oversight

The Housing Authority of the City of Las Vegas, Nevada, Did Not Comply with Contracting and Grant Use Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-07-21.

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

                                                                Issue Date
                                                                   July 21, 2006
                                                                Audit Report Number
                                                                   2006-LA-1017




TO:         Stephen Schneller, Director, Office of Public Housing, 9APH
            Margarita Maisonet, Director, Departmental Enforcement Center, CV



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

SUBJECT: The Housing Authority of the City of Las Vegas, Nevada, Did Not Comply with
           Contracting and Grant Use Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             Based on a complaint from a member of the Housing Authority of the City of Las
             Vegas’ (Authority) Board of Commissioners (board), we reviewed three contracts
             with Abt Associates, Incorporated (Abt). The complainant alleged the Authority
             awarded contracts to Abt without a competitive procurement or the prior approval
             of the board. Our objective was to determine whether the Authority followed
             federal procurement and contracting requirements when it hired Abt. During the
             review of one Abt contract involving the use of replacement housing factor
             grants, we expanded our objective to include the Authority’s retention of interest
             earned from improperly invested grant funds.


 What We Found


             The Authority awarded three contracts totaling $473,499 to Abt in 2004 and 2005
             in violation of federal requirements and its own policies and procedures for
             procurement, contracting, and contract administration. The noncompliance
           included failure to complete independent cost estimates and cost analyses, failure
           to ensure fair and impartial competitive procurement, use of inappropriate
           contract type and improper contract amendments, and inappropriate use of sole-
           source procurement.

           The Authority also improperly retained investment earnings totaling $84,569 from
           improperly drawn down replacement housing factor grant funds for fiscal years
           2000 and 2001.

What We Recommend


           We recommend that HUD’s Region IX Director of Public and Indian Housing
           require the Authority to provide adequate support of cost reasonableness or
           reimburse its federally funded program accounts from funds not obtained from any
           federal programs the amount of $473,499 and reimburse the federal government
           for the $84,569 in interest earned on improperly drawn and invested grants. In
           addition, we recommend that HUD provide simultaneous training for both the
           board and any officials directly responsible for conducting procurement activities
           or approving contracts and contract amendments.

           We recommend that the director of HUD’s Departmental Enforcement Center
           take appropriate administrative sanctions against the executive director, deputy
           executive director, and purchasing manager for continuous disregard of federal
           regulations.

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


Auditee’s Response


           We provided the Authority a draft report on February 28, 2006, and held an exit
           conference on March 21, 2006. The Authority provided written comments on
           March 27, 2006. The Authority generally disagreed with the report. The
           auditee’s response, along with our evaluation of that response, can be found in
           appendix B of this report. Due to the volume of the exhibits to the auditee’s
           response, the exhibits will be made available upon request.




                                            2
                            TABLE OF CONTENTS

Background and Objectives                                                       4

Results of Audit
      Finding 1: The Authority Did Not Follow Federal Requirements for          6
      Procurement or Contracting
      Finding 2: The Authority Improperly Retained the Earnings from Invested   17
      Replacement Housing Factor Grant Funds

Scope and Methodology                                                           19

Internal Controls                                                               20

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use            21
   B. Auditee Comments and OIG’s Evaluation                                     22
   C. Criteria                                                                  71




                                            3
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Las Vegas (Authority) was established pursuant to the laws
of the state of Nevada to administer various low-income housing programs provided through the
United States Housing Act of 1937 as amended and local efforts. The Authority is governed by a
five-member board of commissioners appointed by the mayor of the city of Las Vegas. The
board establishes policies and appoints an executive director to implement the policies.

The current executive director was appointed on July 15, 2002. Before that, he was the deputy
executive director. The executive director is required to administer the Authority’s affairs in
accordance with the policies adopted by the board and applicable federal, state, and local laws
and regulations. He executes contracts and appoints department heads and other staff. The
deputy executive director joined the Authority in June 2004 with more than 30 years’ housing
experience, including serving as deputy executive director and executive director for other
housing authorities. The deputy executive director performs duties assigned by the executive
director and acts in the executive director’s absence or incapacity. The executive director
designated the purchasing manager to administer all procurement transactions. The current
purchasing manager has held that position for approximately 29 years.

The OIG last performed an audit of the Authority’s procurement practices in 2002 (Audit
Memorandum Report Number 2003-LA-1801, draft issued to the current executive director).
The audit resulted in findings that procurement and contracting policies were not followed,
particularly for service and consulting contracts, including

   •   Contracts were awarded without fair and open competition,
   •   The former executive director awarded consulting contracts without board approval or
       the involvement of the purchasing manager,
   •   No cost analysis was performed to ensure prices were reasonable, and
   •   Contracts did not contain federally required clauses.

The recommendations were closed by HUD, based on corrective actions taken by the Authority,
under the management of the current executive director.

Additionally, between September 15 and October 3, 2003, HUD conducted a comprehensive
management review of the Authority’s operations. HUD’s report, dated February 6, 2004,
included findings related to procurement and contract administration. Most significantly, HUD
found no documentation to show the Authority followed procurement requirements when it
engaged a legal firm or a consultant. Both were hired without a competitive process, including
failure to perform an independent cost estimate and a cost or price analysis, and without a written
contract. HUD reported violations in both cases after OIG issued its report and when the current
executive director and the current purchasing manager were in place. Improper contract
increases found by HUD occurred while the current executive director was in place. As a result
of OIG’s previous report and HUD’s management review, the Authority, under the direction of
the current executive director, revised its written policies and procedures to ensure compliance
with federal requirements and repaid ineligible costs from nonfederal funds. The comprehensive


                                                4
management review finding of improper procurement of a local legal firm remains open pending
repayment of related costs from nonfederal funds. The same legal firm that was
noncompetitively hired is currently providing services to the Authority as a subcontractor to an
out of state legal firm.

We received a complaint from a member of the Authority’s board concerning the Abt contracts.
The complainant alleged improper actions by the executive director, deputy executive director,
and chairman of the board, related to improper sole-source contracts and contract amendments
with Abt. Our objective was to determine whether the Authority followed federal requirements
for procurement and contract administration when it hired Abt. For fiscal years 2004 and 2005
we reviewed three consulting contracts and did not determine whether other procurements
complied with federal requirements

During our review of the contract for assistance with planning for the use of replacement housing
factor funds, information came to our attention, indicating that the Authority did not properly
administer funds previously obtained through the program. As a result, we expanded our review
to determine whether the Authority followed HUD requirements. Regulations at 24 CFR [Code
of Federal Regulations] 905.10 govern the replacement housing factor program, which was
established to assist in the replacement of public housing units lost through demolition or
disposition.




                                               5
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Follow Federal Requirements for
Procurement or Contracting
The Authority did not follow federal requirements or its own policies and procedures for
procurement, contracts, or contract administration when it hired Abt for three consulting
contracts between 2004 and 2005. The Authority’s noncompliance included its failure to
complete independent cost estimates and cost analyses, failure to ensure fair and impartial
competitive procurement, use of inappropriate contract types and forms, inappropriate contract
amendments, and improper use of sole-source procurement. The noncompliance occurred
because the executive director and deputy executive director ignored requirements and because
the purchasing manager did not follow established procedures. As a result, the Authority could
not show that competition was fair and impartial or that the prices it paid for services were
reasonable.



 The Authority Issued Three
 Contracts to Abt


              The Authority issued three contracts to Abt Associates, Incorporated (Abt), at a
              cost of $473,499 after the most recent contract amendments. The first contract
              was for assistance in developing and administering a voluntary compliance
              agreement that HUD required to correct fair housing violations. Under the second
              contract, Abt wrote a plan and a development proposal for the Authority’s future
              use of replacement housing factor grant funds. Under the third contract, Abt
              wrote the Authority’s application for state low-income housing tax credits, which
              the Authority planned to use, along with the replacement housing factor funds, to
              build new housing for its low-rent program. Both the voluntary compliance
              agreement and low-income tax credit contracts went through a competitive
              procurement process, while the replacement housing factor contract was a sole-
              source selection.


 The Authority Failed to
 Complete an Independent Cost
 Estimate and a Cost Analysis


              Although regulations at 24 CFR [Code of Federal Regulations] 85.36 and the
              Authority’s written procurement policy requires an independent cost estimate for
              every procurement action, as well as a cost analysis for every professional



                                               6
            consulting service offer, the purchasing department did not prepare adequate
            independent cost estimates for the two competitively procured Abt contracts and
            did not prepare any independent cost estimates for the sole source consulting
            contract with Abt. Further, because the Authority did not request adequate cost
            information from the prospective contractors, as HUD Handbook 7460.8 and the
            Authority’s own policy require, it could not complete a meaningful cost analysis.
            The estimate should be done before soliciting bids or proposals and the analysis
            after reviewing cost information received from the prospective contractors. Both
            must take into account all elements of cost (including overhead and profit) and the
            total cost of the contract, and both are necessary to ensure the final cost of the
            contract is reasonable.

            For the two competitive procurements, the purchasing manager estimated an
            hourly rate, which he said was based on past solicitations for consultant services.
            However, he did not attempt to estimate the number of hours required to complete
            either job or break down the elements of cost; therefore, he did not complete the
            process of estimating the full cost of the contract. In the case of the sole-source
            procurement, no attempt was made to prepare an independent cost estimate or a
            cost analysis.

            In the requests for proposals, the Authority did not ask respondents to provide a
            total price for the jobs or break down elements of cost. It only asked respondents
            to state the hourly rates they would charge and the rates at which they would
            require reimbursement for travel. The purchasing manager limited his cost
            analysis to a comparison of these rates with his estimate. For the comparison, the
            purchasing manager extended the hourly rates by multiplying each proposed rate
            by 100. The multiplication factor was arbitrary and did not reflect actual
            estimates. Therefore, the cost analysis was meaningless because one firm might
            have completed the work in a fraction of the time used by another firm and,
            therefore, cost less even while charging higher hourly rates.

The Authority Failed to Ensure
Competitive Procurement Was
Fair and Impartial

            The Authority’s contention that the amount of work required could not be
            estimated is not credible. The Authority and most of the contractors responding
            to the requests for proposals had relevant past experiences on which to base an
            estimate. The first contract was for assistance in negotiating and carrying out a
            voluntary compliance agreement required by HUD to correct fair housing
            violations. Two of the respondents had extensive experience and knowledge of
            the fair housing requirements, and Abt had assisted several large and medium-size
            housing authorities with similar voluntary compliance agreements. Further, the
            Authority included the HUD letter with the findings from the compliance review
            in the request for proposals to ensure prospective contractors knew what was



                                             7
needed. The last contract was for assistance in applying for state low-income
housing tax credits. The Authority hired consultants to apply for tax credits in the
past, and the responding firms had substantial relevant experience. Therefore, the
Authority and the contractors had adequate knowledge and experience to develop
cost estimates and establish a total fixed contract amount.

Contrary to the requirements of 24 CFR [Code of Federal Regulations] 85.36 and
HUD Handbook 7460.8, the two competitive procurements that resulted in hiring
Abt were not conducted in a fair, impartial, and consistent manner. Before hiring
Abt, the Authority solicited proposals. Each proposal received numeric scores for
six evaluation criteria, and Abt was chosen based on those scores. However,
some of the scores for individual criteria were not reasonable, and others were not
supported. As a result, there is no assurance the Authority hired the best
contractor based on price and other factors.

The evaluation of information provided in the proposals was broken into two
parts. The purchasing manager scored the first three criteria (considered to be
objective criteria), which included cost. A three-person evaluation panel scored
the last three criteria (considered to be subjective criteria), including experience,
technical competence, and past performance; specialized knowledge, capability,
and ability; and overall quality of the proposal submitted. Some of the scores
given by the purchasing manager were not reasonable, and the lack of support in
the evaluation panelists’ narrative justification statements indicates that either
they did not review the proposals in a careful manner or they ignored the content
of the proposals.

Tax Credit Solicitation Scored Unfairly
For the solicitation for a consultant to assist the Authority with an application for
tax credits, the purchasing manager gave Abt a score of 60 for the cost criteria and
gave another firm a score of 45, although he had calculated a difference in cost of
only 2.65 percent. The large disparity in scores was not justified by the small
difference in calculated cost.

In addition, the panelists’ narrative justifications for their scores were often
inconsistent with the information submitted in the proposals. All three firms had
relevant experience with low income housing tax credits. However, one panelist
wrote that one of the firms had no relevant tax credit experience, although the
firm’s proposal included detailed descriptions of tax credit projects it had
obtained funding for at a number of housing authorities.

Voluntary Compliance Agreement Solicitation Scored Unfairly
For assistance with the voluntary compliance agreement, the evaluation panel
included the deputy executive director and two department managers. Both Abt
and another firm submitted proposals that showed extensive and comparable
relevant knowledge and experience. However, Abt received an average score 53
percent higher than the comparable firm for all evaluation categories other than



                                  8
           cost, including the maximum available points for the experience category and the
           knowledge and capability category. Moreover, since Abt’s proposed rates were
           45 percent higher than the other firm’s, the selection was not fair and impartial.


The Authority Used an
Inappropriate Contract Type
and Form


           Contrary to requirements of 24 CFR [Code of Federal Regulations] 85.36(i) and
           its own Contracts and Purchasing Procedures Manual, the Authority used an
           improper contract type for the two competitive Abt contracts and a contract form
           that omitted required clauses for the sole source contract.

           Improper Contract Type Used
           The Authority inappropriately used a type of contract called a requirements
           contract, instead of a fixed-price or cost reimbursement contract (see 24 CFR
           [Code of Federal Regulations] 85.36(d)(3). As a result, the Authority had little
           control over costs, which escalated from an initial $110,000, the original total for
           the two competitive Abt contracts, to $394,845.

           HUD Handbook 7460.8 states a firm fixed price should be used whenever
           possible because it encourages contractor efficiency and controls costs. Under a
           fixed-price contract, the risk of cost overruns is born by the contractor, rather than
           the housing authority. The handbook also describes other types of contracts and
           the circumstances for their appropriate use. It states a requirements contract is
           only appropriate for the purchase of specific commercially available items or
           services at a fixed price over a specified period, when the precise quantity of the
           items needed is not known but there is a realistic estimated total quantity. The
           key to a requirements contract is the ability to easily determine a reasonable cost
           because the item or service is readily available from commercial sources.

           The Authority’s choice of requirements contracts rather than fixed-price contracts
           resulted in contracts that provided for easy price amendments. Both requests for
           proposals specified the contracts would be “requirements contract(s), with work
           ordered on a task order basis; meaning the [Authority] does not at this time know
           the exact total of all work it will award to the contractor pursuant to this contract,
           but the [Authority] will order additional work on an as-needed basis.” The
           solicitations and resulting contracts also stated, “[t]he [Authority] reserves the
           right to order any quantity of work pursuant to this contract, which means the
           [Authority] is not agreeing to a definitive minimum and/or maximum amount of
           work that may be ordered, either on an individual order basis or in total.” In




                                             9
addition, although contradictory to the previous language, the contracts included
not-to-exceed values of $50,000 for the voluntary compliance agreement contract
and $60,000 for the tax credit contract, which could only be amended with the
board’s approval.

The use of requirements contracts was inappropriate because the services solicited
by the Authority were not for specific commercially available services of
unknown quantities, since the unknown in question was not the services to be
provided but the number of hours to be provided. As discussed above, in the
section about independent cost estimates and cost analysis, both the Authority and
Abt were capable of determining reasonable fixed-price or not to exceed amounts
for the contracts, but the Authority chose not to do so.

The inappropriate use of requirements contracts and lack of cost analyses
eliminated the Authority’s control over costs and allowed for contract
amendments, resulting in a 322 percent increase in the price of the contract for
assistance with the voluntary compliance agreement and the 227 percent increase
in the price of the contract for assistance with tax credits.

Inappropriate Contract Form Used
The Authority noncompetitively selected Abt to prepare the replacement housing
factor plan and development proposal. The Authority signed a contract written by
Abt, omitting clauses required by 24 CFR [Code of Federal Regulations] 85.36.
These clauses were designed to protect the interests of the grantee (in this case,
the Authority) and the federal agency (in this case, HUD) and ensure compliance
with federal regulations. Omitted clauses included the following:

•   Administrative, contractual, or legal remedies for violation or breach of
    contract terms and applicable sanctions and penalties;

•   Notice of reporting requirements and regulations;

•   Notice of patent requirements and regulations;

•   Copyrights and rights in data requirements and regulations;

•   Access to documentation and records requirements; and

•   Retention of all records requirements.

The Authority’s internal controls were designed to ensure all necessary clauses
were included in each contract by requiring the use of approved contract
templates and final contract approval by both the legal counsel and the purchasing




                                 10
          manager. The executive director and deputy executive director ignored the
          controls and signed Abt’s contract without notifying either office.


The Authority Improperly
Amended Contracts by More
Than 200 and 300 Percent


          Contrary to requirements of 24 CFR [Code of Federal Regulations] 85.36(d)(4),
          the Authority did not properly justify noncompetitive contract modifications and
          price increases for its three contracts with Abt. The Authority’s improper
          contracting method and inclusion of unpriced options in the Abt contracts resulted
          in lack of control over contract costs and lack of open and fair competition. HUD
          Handbook 7460.8 explains that a contract option’s quantity and price must be
          specified in competitive solicitations and an unpriced option is considered a new
          contract requiring a new procurement.

          Contract for Assistance with the Voluntary Compliance Agreement
          In April 2004, HUD notified the Authority of the result of its fair housing review
          and the need for a voluntary compliance agreement. In July, the Authority issued
          a request for proposals for a knowledgeable consultant to “(1) advise the HA
          [housing authority] as to a pertinent course of action; (2) assist in developing the
          documentation required by HUD; and (3) participate in the dialog with HUD and
          negotiation of the voluntary compliance agreement.” In addition, the contractor
          would be asked to provide quarterly post settlement compliance reports and
          quarterly status reports on implementation of the voluntary compliance
          agreement.

          Before executing the contract with Abt, the executive director and the deputy
          executive director asked for the board’s approval as required. The contract start
          date was August 23, 2004, with the contract amount not to exceed $50,000.
          However, the deputy executive director authorized Abt to continue work beyond
          the $50,000 limit, issuing an interim notice to proceed in December 2004 without
          prior board approval. He excused the lack of approval by stating in the
          authorization letter that the December 2004 board meeting had been cancelled but
          board approval would be requested at the next meeting. At the next board
          meetings in January and February 2005, the Abt contract was excluded from the
          agenda and was not discussed. In March 2005, the deputy executive director
          issued another interim notice to proceed, authorizing additional work, and the
          letter again stated that there was no March 2005 board meeting but he would seek
          board approval at the next meeting. The two contract increases were not
          disclosed to the board until April 2005, almost five months after the initial notice
          to proceed. By the time the board was made aware of the situation, the increase
          had grown to $161,200 for a total contract cost of $211,200, a 322 percent



                                           11
increase. The deputy executive director explained the increase to the board,
stating the original contract amount was “pretty much just an estimate on the part
of the staff because the true costs of the voluntary compliance agreement are not
known until after it is negotiated and all of the conditions that have to be met are
identified.” He went on to explain that under the voluntary compliance
agreement, HUD required training for Authority staff and set a January deadline
for submission of a training curriculum for approval. Abt had already created the
curriculum and still had to conduct the training. Contrary to the HUD Handbook
7460.8 requirement to specify a price for contract options, this contract did not
specify a cost for developing a curriculum or for training. Since training was not
included in the original contract, except as something Abt could provide, if asked,
it should have been handled as a separate procurement with an independent cost
estimate, a request for proposals, and a cost analysis. Even if Abt was the best
firm to assist with the negotiation of the voluntary compliance agreement, it may
not have been the best firm to handle training. Again, there is no assurance the
cost was reasonable and there was a lack of open and impartial competition.

According to the Authority’s procurement policy (and the contract itself), neither
the executive director nor the deputy executive director had the authority to make
an increase to the contract without prior board approval. Considering the
cancelled meetings, the meetings when the contract was not on the agenda, the
minutes of the meeting when the board approved the initial contract and those
when the board considered the increase, the executive director and the deputy
executive director did not make sufficient and timely disclosure to the board. The
board was initially unreceptive to the need for an increase, resulting in a
contentious discussion during the April 2005 board meeting. Because the tape
recorder used to record board meetings malfunctioned during the discussion and
the information was not transcribed, based on a recommendation from its counsel,
the issue was carried over to the May 2005 meeting as an agenda item. Although
the board approved the increase, one board member stated the board had been
misled and the process was improper, but since the work had been done there was
no choice but to approve payment.

Contract for Preparation of a Replacement Housing Factor Plan and Development
Proposal
The original $59,200 contract to prepare the replacement housing factor plan was
improperly amended. The contract was executed in October 2004 and amended
in November 2004 for a total value of $78,654. The amendment added an
additional work item deliverable for the preparation of a development proposal.
In a September 23, 2004, letter, HUD required the Authority to submit the plan
within 30 days and the development proposal within 90 days. The executive
director and the deputy executive director were fully aware of both requirements
when they awarded the contract, and they were also aware that the replacement
housing plan and development proposal were so interconnected that use of
separate contractors would be inefficient. However, they did not include the
deliverable for preparation of the development proposal in the original contract



                                 12
     and, contrary to requirements of the Authority’s procurement policy, they did not
     provide written justification for the contract modification as a noncompetitive
     procurement (See chapter 4-37, Handbook 7460.8 in appendix C). Further,
     although they notified the board about the emergency procurement for $59,200 in
     October 2004, they did not ask the board to approve either the original contract or
     the amendment until the February 2005 board meeting, after work was completed.

     Contract for Assistance with a Low-Income Tax Credit Application
     The Authority contracted for assistance in applying for and administering state
     low-income tax credits to leverage financing for new construction of public
     housing. After issuing a request for proposals and evaluating the three responses
     received, the Authority executed a $60,000 contract with Abt on March 30, 2005.

     In its response to the request for proposals, Abt provided a two-phase work plan,
     which was incorporated in the contract. The contract included Abt’s price
     breakdown for phase one of the work plan, but it did not provide pricing for phase
     two. The total for phase one was $47,370 and the introduction to the plan stated
     that Abt recommended a fixed-price contract. The Authority did not document
     why it set the contract’s “not to exceed” value at $60,000 or why it did not use a
     fixed-price contract. In June 2005, the contract was amended for phase two with
     a 206 percent increase of $123,645 for a total contract value of $183,645. Phase
     two was treated as an option, but as an unpriced option, it violated requirements
     prescribed in HUD Handbook 7460.8.

     All Contract Amendments Were Improper

     All three contracts were improperly amended and in each case, the amendment
     was an option for additional services that were not priced or negotiated until the
     time of the amendment. Other contractors were denied the opportunity to
     compete for the work and costs were not controlled. In all cases, this occurred
     because the executive director and the deputy executive director ignored federal
     requirements and the Authority’s written procedures and management controls.

     The following table shows the amendments and relative increases for each of the
     three Abt contracts.

Abt contracts    Effective date   Original    Amendment    Additional     Total      Percent
                                  amount          date      amount                   increase
VCA-CO4070      August 23, 2004   $50,000      July 2005   $161,200     $211,200      322%
RHF-CO5018      October 1, 2004   $59,200    November 2004 $19,454       $78,654       33%
Tax Credit-     March 30, 2005    $60,000      June 2005   $123,645     $183,645      206%
CO5014
Totals                            $169,200                  $304,299    $473,499

                                                                 Average increase = 187%




                                        13
The Authority Improperly Used
Sole-Source Procurement


             The Authority improperly interpreted emergency sole-source procurement
             provisions of 24 CFR [Code of Federal Regulations] 85.36 (d)(4)(i)(B) and state
             regulations when it hired Abt to prepare a replacement housing factor plan and
             development proposal. Section 332.112 of the Nevada Revised Statutes (and the
             HUD handbook) defines an “emergency” as a disaster like fire, flood, hurricane,
             riot, power outage, or disease, which may impair the health, safety, or welfare of
             the public if not immediately attended to.

             The Authority’s director for development and modernization believed he could
             prepare an approvable plan in house. Instead, the executive director and the
             deputy executive director hired Abt to prepare the plan at a cost of $59,200. They
             justified the noncompetitive procurement as an emergency because HUD imposed
             a 30-day deadline, which if missed, would result in the loss of the current and
             future replacement housing factor grants totaling approximately $10 million.
             However, the executive director’s and the deputy executive director’s justification
             was inappropriate because this was not an emergency created by outside forces, as
             described in of the Nevada Revised Statutes and the handbook. It was directly
             caused by the Authority’s failure to use the grants for replacement housing within
             regulatory time limits. Instead, the Authority inappropriately deposited the grant
             funds in an investment account (see finding 2). As a result, there is no assurance
             the cost of the services was reasonable or necessary.

Conclusion



             The Authority violated federal requirements during the procurement process and
             throughout the administration of all three Abt contracts. All of these violations
             occurred because the executive director, deputy executive director, and
             purchasing manager ignored federal procurement requirements. Because the
             Authority failed to complete the steps necessary to ensure contract costs were
             reasonable, the $473,499 paid to Abt Associates for the three contracts remains
             questionable. For the two competitive contracts, the Authority must provide
             support to show the amounts paid to Abt were reasonable, or they must repay the
             low-rent program from nonfederal funds. In the case of the sole source contract
             for assistance with the replacement housing factor plan, the Authority failed to
             show the need to hire a consultant, making the sole source procurement
             unnecessary. Therefore, the Authority must reimburse the federally funded
             account used for payment from nonfederal funds. OIG’s previous audit was
             conducted in 2002 and the report was issued in 2003. The OIG audit report



                                             14
          contained similar procurement violations by the Authority. A year later, HUD
          performed a comprehensive management review, and reported that the Authority
          continued to violate procurement requirements. As a result of the OIG and HUD
          reviews, the authority established new procedures, policies, and controls to ensure
          compliance with federal requirements.

          Both the current executive director and the purchasing manager were in place
          when the prior OIG and HUD reports were issued and were responsible for the
          corrective actions. Some of HUD’s findings were on procurement actions that
          occurred under the management of the current executive director.

          Although the current deputy executive director was new to this Authority in June
          2004, he had 30 years housing experience, including positions as deputy
          executive director and executive director of other housing authorities and as a
          consultant providing expert advice to other housing authorities. Therefore, the
          three officials should have known that federal procurement requirements must be
          followed. However, the Authority’s executive managers ignored the required
          procedures when in conflict with their apparent desire to hire Abt, repeating the
          previous violations and demonstating a continuous disregard for federal
          requirements.

          The following table summarizes the deficiencies of the three contracts.

     VIOLATIONS                    CONTRACTS AND AMOUNTS
                             Voluntary Compliance   Replacement Housing     Tax Credit $183,645
                             Agreement $211,200     Factor $78,654
Lack of proper independent
cost estimate and cost                X                       X                      X
analysis
Unfair competitive
procurement                           X                                              X
Improper contract type                X                                              X
Improper contract form                                        X
Improper contract
                                      X                       X                      X
amendment
Improper sole source
                                     X*                       X                     X*
procurement
Lack of board approval                X                       X
Lack of review by
purchasing manager and                                        X
legal counsel

      * Improper amendments amounted to improper sole source procurement.




                                             15
Recommendations

          We recommend that the Region IX Director of Public Housing

          1A.     Direct the Authority to repay $78,654, the cost of the noncompetitive
                  contract for assistance with the replacement housing factor plan, to the
                  account holding the proceeds from the sale of public housing from funds
                  not derived from federal sources, including federal grants, program
                  income from federal programs, the proceeds from the sale of public
                  housing property, or other funds the use of which HUD has the authority
                  to regulate.

          1B.     Require the Authority to provide support showing the $211,200 paid for
                  the voluntary compliance agreement services was reasonable or repay its
                  low-rent program from funds not derived from federal sources, including
                  federal grants, program income from federal programs, the proceeds from
                  the sale of public housing property, or other funds the use of which HUD
                  has the authority to regulate.

          1C.     Require the Authority to provide support showing the $183,645 it paid for
                  assistance with its tax credit application was reasonable or repay its low-
                  rent program from funds not derived from federal sources, including
                  federal grants, program income from federal programs, the proceeds from
                  the sale of public housing property, or other funds the use of which HUD
                  has the authority to regulate.

          1D.     Provide training to the board, executive staff, and purchasing manager to
                  ensure they understand federal procurement and contracting requirements
                  and have the same understanding of their respective responsibilities.

          1E.     Require the Authority to obtain HUD review and approval of all
                  professional service contracts and amendments totaling more than $50,000
                  in part or aggregate (consulting, accounting, legal services, and architect
                  and engineering services) before execution for a minimum of one year or
                  until HUD is satisfied the procurements and contracts meet federal
                  requirements.

          We also recommend that the Director of HUD’s Departmental Enforcement
          Center, based upon the findings of this report, along with the prior OIG audit and
          HUD management review of the Authority

          1F.     Take appropriate administrative actions against the executive director,
                  deputy executive director, and purchasing manager for their continuous
                  disregard of federal requirements, up to and including debarment.




                                           16
Finding 2: The Authority Improperly Retained the Earnings From
Invested Replacement Housing Factor Grant Funds
Instead of obligating and expending over $2.9 million of replacement housing factor grant funds
for low rent housing, the Authority inappropriately placed the funds in an investment account
and earned $84,569 in interest. Although the Authority complied with HUD’s demand to return
the grant funds, the Authority improperly retained the interest. The noncompliance occurred
because the Authority was not aware that the comptroller general requires the return of any
interest earned from such advances to the federal government. As a result, the Authority was
unjustly enriched by its misuse of federal funds.



 The Authority Was Unjustly
 Enriched by Improper
 Investment of Replacement
 Housing Factor Grants


              The replacement housing factor program was established to assist in the
              replacement of public housing units lost through demolition or disposition. The
              Authority initially told HUD it would use the funds to purchase scattered site
              housing for its low-rent program. However, it later abandoned this plan, and
              without a clear alternate plan for how it would obtain replacement housing, it
              deposited the replacement housing factor funds in an investment account in
              March 2002, in violation of 24 CFR [Code of Federal Regulations] 905.10.

              HUD discovered the inappropriate use of the replacement housing factor grants
              during a comprehensive management review. HUD’s February 6, 2004, report
              stated the 2000 and 2001 funds were not spent on replacement housing as
              required and the Authority did not have an approved replacement housing factor
              plan. HUD instructed the Authority to return the grant funds and develop a
              replacement housing factor plan, setting firm goals and directions for the use of
              the remaining replacement housing factor funds, including the funds for 2000 and
              2001. In October 2004, the Authority returned the principal amount of the grant
              funds to HUD, but to date, the earnings of $84,569 remain with the Authority.


 Interest Must Be Returned to the
 Government

              In its 1992 decision B-246502, the comptroller general of the United States held
              that grant recipients may not keep the earnings from the unauthorized investment
              of grants. The comptroller general further held that agencies do not have



                                              17
          discretion to allow grant recipients to keep the interest earned from such grant
          advances and are responsible for ensuring reimbursement is made to the United
          States Department of the Treasury. Therefore, HUD must ensure the Authority
          returns the earnings to the federal government.

Recommendations



          We recommend the Region IX Director of Public Housing

          2A.     Direct the Authority to repay the $84,569 in interest earned on
                  replacement housing factor grants and ensure the funds are returned to the
                  United States Department of the Treasury.




                                          18
                        SCOPE AND METHODOLOGY

We conducted our audit at the Authority’s offices in Las Vegas, Nevada, between June 28 and
July 28, 2005. The audit covered three procurement actions with Abt and the resulting contracts
and administration thereof between July 2004 and February 2005. We met with the complainant
and discussed operations with the Authority’s management and relevant staff, as well as key
officials from HUD’s San Francisco, California, and Las Vegas, Nevada, offices. We also
reviewed federal, state, and local procurement and contracting requirements.

The primary methodologies included reviews of the Authority’s

   •   Procurement policies, procedures, and processes;

   •   Minutes of board meetings for 2004 and 2005;

   •   Three contracts totaling $473,499 awarded to Abt;

   •   Accounting records for all payments to Abt; and

   •   Bank statements and accounting records for replacement housing factor grant
       investments.

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




                                              19
                              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:

              •       Written policies and procedures for procurement and contract administration.

              •       Adequate knowledge of and compliance with regulatory requirements.

              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:

              •       Although the Authority’s written policies and procedures require compliance
                      with federal, state, and local regulations for procurement and contracting, the
                      executive director, deputy executive director, and contracting manager,
                      ignored those requirements. The Authority’s management did not establish a
                      control environment that set a positive and supportive attitude toward
                      internal control or conscientious management. (See finding 1).

              •       The Authority’s officials lacked adequate knowledge of requirements for
                      earnings on federal grant funds. (See finding 2).



                                                20
                                   APPENDIXES

Appendix A

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

 Recommendation               Ineligible 1/                        Unsupported 2/
     number
      1A                        $78,654
      1B                                                              $211,200
      1C                                                              $183,645
      2A                        $84,569


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

2/   Unsupported costs are 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.




                                              21
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1



Comment 2




                         22
Comment 3




Comment 4




Comment 2




            23
Comment 2




            24
Comment 5




            Names have been redacted for privacy




                            25
26
27
28
29
Comment 5




            30
31
Comment 5




Comment 6




            32
Comment 5



Comment 7

Comment 8




Comment 9




Comment 2




            33
Comment 5




Comment 10




             34
Comment 11


Comment 10




Comment 2




Comment 12




             35
Comment 13




Comment 14




             36
Comment 14




Comment 15




Comment 16




Comment 17




             37
Comment 18




Comment 19




Comment 20




             38
Comment 20




             39
Comment 19




Comment 21




             40
Comment 22


Comment 23




Comment 12




             41
Comment 24




Comment 25




             42
Comment 25




             43
Comment 26



Comment 27




Comment 28




             44
Comment 28




Comment 25




Comment 29




             45
Comment 29




Comment 2




Comment 30




             46
Comment 30




Comment 31




Comment 31




             47
Comment 32




Comment 29




Comment 5




             48
Comment 5




Comment 33




Comment 29




             49
Comment 29




             50
                            OIG Evaluation of Auditee Comments

Comment 1: We have included the entire 29 pages of comments, unmodified, in the final
           report. It is not OIG’s policy to include all exhibits provided with the auditee
           response, or additional information provided, as this constitutes a large volume of
           documents. As a result, the exhibits have not been included, but are available
           upon request.

Comment 2: During the exit conference on March 21, 2006, the attending attorneys from
           Ballard & Spahr repeatedly stated that they expected to receive a revised draft
           report to which they would provide final comments. The Regional Inspector
           General repeatedly explained to the attorneys that the Office of the Inspector
           General would review the written comments received in response to the
           discussion draft (which was provided to the auditee prior to the exit conference)
           as well as any additional documentation provided, and we would only provide a
           revised discussion draft to the auditee if substantial changes were required. Minor
           changes were made to the final report based on information obtained during the
           exit conference, review of the written comments, and documents provided by the
           Authority’s attorneys. However, these changes were not substantial to affect the
           conclusions presented in the February 28, 2006, discussion draft report.
           Therefore, a revised discussion draft was not warranted.

Comment 3: The audit findings and conclusions (as explained during the exit conference) are
           primarily based on the analysis of documents obtained from the Authority
           (including minutes of the Board of Commissioners’ meetings). During the audit,
           we also discussed finding issues with the executive director and other housing
           authority staff. As a matter of fact, as we were responding to the Authority’s first
           set of comments to the draft report and decisions were being made on whether a
           revised draft was necessary, the HACLV attorneys received approval from OIG
           Headquarters for yet another extension of time to provide another set of
           comments to the draft report.

Comment 4: The Office of the Inspector General repeatedly communicated to the Authority the
           deadlines delineated by internal policies and procedures. Despite the established
           procedures, the Authority was allowed substantial leeway and several time
           extensions to participate in an exit conference and provide its official comments.

Comment 5: The Authority claims auditors did not obtain a fair and balanced view of the
           matters under audit because the auditors only interviewed commissioners who
           disagreed with the executive actions, failing to meet Section 7.39 of the
           Government Auditing Standards. The entire Section 7.39 actually states:
           “Auditors should communicate information about the specific nature of the
           performance audit, as well as general information concerning the planning and
           conduct of the audit and reporting—such as the form of the report and any
           potential restrictions on the report - to the various parties involved in the audit to
           help them understand the objectives, time frames, and any data needs. Parties



                                                51
involved may include a. the head of the audited entity; b. the audit committee or,
in the absence of an audit committee, the board of directors or other equivalent
oversight body; c. the individual who possesses a sufficient level of authority and
responsibility for the program or activity being audited; and d. the individuals
contracting for or requesting audit services, such as contracting officials or
legislative members or staff, if applicable.”

The auditors fully complied with the requirements of Section 7.39 by
communicating information concerning the planning and conduct of the audit to
the executive director by telephone on June 20, 2005, by a letter on June 21, 2005,
and during the entrance conference held on June 28, 2005. Only one
commissioner (the same one the auditors subsequently interviewed) was present
at the entrance conference, although all could have attended. The auditors kept the
executive director informed about the audit progress the entire time the audit team
was present at the Authority’s premises (through July 2005), including plans to
return to the audit site after the end of the survey stage to review additional
contracts.

It is not OIG's policy to recommend administrative sanctions lightly or without
considering the total audit, as well as discussing the issues and recommendations
with both HUD Public Housing officials and OIG headquarters officials.
Therefore, a decision to recommend sanctions is not normally discussed while the
audit fieldwork is still in progress.

Although we were not required to discuss issues with the Board of
Commissioners, the matters of use of federal funds in the emergency procurement
with Abt and RHF and VCA contracts and contract amendments were discussed
with two commissioners. One of the two commissioners interviewed was the
complainant, and the other was the sole commissioner present at the entrance
conference, at which time she offered to meet with the auditors. We also
discussed a procurement matter, not related to the findings identified in the report,
with the chairman of the board that directly related to him. In addition, we
discussed the matters of emergency procurement for the RHF contract and the
VCA contract with the authority’s then current counsel, and discussed audit
related matters with the director of modernization and finance director. We
discussed our preliminary results with the director of modernization, deputy
executive director, and executive director on July 26th, 2005. These
communications show the auditors maintained an objective balance of
communication with those who agreed and disagreed with the procurement
actions under review. Although written finding outlines were not provided to the
auditee, the issues were discussed with its officials, including an extensive
discussion during the March 21, 2006 exit conference in which the authority
responded to each finding issue in great detail. We have audit work papers that
document the discussions held
r




                                 52
              Our discussions with the authority’s executive director and other officials
              throughout the audit fulfilled the Government Audit Standards requirement fo
              holding discussions with the head of the audited entity, and provided a reasonable
              and fair opportunity for those subject to the audit findings to respond. The lack of
              finding outlines did not affect the final outcome of the proceedings as the auditee
              was granted a reasonable period to document its rebuttal to the audit findings
              documented in the February 28, 2006, discussion draft. Our office gave the
              auditee substantial leeway for their response, including an extension before the
              exit conference, which was held three weeks later on March 21, 2006; an
              opportunity to provide “unofficial” written comments on March 27, 2006; and to
              provide final comments on May 8, 2006 (see appendix B), 69 days after the
              discussion draft was issued.

              In addition, we did not solely rely on the claims of two board members as the
              auditee claims. As mentioned above, discussions were held with other authority
              officials. We reviewed and considered all pertinent documentation, including
              documents provided by the auditee in response to the discussion draft, to draw our
              final conclusions.

              Examples of specific non-compliance about the tax credit procurement and
              contract processes (reviewed after on-site work was completed) were
              communicated to the executive director and the deputy executive director in the
              discussion draft report of February 28, 2006, along with the rest of the audit
              findings and conclusions. In the declaration submitted by the purchasing
              manager, he stated that the auditors expressed opinions and audit conclusions
              including, the conclusion that the RHF contract was an emergency and the use of
              a requirements contract was acceptable. Neither of the auditors ever expressed
              conclusions or opinions claiming to approve or agree with the justification of the
              emergency RHF contract. Neither of the auditors ever made any comments about
              the propriety of requirements contracts for professional consulting services.

Comment 6: The auditors interviewed the then current legal counsel to the Authority, who was
           actively involved in the matters under audit. The legal counsel was to participate
           in the June 28, 2005, entrance conference; however, he missed the meeting
           because he was given the wrong time by the authority officials. There is no
           criteria prohibiting auditors from asking the legal counsel questions, and the
           Authority never requested the auditors not to do so. Many of the questions asked
           of the attorney were public knowledge as it related to approval for sole source
           contracts because the information was in the board minutes. The attorney
           comfortably refused to comment on issues he felt were inappropriate for our
           discussion. This indicates he was alert of his freedom to refuse answering our
           questions. Further, it was incumbent upon the attorney to protect any privileged
           communication with the housing authority and not the responsibility of the audit
           staff.




                                               53
Comment 7: During the entrance conference, the executive director and the deputy executive
           director indicated that the deputy executive director would be available to assist
           us with our needs during the audit. We were never informed of any restriction
           against contacting the Authority's employees, nor is there anything restricting us
           from speaking with employees of any federally funded entity.

Comment 8: The OIG transmitted reports to only two people, the executive director of the
           housing authority (via Federal Express and email) and HUD's director, Office of
           Public Housing, in San Francisco (via email). Further, the accompanying
           transmittal letters contained the following warning to prevent improper release of
           the draft contents:

              “Recipients of this draft must not show or release its contents for any
              purpose other than review and comment. They must safeguard it to prevent
              premature publication or otherwise improper disclosure of the statements or
              information it contains. Reproduction of this draft without consent of the
              Office of Inspector General is prohibited.”

              Additionally, each page of the draft report is clearly marked “DRAFT – USE
              RESTRICTED.”

              We did not consent to the reproduction of this draft to any other individuals, nor
              did we leak the draft to anyone else.

Comment 9: The OIG did not criticize business decisions, except when those decisions did not
           comply with government requirements or did not support economies or
           efficiencies of operations. The review and critique of an auditee's procedures is
           within the scope of OIG's authority, per the Inspector General Act of 1978 (see
           Appendix C – Criteria), and is an audit requirement.

Comment 10: We have adjusted the report to state that the executive director and the deputy
            executive director did not provide sufficient and timely disclosure to the board
            and that one board member stated that the board was misled. Our conclusion
            considered the documents provided with the auditee’s comments, most of which
            had already been reviewed during the course of the audit.

              The Authority states that "the interim notices [to proceed] clearly demonstrate the
              employees' attempt to inform, not mislead, the board." However, the interim
              notices to proceed were addressed to Abt Associates and the executive director
              and the deputy executive director have never provided any statement or evidence
              that the notices were sent to the board. There is no evidence to substantiate the
              Authority’s statement that the executive director and the deputy executive director
              consulted with the chairman of the board and legal counsel prior to issuing
              interim notices to proceed. If such a consultation occurred, neither the chairman
              of the board nor counsel had the authority to approve additional charges under the




                                               54
contract, and the rest of the board remained uninformed of the increase. By the
Authority's own procurement policies and procedures and according to the
contract itself, board approval was required before the contract could be
increased. The minutes of the April and May 2005 board meetings, including
statements made by the executive director and the deputy executive director
(below), show that the board was not informed about the contract increases until
April 2005.

Regarding the cancellation of two board meetings and the failure to disclose the
contract increase during two board meetings, the executive director stated that
Authority employees did not cancel board meetings during this time; the meetings
were cancelled by the chairman of the board. The cancellation of the December
2004 and March 2005 board meetings came into question during the April and
May 2005 board meetings, when the VCA contract increases were discussed. The
minutes show several explanations were offered.

   •   During the April board meeting, the deputy executive director said that he
       realized, when he read the agenda for the December board meeting, that a
       mistake had been made on the VCA contract because it did not account for
       the A&E firm that was supposed to partner with Abt as proposed in
       response to the RFP. Because of that, he needed to reassess the contract
       and recommend a separate RFP be issued for an A&E contractor.

   •   A board member said she remembered being told the meeting was
       cancelled because there was nothing on which the board needed to vote.
       The chairman of the board said that he was the one who said the meeting
       was cancelled, and he did not say there was nothing to decide, he said
       there was nothing important to decide.

   •   The executive director said during the May 2005 board meeting that the
       housing authority never had board meetings in December, and the March
       meeting was cancelled because of the NAHRO (National Association of
       Housing and Redevelopment Officials) conference, but they could have
       had meetings in December and the week after the March conference.

Based on the available documentation, it is not clear why or by whom the
meetings were cancelled. Nevertheless, if the executive director and the deputy
executive director knew there was an immediate need to increase the VCA
contract, and board approval was required before it could be increased; it was
their duty to ensure the full board (not just the chairman) knew the seriousness of
the situation and that board approval was needed. Further, if the chairman was
fully informed about the situation, he had a duty to inform the board and was
negligent if he told the board there was nothing important to decide.




                                 55
During the May 2005 board meeting, one of the commissioners, after recapping
the impropriety of the cancelled meetings said, "In the interim, staff has received
approval from the chairman of the board to increase this contract. I obviously
have two problems with that. One of them is, again we are placed in a situation
where nobody brought this to the board to increase the contract and the other one
is that there is a suggestion that I think it puts the Chairman in a bad position,
because the suggestion is that the Chairman of the Board has the ability to
approve things such as this without the participation of the board, and I think that
was an inappropriate request of the Chairman to do so." The executive director
responded, taking full responsibility for the contract increase and saying the
chairman was not asked for and did not give his approval. The executive
director's words, as recorded in the board minutes, were, "Let me put it publicly
out, the chairman of the board or no member of this board tell us it is okay to
proceed. I informed the chairman, and I told him this is what I have to do or my
staff should have done. Again, credit, blame, anything on that is sitting right here
with [name deleted], Executive Director, Las Vegas Housing Authority. I don't
want to hear publicly that the chairman or the chairman said this contract could
proceed. The chairman, absolutely not the chairman. The legal counsel was at
that meeting. If that was correct, our legal counsel should have stopped our
chairman of the board and said, "You cannot say that." Therefore, that was not a
true statement. However, there is something in the record, in the paper, that said
the chairman said go ahead and do it, the chairman's okayed me to go to do that
and bring back the ratification. Publicly saying that last time, I will say it again
for the record that I did that."

The Authority’s response provided an explanation why the executive director and
the deputy executive director did not disclose the contract increase to the board in
January or February, which goes back to what the deputy executive director stated
during the April meeting. The response stated, "...the VCA contract amendment
was not raised for board consideration due to issues that arose with the architect
on the contract. At the time, the executive director and the deputy executive
director did not have sufficient information upon which the board could make an
informed decision on the contract amendment.” If the executive director and the
deputy executive director did not have sufficient information upon which the
board could make an informed decision, they did not have sufficient information
to authorize work that exceeded the $50,000 contract limit.

The executive director’s and the deputy executive director’s failure to inform the
board of the increase further comes into question because one board member
specifically asked, during the February board meeting, if any money was owed to
Abt (aside from the RHF contract). The deputy executive director answered "that
the $78,000 that is in the Agenda is all that is owed for this particular work item.
The deputy answered that there is also a VCA contract which was executed with
them which is going to be on the March agenda, but that is not related to the
Replacement Housing Factor Plan, they are two separate agreements." The
executive director added that "the VCA agreement was approved by the board.



                                 56
              It was brought in front of the board, and it approved the VCA." During this board
              meeting nothing else was discussed about the VCA contract and the board was
              not informed that the VCA contract had exceeded its $50,000 limit or that the
              executive director and the deputy executive director had authorized additional
              work.

              The Authority also claimed in its response that the executive director’s monthly
              reports to the board, minutes of board meetings, and interim notices to proceed
              clearly show that the board was fully informed as to the status of the contract.
              However, there is no evidence that the executive director provided any reports to
              the board prior to April 2005 that disclosed the contract increase. The only
              information about the VCA that was disclosed to the board in January was the fact
              that HUD had signed it in December.

              In addition, the interim notices to proceed, signed by the deputy executive director
              and copied to the executive director, contained inaccurate statements. The first
              notice to the contractor in December 2004 stated that “…staff has received
              approval to incur costs against this Contract until such time as the board acts on
              the staff recommendation.” The second notice in March 2005 stated, "Staff has
              received approval from the chairman of the board to incur costs against this
              contract until such time as the board acts on the staff recommendation...." As
              discussed above, since the board was not informed and the chairman did not give
              such an approval, these representations were false, and misrepresented the facts to
              Abt..

Comment 11: The auditee incorrectly claims the OIG made a false statement that was a “glaring
            inaccuracy.” The discussion draft stated, “The board was unreceptive to the need
            for an increase, resulting in a contentious discussion during the April 2005 board
            meeting that carried over to the May 2005 meeting.” This is a true statement, as
            the discussion was begun during the April meeting and was not concluded until
            the May meeting. However, to address the auditee’s concern and to avoid any
            possible misinterpretation, we have clarified in the report the reason the
            discussion of the Abt contract was continued to the May board meeting was
            because of a malfunction of the tape recorder, and therefore, the ability to record
            the minutes.

Comment 12: The Authority provided evaluation sheets during the exit conference, one of
            which, the Authority's attorney agreed, contained handwriting that was extremely
            hard to read. As a result, we agreed to take a second look at the Authority’s
            records of evaluations of competitive proposals before finalizing the report.
            Subsequently, we asked the Authority’s evaluator whose handwriting was unclear
            to review his own work and transcribe his comments for us in type. After
            reviewing all evaluation materials again, we removed the reference to timelines
            and adjusted the report to ensure it contained accurate examples of why the
            scoring was not fair and objective.




                                               57
We noted that Abt received the maximum available points for each evaluation
criteria that was scored, except for one instance where one of the three evaluators
gave Abt 39 points out of a possible 40. Neither of the other two proposers
received the maximum possible points in any category. While we found no
misstatements of fact in the written evaluations of Abt's proposal, we found
material misstatements of fact in the evaluations of the other two proposals,
submitted by firms that did not receive contracts. The following examples clearly
show that the evaluation panel did not adequately review and evaluate all
proposals.

   •   In its proposal, one firm included a paragraph specifically identifying tax
       credit experience, followed by more detailed descriptions of each of the
       projects and its financing. However, one of the evaluators wrote on the
       evaluation sheet for this proposal, “This company has performed and
       developed many affordable apps for several HA’s but none specific to tax
       credits.” At the bottom of the sheet, the evaluator wrote, “Proposal was
       lacking in timelines and actual tax credit experience.”

   •   Another issue affecting scores was the ability of the proposers to provide
       training to Authority staff. The request for proposals stated the following:
       “Generally speaking, the successful proposer will provide assistance,
       training, mentoring, and related work products to the LVHA through the
       completion of the project." All three proposals addressed training.


Abt wrote the following in its proposal: "HACLV desires to manage the project
in-house and may need assistance from Abt Team in preparation of the Resident
Selection Plan and Management Plan.... Train HACLV staff in the construction
requisition process, involving multiple funding sources." One of the evaluators
wrote the following comment about Abt: "Also includes training;" another wrote:
"Addressed all areas indicated in the bid document;" and the third evaluator
wrote: "Abt will provide training in decision to manage in-house." All three
evaluators acknowledged Abt’s proposal to provide training.

One of the other two proposers wrote that its "LIHTC Principal would 'provide
assistance, training, mentoring, and related work products to the LVHA through
the completion of the project.'" The same proposer wrote it would "[p]rovide
LVHA's personnel with a general understanding of the tax credit process and
other debt component programs…. Provide LVHA an understanding of how our
financial model works and provide a detail analysis of the financial, tax and
compliance strengths and how the deal currently stands and provide suggestions
for improvement…. Advise LVHA on how to best rent up the underlying tenant
units based on regulatory, investor, and lender requirements and current market
conditions."




                                58
              However, one evaluator wrote that this proposer indicated no training in the
              proposal. Another wrote that this proposer “[d]idn’t provide any training. The
              third evaluator wrote that the "[f]irm states will provide general training/
              understanding; no formal in depth training program. No trainer of tax credits on
              staff; very weak in this area." None of the evaluators’ comments indicate a
              readily apparent fair and objective review of the proposal.

              The third proposer wrote "the team will be available to provide targeted assistance
              and training in all other public housing related areas, including tax credit
              compliance, project based Section 8 subsidies, public housing operating subsidy
              rules, accounting and budgeting for mixed finance ACC/non-ACC properties,
              among others." However, one evaluator also wrote about this proposer "[d]idn't
              provide any training." This evaluator’s comments do not indicate a readily
              apparent fair and objective review of this proposal.

Comment 13: We revised the report to clarify that the board was notified about the original
            contract in October 2004, but was not asked to approve the contract or
            amendment until the February 2005 meeting.

Comment 14: Although the Authority’s own procurement policies refer to Nevada Revised
            Statutes § 332.112, which defines “emergency,” and the Authority has operated
            under this statute since before our prior audit performed in 2002 (and we believe
            throughout its entire history), the Authority now claims, in response to the draft
            audit report, that the statute does not apply to housing authorities. We disagree.
            Although the Authority operates with a certain degree of autonomy, its governing
            board is appointed by and responsible to the mayor of the City of Las Vegas, and
            section 332 applies to the City.

              The Authority’s response quotes its own procurement policy, but omits the key
              words that do not fit the noncompetitive procurement of services for the
              development of the RHF plan (see Appendix C - Criteria). The pertinent words,
              which also are used in the Nevada Revised Statute, clearly describe an emergency
              as something that "may arise by reason of flood, earthquake, epidemic, riot,
              equipment failure, or similar event." However, the authority would not have been
              in this situation had it not failed to use grants for replacement housing within the
              regulatory time limits. The authority’s failure does not justify an emergency
              situation.

Comment 15: 24 CFR 86.35(i) requires all contracts to include "administrative, contractual, or
            legal remedies in instances where contractors violate or breach contract terms."
            The sample contract the Authority submitted to HUD and HUD approved
            included such clauses written to protect the Authority's interests and ensure the
            Authority's legal and other means of recourse were not restricted. The Abt
            contract, on the other hand, was written to protect Abt, and restricted the




                                               59
              Authority to two possible remedies, termination or binding arbitration. Moreover,
              the Abt contract included penalties against the Authority for delays, but none
              against Abt, and placed more liability on the Authority than the Authority’s
              sample contract allowed. The absence of required clauses has been a continuous
              problem at the authority as reported in our prior audit report.

Comment 16: The Authority's written comments dismiss the omission of the other required
            clauses as "a technical contract drafting mistake." We disagree because the
            requirements for the following are particularly important and apply to every
            contract: "Notice of reporting requirements and regulations; retention of all
            records for three years after completion of work; and access to documentation and
            records relevant to the contract by the Authority and HUD. OIG's last audit and
            HUD's comprehensive management review both criticized the Authority for
            omitting required clauses. As a result, the Authority developed contract templates
            and its Purchasing Procedures Manual was revised to require use of the templates.
            By signing a nonconforming contract, the Authority’s executive director and the
            deputy executive director again failed to follow regulatory requirements as well as
            their own, HUD approved procedures.

              In addition, the Authority's revised Purchasing Procedures Manual included
              requirements for review and approval of all contracts by both legal counsel and
              the purchasing manager prior to execution. The review was required to further
              ensure the contracts met federal requirements and to protect the Authority's
              interests. As an additional control to ensure compliance, the Authority's
              procedures required the purchasing manager to sign all contracts after the
              contractor and before the department head and executive director. All contracts
              required all four signatures and were to be signed in the specified order. The Abt
              RHF contract was not reviewed or signed by the purchasing manager.

Comment 17: We have revised the report to show that the Authority asked the board to approve
            the original contract (executed in October 2004) and the November 2004
            amendment in February 2005. In February, the board had questions about the
            propriety of the emergency justification and the amendment, and approval was
            delayed while seeking legal advice.

Comment 18: We modified the report to make it very clear that the Replacement Housing Factor
            contract was not a requirements contract.

Comment 19: We have revised the report to clarify the fact that the Authority repaid ineligible
            costs (rather than unsupported costs) for improperly procured consulting services
            as a result of the previous OIG audit. The OIG recommendation to provide
            support for the reasonableness of other service costs or repay was closed based on
            the actions the Authority's new acting executive director (now the executive
            director) took to revise procedures and develop controls to ensure future
            compliance with procurement requirements.




                                              60
              HUD found the Authority, under the leadership of the current executive director
              (who was acting executive director at the time) had increased the contract with the
              local law firm Marquis and Aurbach without competitive procurement. The firm
              was initially hired by the former executive director without procurement and
              without a contract. The resulting recommendation remains open because the
              Authority has yet to repay from nonfederal funds the $95,000 it paid to the
              attorneys. The Authority has now retained the services of an out of state law firm
              as general counsel, under which Marquis and Aurbach are acting as local
              subcontractors.

Comment 20: The Authority's attorneys quote certain regulations while ignoring others. The
            Authority believes federal regulations allow a choice for every procurement, of
            performing a price analysis or a cost analysis. Although the CFR, the handbook,
            and the Authority’s own written procurement policy contain general language
            stating "A cost or price analysis must be done for every procurement," further
            clarification in each describes when a price analysis may be used, and when a cost
            analysis is required. All are clear about the requirement for a cost analysis,
            including the offeror's submission of cost elements, for most consulting contracts
            and in all cases where price reasonableness is not based on a “catalog or market
            price of a commercial product sold in large quantities to the general public or a
            price set by law or regulation.” The HUD handbook and the Authority's own
            written procurement policy contain the same requirements, using the same
            language as the CFR.

              Here is the CFR section (emphasis added):

              24 CFR 85.36 Section f(1) states, "A cost analysis must be performed when the
              offeror is required to submit the elements of his estimated cost, e.g., under
              professional, consulting, and architectural engineering services contracts. A cost
              analysis will be necessary when adequate price competition is lacking, and for
              sole source procurements, including contract modifications or change orders,
              unless price reasonableness can be established on the basis of a catalog or
              marketprice of a commercial product sold in substantial quantities to the general
              public or based on prices set by law or regulation. A price analysis will be used in
              all other instances to determine the reasonableness of the proposed contract price.

              The Authority’s reference to section 2-7 of the HUD Handbook using phrases like
              “In most cases…” is correct, but incomplete. The Authority omitted the sentence
              immediately preceding the one they site, which states: “The extent of the analysis
              depends on the dollar value and complexity of the procurement.” Additionally,
              although section 2-7 of the Handbook uses the word “should” for performing a
              cost analysis for complex professional services contracts, regulations at 24 CFR
              85.36(f)(1) clearly place a mandatory requirement for such analysis by using the




                                               61
              word “must.” Neither the handbook nor the regulations treat professional
              consulting services as "most cases," where a price analysis is sufficient.
              Regarding the prior audit, that review included a sampling of all procurement
              categories, and therefore, OIG reviewed procurements for which price analysis
              was appropriate. HUD closes audit recommendations, not OIG. HUD closed the
              audit recommendations based on the Authority's revision of its procurement
              policies and procedures, not, as the Authority implied in its May 8 letter, because
              OIG changed its determination of when price analysis is appropriate.

Comment 21: In the report, we state the Authority did not prepare adequate independent cost
            estimates for the two competitively procured Abt contracts (for the VCR and for
            tax credits) and the Authority did not prepare any independent cost estimate for
            the sole source contract for an RHF plan. The estimates for the two competitive
            contracts were inadequate because they did not estimate the amount of the
            eventual contract. For the sole source contract, the Authority has not provided
            any independent cost estimate (or cost analysis) for our review. In addition to the
            general requirements for independent cost estimates and price or cost analysis for
            all procurements, the regulations specifically require an independent cost estimate
            and a cost analysis (not a price analysis) for all sole source contracts (24 CFR
            85.36 (d)(4)).

              The degree of effort required for an independent cost estimate, like the
              requirement for a cost analysis, is dependent on the individual situation. Again,
              the handbook, which quotes the CFR, states that the requirements for simple
              procurements are less complex than the requirements for larger or more
              complicated procurements, but note that the purpose is to estimate the eventual
              dollar amount of the contract. The handbook states, such an estimate may, in
              some cases dictate the procurement method. The independent cost estimate
              should include anticipated labor costs, material expenses, subcontracted items,
              overhead, profit, and any other cost factor that might have an impact on the
              eventual contract. In the case of commercial items, however, the estimate should
              be based on published catalog or market prices, and the HA should maintain
              available price lists from local or national vendors to assist in developing
              independent cost estimates. In the case of the Abt contracts, the Authority could
              not rely on published catalogue or market prices, because the services required
              were not commercially available. Therefore, more work was required to
              determine a reasonable estimate of the eventual amount of the contract.

              As the handbook explains, another purpose of an independent cost estimate is to
              “…go through the discipline of analyzing its needs fully and anticipating the type
              of work that contractors will likely have to perform to do the job.” See Appendix
              C – Criteria for the full text of the section on independent cost estimates.




                                               62
Comment 22: The auditors carefully reviewed both procurement requirements and the
            Authority’s documentation of the subject procurements. Regulations at 24 CFR
            [Code of Federal Regulations] 85.36(c)(1) require all procurement transactions to
            “…be conducted in a manner providing full and open competition consistent with
            the standards of §85.36. Some of the situations considered to be restrictive of
            competition include but are not limited to … (viii) [a]ny arbitrary action in the
            procurement process.” HUD Handbook 7460.8, chapter 4-23 interprets the
            regulatory requirement for open competition and prohibition against arbitrary
            action in the procurement process by placing a special importance on the
            impartiality, consistency, and fairness of the proposal evaluation process. The
            handbook requires that the objectivity of the proposal evaluations be readily
            apparent upon review. Additionally, the handbook advises the evaluators to
            ensure their evaluations are thorough, objective, and well documented.

Comment 23: The Authority incorrectly claims the report states Abt’s tax credit consulting
            contract proposal was scored too highly based upon a proposed cost differential of
            2.65 percent in comparison with another bidder. The OIG does not dispute that
            competitive proposals do not solely focus on the proposed costs. The report states
            that one of the six criteria, which is proposed cost, was scored unfairly because
            the price difference was only 2.65 percent while the score difference for this one
            criterion was 25 percent, almost ten times the price difference.

              The Authority also states the cost criterion is not scored on the dollar figure alone,
              but on value. However, the evaluation and scoring sheets show only the dollar
              amounts as the basis for these scores. Costs constitute a part of the evaluation
              process, and the Authority had accordingly allocated one of the six evaluation
              criteria to costs. The purchasing manager alone scored three criteria: cost, Section
              3 preference, and proposer diversity. The three person evaluation panel gave
              individual scores for the other three criteria, as explained in the report. When the
              scores for all six criteria are combined for each proposal and compared to the
              scores for the other proposals, a determination of value can be made.

Comment 24: We took all evaluation criteria into account when we reviewed the Authority’s
            evaluation and scoring of competitive proposals. The report does not imply that
            cost was the only basis for selection, which should never be the case for
            solicitation by requests for proposals. We noted that two of the three firms had
            comparable qualifications and experience.

                  1. According to its proposal, Abt’s experience included technical assistance
                     to the Newark Housing Authority on Section 504 and other issues after
                     appointment by a federal judge; voluntary compliance agreement training
                     to HUD staff; assistance on a voluntary compliance agreement plan for the
                     San Antonio Housing Authority; and assistance on a voluntary compliance
                     agreement for the City of Baltimore Housing Authority. One of Abt's
                     principals was a former Assistant Secretary of Public and Assisted




                                               63
       Housing at HUD. In addition to work settling high profile lawsuits
       involving Section 504 compliance, she added language to the parts 5, 960,
       and 966 of the regulations that addressed PHA responsibilities to provide
       equal access to persons with disabilities.

   2. The comparable firm, in its proposal said its principal was the author of
      HUD's Section 504 regulations, the HUD liaison to the U.S. Access Board
      developing the UFAS, and has trained most of HUD's FHEO staff on
      Section 504, and recently served as a presenter at the HUD National
      Conference on Fair Housing. The proposal said he was considered one of
      the nation's top witnesses for cases involving ADA, Section 504, and the
      Fair Housing and Architectural Barriers Act. Relevant experience as a
      HUD employee started in November 1980 as an Architectural Barriers
      Specialist, Office of Independent Living for the Disabled and ended in
      January 1989 after three years as the Section 504 Program Manager.
      Since then he has worked for numerous federal and local government
      agencies, private sector businesses and associations, and colleges and
      universities consulting on issues related to Section 504, ADA and similar
      issues. The firm also included the author of Public Housing Authority
      notices, which addressed compliance with Section 504.

Abt received the maximum possible points, 210 in all three subjective evaluation
criteria from all three panelists while the comparable firm received only 112
points (53 percent) out of the maximum possible for the same three criteria. The
scores given in the experience category by the deputy executive director did not
readily show fairness or objectivity. For the evaluation category of experience
and capability, he gave Abt a score of 40 (maximum points), the comparable firm
a score of 5, and the third firm, (a marketing firm with no apparent relevant
experience) a score of 15. The other two panelists gave Abt 100 percent of the
possible points while giving the comparable firm 75 percent and 41 percent of the
possible points.

We further noted that the purchasing manager's scoring of the objective criteria of
cost was unfair. The purchasing manager calculated that Abt's rates were 45
percent higher than the comparable firm's rates yet he gave Abt a higher score of
72 for proposed cost, compared with 63 for the firm with considerably lower
rates.

The disparity in the purchasing manager's and the deputy executive director's
scores for the proposals showed they were not fair. The fairness of the scores
given by the other panelists was also not readily apparent.




                                64
Comment 25: We disagree that the handbook allows housing authorities to choose to use a
            requirements contract in any circumstance. In its description of a requirements
            contract, the handbook describes the situations that are appropriate for a
            requirements contract. The consulting contracts did not meet the criteria
            described.

              Additionally, the prior audit report criticized the inappropriate use of indefinite
              quantity contracts for certain consulting services for the same reasons we are now
              criticizing the use of requirements contracts.

              Abt did not provide a commercial-type item to the Authority. The Authority’s
              response refers to two administrative decisions, neither of which are binding on
              HUD OIG, to illustrate examples of requirements contracts executed by
              government agencies.

                  1. One case, involved a dispute over a contract for the supply of auto parts
                     for an air force base. See East Bay Auto Supply, Armed Services Board of
                     Contract Appeals 25542, 81-2 BCA para. 15,204. Each part to be supplied
                     by East Bay Auto supply was a recurring commercially available item.

                  2. The other case involved a dispute over a contract for snow removal
                     services to be measured in hourly increments. See Stanley F. Horton,
                     Department Of Transportation Contract Appeals Board 1231, 82-2 BCA
                     para. 15,967. Snow removal services depend on unpredictable weather
                     patterns. In the Horton case, the variance was estimated at 25 to 30 feet –
                     20% variance from the lower estimate. Id. This is a significant unknown
                     factor. Moreover, the contract for snow removal services involves a
                     commercially available item with commercially (easily) obtainable prices.

              The Authority’s solicitations for services were for assistance with one voluntary
              compliance agreement and assistance with one tax credit application. None of
              these projects are recurring commercially available items described as appropriate
              for requirements contracts in Appendix 20 of the HUD Handbook 7460.8.
              Appendix 20 states that a requirements contract is appropriate for the purchase of
              a specific commercially available item or service at a fixed price over a specified
              period when the precise quantity of the item is not known. The housing authority
              did not need an unknown quantity of these items, nor did it negotiate a price for
              the items required. The RFP process itself, which described the services needed
              shows that the Authority was not soliciting a commercial-type item. Again, it is
              not the OIG’s position that there is a general prohibition against the use of a
              requirements contract. It is OIG’s position that the authority improperly applied
              requirements clauses to professional consulting services contracts, and there is
              nothing to show the initial and amended costs were reasonable. Although the
              regulations do not require a specific contract type, they require a reasonable and
              supported decision as to contract type.




                                              65
              The Authority’s contention that the amount of work required could not be
              estimated is not credible. In the case of the RHF (sole source) contract, a fixed
              price was determined and a fixed price contract was used. In the case of the tax
              credit contract, where Abt included a two phase work plan in its proposal, Abt
              also recommended a fixed price of $47,370 for phase one, proving that it was
              possible to estimate the cost and enter into a fixed price contract. When we
              pointed this out during the exit conference, the auditee’s only response was, “but
              we weren’t required to use a fixed price contract.” The auditee never attempted to
              explain why they instead entered into a requirements contract for phase one with a
              not to exceed value of $60,000.

              The Authority and most of the contractors responding to the requests for
              proposals had relevant past experiences on which to base an estimate. Further,
              even if he had no prior experience contracting for a tax credit consultant or VCA
              assistance, it is the purchasing manager’s job to ensure research was done to
              estimate the eventual contract amount. For example, he could have contacted
              other housing authorities to find out the cost of similar contracts and the time in
              which work was completed. Two of the respondents had extensive experience
              and knowledge of the fair housing requirements, and Abt had assisted several
              large and medium-size housing authorities with similar voluntary compliance
              agreements. Further, the Authority included the HUD letter with the findings
              from the compliance review in the request for proposals to ensure prospective
              contractors knew what was needed.

              The last contract was for assistance in applying for state low-income tax credits.
              The Authority had hired consultants to apply for tax credits in the past, and the
              responding firms had substantial relevant experience. Therefore, the Authority
              and the contractors had adequate knowledge and experience to develop cost
              estimates and establish a total fixed contract amount. Additionally, the Authority
              itself need not have had experience with certain services to be able to contact
              other similarly situated authorities to easily obtain information about costs
              associated with such services.

Comment 26: The report did not state that HUD requirements prohibit contract amendments
            based on percentages, therefore, we never “agreed to provide specific criterion…”
            The report included the percentages to illustrate how poorly the Authority
            estimated the eventual costs prior to awarding and executing the contracts and
            how little control the Authority had over final costs. We agree that the percentage
            of an increase does not determine if a contract option has a previously determined
            price. The language of the solicitation and the contract itself must provide the
            required information for an allowable option. In the report, we refer to Handbook
            7460.8, which explains that a contract option's quantity and price must be
            specified in competitive solicitations. The handbook defines a contract option as
            a "unilateral right of the housing authority to order additional supplies, services,




                                               66
               or construction at the price specified in the contract." The handbook also imposes
               specific limits on the exercise of options: "There must be a finite period for the
               contract, including all options, and a specific limit on the total quantity to be
               purchased by option. Any contract containing options must specify the time by
               which the HA must exercise the options. The HA should allow itself enough time
               to ensure that funds will be available and a management decision made as to the
               need for the option quantities."

               "If the HA decides to include options in a solicitation, the options should be
               evaluated as part of the contract award, to ensure that the evaluation takes into
               account the total eventual cost of the entire contract."

               Although the competitive contracts state that the not-to-exceed amounts may be
               amended by the Authority if the Authority determines it is in its best interest to do
               so, this language does not meet the requirements for contract options. Having a
               not-to-exceed amount is proper, but allowing unspecified amendments with no
               criteria except “the LVHA determines it is in its best interest to do so,” does not
               comply with HUD requirements for controlling costs. Whether or not task orders
               were used is irrelevant.

Comment 27: In the draft report, we stated that training was not included in the original VCA
            solicitation. We have revised the report to remove this statement. However, the
            bottom line is that the cost of training was not estimated or analyzed, and the
            initial contract did not specify training as one of the tasks both parties agreed was
            included. One of the Authority’s practices we have observed, is that the
            purchasing manager does not take the time to negotiate with contractors and write
            out a mutually agreed upon work plan, based on the Authority’s needs. Instead,
            he merely takes the section of the contractor’s proposal that describes proposed
            services, and incorporates it into the contract as the work plan. In this case, the
            result was a contract that included several clearly defined tasks that Abt would
            perform under the contract. Training, however, was mentioned as something Abt
            was capable of providing, if the Authority requested it. This fact, combined with
            the executive director’s and the deputy executive director’s explanations to the
            board of the reason the contract increase was needed, leads to the conclusion that
            training was optional. No price was included for the option.

Comment 28: The fact that the original contract specified the development proposal as
            “additional services,” and the fact that a contract amendment was required, make
            it clear this was treated as a contract option. It was not contemplated as a service
            included in the original contract price of $59,200. It is also clear this was an
            unpriced option. This did not meet the requirements for contract options
            explained above.




                                                67
              We revised the report to show that the Authority asked for board approval of the
              original contract and the November 2004 amendment in February 2005. In
              February, the board had questions about the propriety of the emergency
              justification and the amendment, and approval was delayed.

Comment 29: We adjusted the report to clarify that the findings of the previous audit report
            referred to the previous executive director. However, it is irrelevant that the
            previous findings of violations occurred under a prior administration. It is
            important to note that the current Executive Director and Purchasing Manager
            were in executive and contracting positions, respectively, during the prior OIG
            audit and HUD Comprehensive Management Review. They both knew the
            reported findings and they both continued the previously criticized practices.
            Therefore, it is reasonable to conclude that they knowingly disregarded regulatory
            and handbook requirements in carrying out their procurement and contract
            administration responsibilities.

              The current executive director was the deputy executive director during the prior
              audit period, but had taken over as acting executive director before OIG’s prior
              draft report was issued and the exit conference was held, and he was responsible
              for the corrective action. Some of the pertinent procurement findings HUD
              reported as a result of the comprehensive management review were based on
              procurement actions that occurred after the current executive director became the
              responsible official.

              On June 28, 2002, the former executive director passed away. A $5,000 purchase
              order for temporary legal services was executed on July 1, 2002. On July 15,
              2002, the current executive director became the acting executive director. Over
              the next nine months, the contract increased from $5,000 to $95,000, under the
              watch of the current executive director. Because this procurement was not
              compliant with requirements, HUD’s comprehensive management review report
              required the Authority to repay these funds to HUD from nonfederal funds.
              However, under the management of the current executive director, as of June 13,
              2006, the Authority has failed to repay the funds.

              Despite the OIG report and the comprehensive management review the current
              executive director still chose to ignore federal procurement requirements when
              Abt was hired. The purchasing manager has held the same position at the
              Authority, according to his own declaration, for approximately 29 years.
              Although the deputy executive director did not join the Authority until June 2004,
              he took an active role in the improprieties associated with the contracts and
              contract amendments we reviewed, including the withholding of information from
              the board and provision of misinformation.




                                              68
Comment 30: On January 11, 2005, HUD issued a letter to The Authority stating that the
            proceeds from the sale of public housing units and the use of pre-fiscal year 2003
            Section 8 reserves may be used in the calculation of “substantial additional
            leveraging funds” for the second five-year increment of the RHF plan. The letter
            does not state in any manner that either the use of the proceeds from the sale of
            public housing units or the Section 8 reserves are not subject to the procurement
            requirements of 24 CFR 85.36.

              Regardless of opinions the Authority obtained from attorneys,

                     1) 24 CFR part 970 governs disposition and use of public housing
                     proceeds.

                     2) 24 CFR part 85 governs use of Federal grants in procurement.

                     3) Proceeds from the sale of public housing do not constitute a grant even
                     if the housing was initially purchased or built utilizing grants. Regardless
                     of whether proceeds from public housing property are considered federal
                     funds, program income, or public housing funds, regulations indicate that
                     use of proceeds from public housing disposal or demolition are subject to
                     procurement regulations of 24 CFR part 85.

              Although 24 CFR 970.1 states that [the act of] demolition or disposition of public
              housing is not subject to requirements of 24 CFR part 85, criteria under 24 CFR
              970.9 states that proceeds from disposition of public housing property must be
              used for low income housing. 24 CFR 941.102(a) states that mixed finance
              public housing development, is subject to 24 CFR subpart F. 941.602(d) of
              subpart F requires compliance with 24 CFR part 85 even if the public housing
              project is being developed using a public and private partnership for mixed
              financing.

              The governing regulations of 24 CFR Chapter IX (parts 900 to 999) do not treat
              proceeds from disposition of public housing property any differently than Federal
              grants when it comes to use of the proceeds, and thus, contracting. Even if no
              regulation specifically defines proceeds from public housing funds as Federal
              funds, the regulations limit the type of use and use procedures (in procurement)
              for those proceeds.

              Therefore, Reno & Cavanaugh's June 2, 2005, opinion that the Authority did not
              have to comply with 24 CFR part 85 requirements when procuring Abt for the
              RHF Plan, is not supported by the regulations or HUD guidance.




                                              69
Comment 31: The audit report clearly details how the Authority violated federal procurement
            requirements and its own procurement policies and procedures. Therefore,unless
            the Authority is able to provide support showing that the amounts paid for the
            voluntary compliance agreement services and tax credit application were
            reasonable, we recommend HUD require the Authority repay its low-rent program
            from nonfederal funds (and funds not derived from the sale of public housing).

Comment 32: The comments’ depiction of our recommendation for HUD review of all
            professional service contracts over $50,000 is not accurate. We only recommend
            specific professional service contracts for such review. This recommendation is
            not unwarranted given the procurement history of the Authority, despite the fact
            that we reviewed only the three Abt contracts, because similar problems have
            been reported in the prior OIG and HUD reviews, and those problems and
            questionable practices continue to persist at the Authority.

Comment 33: The Authority provided a letter to HUD dated February 5, 2005, which, among
            other things, provided an accounting of the interest earned from the RHF funds.
            The response from HUD dated March 3, 2005, states that HUD will respond to
            the interest information in another letter. Although this does not show an attempt
            to return the money, the Authority has not disputed that it should be returned. We
            see no reason to remove the finding or the recommendation, since the money must
            still be returned and HUD must provide instructions to the Authority.




                                             70
Appendix C
CRITERIA

Inspector General Act 5 USCA Appx § 1 (2001):

The Inspector General Act of 1978 (the Act) Subsection 2 states:

§ 2. Purpose and establishment of Offices of Inspector General; departments and
agencies involved in order to create independent and objective units−

       (1) to conduct and supervise audits and investigations relating to the programs and
           operations of the establishments listed in section 11(2);

       (2) to provide leadership and coordination and recommend policies for activities
           designed

               (A) to promote economy, efficiency, and effectiveness in the administration of,
                   and

               (B) to prevent and detect fraud and abuse in, such programs and operations; and

       (3) to provide a means for keeping the head of the establishment and the Congress fully
           and currently informed about problems and deficiencies relating to the administration
           of such programs and operations and the necessity for and progress of corrective
           action; there is established─

One of the duties and responsibilities of the Office of Inspector General, listed in subsection 4 is:

       (4) to recommend policies for, and to conduct, supervise, or coordinate relationships
           between such establishment and other Federal agencies, State and local governmental
           agencies, and nongovernmental entities with respect to (A) all matters relating to the
           promotion of economy and efficiency in the administration of, or the prevention and
           detection of fraud and abuse in, programs and operations administered or financed by
           such establishment, or (B) the identification and prosecution of participants in such
           fraud or abuse; and

       Contracting Generally:

Regulations at 24 CFR [Code of Federal Regulations] 85.36(b) require a housing authority to use
its own procurement procedures, which reflect applicable state and local laws and regulations,
provided that the procurements conform to applicable federal law.




                                                 71
The Authority’s Contracts and Purchasing Procedures Manual incorporates the proposal
solicitation procedures of HUD Handbook 7460.8 and 24 CFR [Code of Federal Regulations]
85.36.

   •   Requirements for an Independent Cost Estimate and a Cost Analysis

HUD Handbook 7460.8, chapter 3-15, requires the preparation of an independent cost estimate
before solicitation of proposals or bids. The Handbook states that the cost estimate may dictate
the method of procurement. A housing authority must analyze its needs fully, anticipating labor
costs, material expenses, subcontracted items, overhead, profit, and any other cost factor likely to
impact the eventual contract.

HUD Handbook 7460.8 3-15, Cost Estimates and Analysis of Offers:

“ A. Independent Cost Estimate. 24 CFR 85.36(f)(1)

1. An independent cost estimate of every procurement must be made before soliciting bids or
proposals. Such an estimate is needed in preparing for the procurement, since the dollar amount
may dictate the method of procurement that can be used [such as small purchases versus sealed
bidding, etc.]. Depending on the type and size of the procurement, the independent cost estimate
could be as simple as examining the price paid in the most recent contract and factoring in
inflation or changed market conditions. Alternatively, the cost estimate could be as detailed as
described below. The exercise of developing an in-house estimate forces the HA to go through
the discipline of analyzing its needs fully and anticipating the type of work that contractors will
likely have to perform to do the job.

2. The independent cost estimate is considered confidential information which shall not be
disclosed outside the HA. The reason for this protection is that contractors often bid the same as
or less than the independent cost estimate, if known, as a means of securing a contract award
without consideration of the true cost of a job. The preferred approach to procurement is to have
each prospective contractor conduct an analysis and develop the offer independently, considering
only what the HA's stated needs are, without simply relying on an estimate of what the HA is
able to afford. To assist the bidders in understanding the scope of the project the HA is
encouraged, however, to disclose a general range of dollars for construction contracts; for
example, the estimated price could be described in terms of the following price ranges: less than
$25,000; between $25,000 and $100,000; between $100,000 and 250,000; between $250,000 and
$500,000; between $500,000 and $1 million; between $1 million and $5 million; between $5
million and $10 million; and more than $10 million.




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3. In developing the independent cost estimate, the HA may use available published price lists,
commercial construction cost estimating publications, known Davis-Bacon wage rates, and
pricing history from prior contracts. The estimate should include anticipated labor costs,
material expenses, subcontracted items, overhead, profit, and any other cost factor that might
have an impact on the eventual contract. In the case of commercial items, however, the estimate
should be based on published catalog or market prices, and the HA should maintain available
price lists from local or national vendors to assist in enveloping independent cost estimates.”

Regulations at 24 CFR [Code of Federal Regulations] 85.36(f) and HUD Handbook 7460.8
Chapter 3-15 also require a housing authority conduct a cost or price analysis for every
procurement. Without such analysis, the housing authority would be unable to verify the fairness
and reasonableness of the price paid to the contractor.

When using the competitive proposal method of procurement of professional and consulting
services, the Regulations at 24 CFR [Code of Federal Regulations] 85.36(f) and chapter 4-3
(section 6) of the HUD Handbook 7460.8 require a housing authorities to ask offerors to submit
the elements of the proposed costs and to perform a cost analysis using cost principles (according
to chapter 4-31 of the HUD Handbook 7460.8 the cost principles must follow the principles
found in HUD Handbook 2210.18 and the Federal Acquisition Regulations found in Title 48 of
the Code of Federal Regulations). The objective is to negotiate total prices that are fair and
reasonable, cost, and other factors considered.

Regulations at 24 CFR [Code of Federal Regulations] 85.36 (f) require that (1) Grantees and
subgrantees must perform a cost or price analysis in connection with every procurement action
including contract modifications. The method and degree of analysis is dependent on the facts
surrounding the particular procurement situation, but as a starting point, grantees must make
independent estimates before receiving bids or proposals. A cost analysis must be performed
when the offeror is required to submit the elements of his estimated cost, e.g., under professional,
consulting, and architectural engineering services contracts. A cost analysis will be necessary
when adequate price competition is lacking, and for sole source procurements, including contract
modifications or change orders, unless price reasonableness can be established on the basis of a
catalog or market price of a commercial product sold in substantial quantities to the general
public or based on prices set by law or regulation. A price analysis will be used in all other
instances to determine them reasonableness of the proposed contract price.

(2) Grantees and subgrantees will negotiate profit as a separate element of the price for each
contract in which there is no price competition and in all cases where cost analysis is performed.
To establish a fair and reasonable profit, consideration will be given to the complexity of the
work to be performed, the risk borne by the contractor, the contractor's investment, the amount
of subcontracting, the quality of its record of past performance, and industry profit rates in the
surrounding geographical area for similar work.

(3) Costs or prices based on estimated costs for contracts under grants will be allowable only to
the extent that costs incurred or cost estimates included in negotiated prices are consistent with
Federal cost principles (see Sec. 85.22). Grantees may reference their own cost principles that
comply with the applicable Federal cost principles.



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Chapter 4-35 also requires a full cost analysis when an authority is negotiating a contract with a sole
source as justified under 24 CFR [Code of Federal Regulations] 85.36(d)(4).

   •   Requirement to Ensure Competitive Procurement Was Fair and Impartial

Regulations at [Code of Federal Regulations] 24 CFR 85.36(c)(1) requires all procurement
transactions to “…be conducted in a manner providing full and open competition consistent with
the standards of §85.36. Some of the situations considered to be restrictive of competition
include but are not limited to … (viii) [a]ny arbitrary action in the procurement process.” HUD
Handbook 7460.8, chapter 4-24 interprets the regulatory requirement for open competition and
prohibition against arbitrary action in the procurement process by placing a special importance
on the impartiality, consistency, and fairness of the proposal evaluation process. The Handbook
requires that the objectivity of the proposal evaluations be readily apparent upon review.
Additionally, the handbook advises the evaluators to ensure their evaluations are thorough,
objective, and well documented.

   •   Requirements to Use Appropriate Contract Types, Forms, and Clauses

Regulations at 24 CFR [Code of Federal Regulations] 85.36(b)(9) require grantees and
subgrantees to maintain records sufficient to detail the significant history of a procurement,
including but not limited to the rationale for the method of procurement, selection of contract
type, contactor selection or rejection, and the basis for the contract price.
HUD Handbook 7460.8, chapter 6, explains the different types of contracts, their advantages and
disadvantages, and when they should be used.

In most cases, a housing authority should rely on firm fixed-price contracts because this pricing
arrangement poses the least risk to a housing authority. Regardless of the procurement method,
each solicitation should clearly state the anticipated contract type.

Appendix 20 to the handbook further explains the different contract types and appropriate uses.
A firm fixed-price contract should be used whenever possible if fair and reasonable prices can be
established at the time of the contract award and any performance uncertainties can be identified
and reasonable costs estimated in advance. Although it lacks flexibility, firm fixed-price
contracts are advantageous to a housing authority because they encourage contractor efficiency
and place total responsibility and risk on the contractor.

Appendix 20 also states that a requirements contract is appropriate for the purchase of a specific
commercially available item or service at a fixed price over a specified period when the precise
quantity of the item is not known. A requirements contract is appropriate when there is a
realistic estimated total quantity but no guaranteed minimum and delivery orders are issued to
obtain the needed items. An appropriately used requirements contract is advantageous because
a housing authority may save money by not having to conduct several procurements for the same
item. A requirements contract may be disadvantageous because the contractor may include a
contingency factor in his bid prices if it is uncertain as to how much a housing authority will
order under the contract. Funds for requirements contracts are obligated by delivery orders.




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Chapter 6-3 of HUD Handbook 7460.8 requires that all contracts contain certain clauses in
accordance with 24 CFR [Code of Federal Regulations] 85.36(i). Part V.C. of the Authority’s
procurement policy and chapter 6-4 and appendix 28 of HUD Handbook 7460.8 contain for other
requirements to include required clauses in all housing authority contracts.

Section 6.5.1 of the Authority’s Contracts and Purchasing Procedures Manual requires use of
preapproved contract forms. This requirement was developed to ensure compliance with the
requirements of HUD Handbook 7460.8 and 24 CFR [Code of Federal Regulations]

According to the Authority’s manual, only the executive director may approve an alternate
contract form and only after consulting with the Authority’s legal counsel; otherwise, the
Authority must use the applicable set of its own sample contract forms for all contracts and
contract modifications.

The introductory section of the Authority’s Contracts and Purchasing Procedures Manual states:
“All contracts and purchasing activities, including competitive solicitations, shall be conducted
exclusively by or under the purview of the Contracts and Purchasing Office.” The Authority’s
purchasing manual requires the purchasing manager to review all contracts and amendments
before execution.

Under the heading, “Staff Review,” the Authority’s purchasing manual requires the applicable
department head to review the contract, followed by legal counsel, the executive director, and the
purchasing manager.

Regulations at 24 CFR [Code of Federal Regulations] 85.36(i) require grantees to include nine
specific clauses in their nonconstruction contracts (we have omitted the four clauses only
applicable to construction):

(1) Administrative, contractual, or legal remedies in instances in which contractors violate or breach
contract terms and such sanctions and penalties as may be appropriate. (Contracts more than the
simplified acquisition threshold)

(2) Termination for cause and for convenience by the grantee or subgrantee, including the manner
by which it will be effected and the basis for settlement. (All contracts in excess of $10,000)

(7) Notice of awarding agency requirements and regulations pertaining to reporting.

(8) Notice of awarding agency requirements and regulations pertaining to patent rights with respect
to any discovery or invention, which arises or is developed in the course of or under such contract
(9) Awarding agency requirements and regulations pertaining to copyrights and rights in data.

(10) Access by the grantee, the subgrantee, the federal grantor agency, the comptroller general of
the United States, or any of their duly authorized representatives to any books, documents, papers,
and records of the contractor, which are directly pertinent to that specific contract, for the purpose of
making audit, examination, excerpts, and transcriptions.




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(11) Retention of all required records for three years after grantees or subgrantees make final
payments and all other pending matters are closed.

(12) Compliance with all applicable standards, orders, or requirements issued under section 306 of
the Clean Air Act (42 U.S.C. [United States Code] 1857(h)), section 508 of the Clean Water Act (33
U.S.C. 1368), Executive Order 11738, and Environmental Protection Agency regulations (40 CFR
[Code of Federal Regulations] Part 15). Contracts, subcontracts, and subgrants of amounts in
excess of $100,000.

(13) Mandatory standards and policies relating to energy efficiency, which are contained in the state
energy conservation plan issued in compliance with the Energy Policy and Conservation Act (Pub.
L. 94-163, 89 Stat. 871).

[53 FR [Federal Register] 8068, 8087, Mar. 11, 1988, as amended at 60 FR 19639,
19642, Apr. 19, 1995]

   •   Requirements for Contract Amendments

Chapter 6-1 of HUD Handbook 7460.8 explains that if a housing authority does not describe its
needs in accurate and precise terms, resulting in ambiguous specifications, contractors may
factor in contingencies in their offers to cover such uncertainties. The latter is likely to result in
unrealistic price proposals and may create the need for a continuous redefining of needs during
contract performance.

Chapter 6-2 of the handbook defines a contract option as “a unilateral right of the housing
authority to order additional supplies, services, or construction at the prices specified in the
contract.” In order for a housing authority to take into account the total eventual cost of the
entire contract, contract options must be specified in competitive solicitations. Unpriced options
are considered a new contract and require a new procurement.

Chapter 4-37 of the handbook requires cost analysis for contract modifications affecting the
previously authorized work and price. Modifications which change the work beyond the scope
of the contract must be justified as noncompetitive actions under 24 CFR [Code of Federal
Regulations] 85.36(d)(4). If none of the conditions for noncompetitive procurement exist, the
work must be procured competitively.

Part II.B.2 of the Authority’s procurement policy requires the Authority’s legal counsel to
review all contracts and modifications (especially time extensions) before
execution.Additionally, before execution, part II C of the policy requires the legal counsel, as
well as the board, to review and approve all purchases, contracts, change orders, and contract
amendments and modifications of more than $25,000.




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    •   Requirements for Noncompetitive Procurement

Part III.E.1 of the Authority’s procurement policy states:

“Procurements shall be conducted competitively to the maximum extent possible. Procurement by
noncompetitive proposals may be used only when the award of a contract is not feasible using small
purchase procedures, sealed bids, or competitive proposals, and… [a]n emergency exists that
seriously threatens the public health, welfare, or safety, or endangers property, or would otherwise
cause serious injury to the LVHA [Authority], as may arise by reason of a flood, earthquake,
epidemic, riot, equipment failure, or similar event. In such cases, there must be an immediate and
serious need for supplies, services, or construction such that the need cannot be met through any
other procurement methods, and the emergency procurement shall be limited to those supplies,
services or construction necessary to meet the emergency….”

Regulations at 24 CFR [Code of Federal Regulations] 85.36 (d)(4)(i)(B) allow noncompetitive
procurement when the public exigency or emergency for the requirement will not permit a delay
resulting from competitive solicitation. Part 332 of the Nevada revised statutes governs purchasing
for local governments. Section 332.112 (1) of the Nevada revised statutes defines an “emergency”
as one which “(a) results from the occurrence of a disaster including, but not limited to, fire, flood,
hurricane, riot, power outage or disease; or (b) may lead to impairment of the health, safety or
welfare of the public if not immediately attended to.”

Section 332.112 (2) requires the authorized representative to report the decision to undertake
emergency noncompetitive procurement to the governing body of the agency at its next regularly
scheduled meeting.

Additionally, a Sample Statement on Procurement Policy found in HUD Handbook 7460.8,
Appendix 1, Section E.1.b. defines an emergency (for the purpose of sole source procurement) as
one “that seriously threatens the public health, welfare, or safety, or endangers property, or
would otherwise cause serious injury to the PHA, as may arise by reason of a flood, earthquake,
epidemic, riot, equipment failure, or similar event. In such cases, there must be an immediate
and serious need for supplies, services, or construction such that the need cannot be met through
any other procurement methods, and the emergency procurement shall be limited to those
supplies, services, or construction necessary to meet the emergency.”

Replacement Housing Factor Generally:

Regulations at 24 CFR [Code of Federal Regulations] 905.10, which govern the replacement
housing factor program, require a housing authority to use grant funds only for replacement
housing. HUD is required to reduce the amount of funds if a housing authority fails to provide
replacement housing in a timely fashion. A housing authority must obligate replacement housing
factor funds within 24 months from the date the funds are available or from the date the housing
authority accumulates adequate funds to undertake replacement housing.




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Eligible expenses do not include long-term investment of replacement housing factor funds in
interest-earning accounts. Placement in interest-bearing accounts is allowed only for the limited
purpose of credit enhancement for bond issuance or to serve as collateral.

Section 903.5(a)(4) allows a housing authority to update its five-year plans but requires the housing
authority to explain any substantial deviation from the original in its annual plans. Section 903.7(2)
requires the housing authority to (1) submit a brief statement of the housing authority’s progress in
meeting the mission goals and goals described in the five-year plan and (2) identify the basic criteria
the housing authority will use for determining substantial deviation from its five-year plan and for
determining significant amendment or modification to the five-year and annual plans.

Section 968.103(e)(3)(iii) allows HUD to recapture, reallocate, or place other restrictions or
requirements on replacement housing factor funds if the housing authority fails to obligate the
funds within two years of approval of the plan and expend the funds within three years of the
approval.

Section 941.302 allows a housing authority only limited drawdowns of funds under the annual
contributions contract without HUD’s approval of the authority’s full development proposal.
Section 941.612 allows HUD to issue limited case-by-case approval of front-end drawdowns for
specific requests of such drawdowns.

Notice PIH [Public and Indian Housing] 2003-10, issued in April 2003, requires replacement
housing factor recipients to submit a separate replacement housing factor plan and a
development proposal for any fund grants not yet expended.

   •   Requirement to Return Interest Earned on Unauthorized Loans of Federal Grant
       Funds

Decision B-246502, issued by the comptroller general of the United States on May 11, 1992,
requires HUD to take appropriate collection action and deposit the interest earned by
unauthorized investment of grants in the Treasury of the United States as miscellaneous receipts.
Because grants are not to be used to profit (other than in the manner and to the extent provided
by law), such grants improperly used to earn money are considered grant advances. The interest
earned on such grant advances cannot be considered “program” or “grant-related” income.
Therefore, the interest must be returned to the Untied States.

The decision further concludes that HUD does not have discretion not to require payment of the
interest earned from the unauthorized use of grants unless otherwise expressly authorized by
Congress. Therefore, HUD must require the grant recipient to return the interest to the United
States Department of the Treasury.




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