of contract needs.

                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 items are significant weaknesses:

                    •   The Authority did not emphasize the importance of the procurement
                        process.
                    •   The Authority did not establish a quality control process to ensure staff
                        followed procurement policies/procedures.
                    •   The Authority did not have a written credit card policy (see finding).




                                                 10
                       FOLLOWUP ON PRIOR AUDITS


 Audit Report #00-KC-201-1001
We audited the Authority in 1999. The audit covered the period from January 1991 through
September 1999. The audit identified 10 findings and provided 35 recommendations.

The audit report addressed one finding related to procurement. The Authority did not
   1. Follow its procurement policies or HUD’s regulations.
   2. Solicit competitive bids.
   3. Have written contracts to support purchase orders exceeding $1,000.
   4. Have contracts for services performed by consultants.

We concluded that the Authority did not have assurance that it received the best prices.

We made two procurement recommendations. We recommended that the director of the
Troubled Agency Recovery Center ensure that the Authority developed and implemented
procedures that ensure the Authority’s written procurement policies and HUD’s procurement
regulations were strictly enforced. The second recommendation required the Authority to clarify
its procurement policies and develop and implement procedures to ensure that invoices were not
paid unless a written, properly executed contract was in place according to the Authority’s
directives and HUD’s requirements.

HUD resolved and closed all 35 recommendations.




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                                       APPENDIXES

Appendix A

     SCHEDULE OF QUESTIONED COSTS AND FUNDS PUT TO
                      BETTER USE

                              Recommendation          Ineligible 1/       Funds put to
                                  number                                  better use 2/
                                      1A                 $5,419
                                      1B                                    $970,000


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

2/     “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an
       OIG recommendation is implemented, resulting in reduced expenditures 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.




                                                12
   Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         13
14
                         OIG Evaluation of Auditee Comments

Comment 1   We commend the Authority for taking steps to correct their procurement
            processes. These steps will provide additional financial benefits to the Authority.




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