AUDIT REPORT UTICA MUNICIPAL HOUSING AUTHORITY Utica, New York 2006-NY-1005 February 21, 2006 OFFICE OF AUDIT NEW YORK/NEW JERSEY Issue Date February 21, 2006 Audit Case Number 2006-NY-1005 TO: Joan Spilman, Director, Public Housing, 2CPH, and Rosalinda Lamberty, Director, Multifamily Housing, 2CHM FROM: Edgar Moore, Regional Inspector General for Audit, 2AGA SUBJECT: Utica Municipal Housing Authority, Utica, New York; Operational and Administrative Weaknesses Have Resulted in Unsupported and Ineligible Expenditures HIGHLIGHTS What We Audited and Why We audited the Utica Municipal Housing Authority (Authority) pertaining to selected general operations of its low-rent housing program. We selected the Authority based upon the results of an analysis conducted by the region that identified operational weaknesses, which have slowed progress and negatively impacted the efficiency and effectiveness of the Authority’s administration of its programs. Our audit objectives were to determine whether the Utica Municipal Housing Authority 1) had a financial management system in place to adequately account for and safeguard funds received, 2) properly disbursed operational funds for health benefits for retired employees, 3) complied with applicable procurement requirements, and 4) earned the administrative fees it was paid to perform as contract administrator for the Section 8 program. What We Found The Authority has a financial management system in place to adequately account for and safeguard the funds received; however, it did not properly disburse operational funds for health benefits for retired employees. From January 1, 2003, through June 30, 2005, the Authority paid $511,480 for unauthorized retiree medical insurance. Not only were these costs not necessary or reasonable as required by U.S. Department of Housing and Urban Development (HUD) regulations, but they were incurred in direct violation of the Authority’s own board-established policy. Since the costs were not authorized, they are considered to be ineligible. The Authority did not properly comply with applicable procurement and contracting requirements. It (1) procured legal services without executing a contract, (2) made contract payments without adequate supporting documentation, (3) failed to enforce contract provisions for elevator construction services, and (4) did not ensure that all procurements were conducted in a manner allowing for full and open competition. Therefore, assurance that costs incurred for procured contract services were proper and reasonable has been diminished, and the Authority has incurred questionable costs of $140,116. In addition, the Authority did not completely earn the administrative fees it was paid to perform as contract administrator for the Section 8 program. By failing to conduct required oversight and on-site management reviews, the Authority did not demonstrate that it fully performed its required monitoring responsibilities as a contract administrator. The Authority received $279,282 in administrator fees from HUD for fiscal years 2003 and 2004. What We Recommend We recommend that HUD require the Authority to establish controls and procedures to ensure compliance with all applicable board, procurement, and contract administration policies and procedures. We also recommend that the Authority be required to submit supporting documentation to justify all unsupported costs so that HUD can make an eligibility determination. Further, the Authority should be required to reimburse the program from nonfederal funds all amounts classified and determined to be ineligible. In addition, the Authority should enforce the damage clause of its elevator contract and put all penalty income received to better use. 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. 2 Auditee Response We discussed the results of our review during the audit and at an exit conference held on February 1, 2006. Authority officials provided their written comments during the exit conference. Appendix B of this report contains the Authority’s comments, along with our evaluation of the comments. The Authority’s comments included a number of attachments/documents that were too voluminous to be included in our final report, but will be provided to your office. 3 TABLE OF CONTENTS Background and Objectives 5 Results of Audit Finding 1: The Authority Provided Unauthorized Medical Insurance Benefits to Retirees 6 Finding 2: The Authority’s System for Procuring Contracts Is Deficient 9 Finding 3: The Authority Did Not Fully Perform Monitoring Responsibilities as a Contract Administrator for HUD 14 Scope and Methodology 17 Internal Controls 18 Appendixes A. Schedule of Questioned Costs and Funds to Be Put to Better Use 20 B. Auditee Comments and OIG’s Evaluation 21 4 BACKGROUND AND OBJECTIVES The Utica Municipal Housing Authority (Authority) was organized pursuant to the Housing Act of 1937 and the laws of the State of New York. The primary objective of the Authority is to provide decent, safe, and sanitary housing for eligible low-and moderate-income residents of Utica, New York. The Authority owns and manages eight federally funded projects with 932 low-rent units. It also administers Section 8 programs consisting of 174 housing choice vouchers and 515 units relating to seven Section 8 11B projects. In addition, the U.S. Department of Housing and Urban Development (HUD) awarded the Authority a HOPE VI grant in the amount of $11,501,039, effective July 3, 2003. The grant funds will be expended for developing public housing replacement units and other housing units within the city of Utica. We selected the Authority for audit based on many factors, including indicators from monitoring reports, media coverage concerning financial difficulties, analysis of Authority data, discussions with former Authority employees, and our prior knowledge of and experience with the political structure and business activities in the local area. This analysis identified operational weaknesses, which slowed progress and negatively impacted the efficiency and effectiveness of the Authority’s administration of its programs. The overall objectives of our audit were to determine whether the Authority generally complied with HUD program regulations, policies, and requirements in administering selected operations of its low-rent housing program. We determined whether the Authority 1) had a financial management system in place to adequately account for and safeguard funds received, 2) properly disbursed operational funds for health benefits for retired employees, 3) complied with applicable procurement requirements, and 4) earned the administrative fees it was paid to perform as contract administrator for the Section 8 program. 5 RESULTS OF AUDIT Finding 1: The Authority Provided Unauthorized Medical Insurance Benefits to Retirees Contrary to policy enacted by its board and applicable federal regulations, Authority management allowed for the payment of certain medical insurance costs provided to retirees that were not authorized or necessary. The unauthorized costs were incurred because Authority management did not establish controls to ensure that policies and procedures put into practice conform to the provisions of enacted board resolutions. Consequently, for the period January 1, 2003, through June 30, 2005, the Authority paid $511,480 for retiree medical insurance costs, which are considered ineligible. History of Board-Adopted Policy Board Resolution No. MHA040705-12a, adopted on April 7, 2005, addresses issues and sets policy regarding retiree medical insurance benefits. The resolution clarifies the provisions of previously established board policies, dating back to 1994, that relate to benefits afforded to various classes of the Authority’s retirees. The resolution stated the following: • As a means of settling certain litigation, by resolution dated December 27, 1994, the board authorized the amendment to the collective bargaining agreement between the Authority and the Civil Service Employee Association (CSEA) to provide that, upon a retiree reaching the age of 65, Medicare would become the primary health insurance coverage but that the Authority would pay the full cost of a singular Medicare supplemental policy to Civil Service Employee Association affiliated retirees who had retired on or before December 27, 1994. • The December 27, 1994, resolution extended the same benefit to non-Civil Service Employee Association affiliated retirees who had retired on or before December 27, 1994, reserving to the Authority the right to alter or delete this benefit regarding non-Civil Service Employee Association retirees. The December 27, 1994, board resolution did not authorize the payment of any medical insurance benefits to medicare eligible retirees who retired after December 27, 1994, nor did it provide that prescription and dental riders would be paid for any medicare eligible retirees. The resolution only provided for the payment of a singular Medicare supplemental policy for those who retired before December 27, 1994. Thus, payment for singular medicare supplement insurance for those who retired after December 27, 1994, and the provision of dental and 6 prescription riders for any medicare eligible retiree before or after the December 27, 1994, resolution were not authorized. Unsupported Retiree Health Insurance Benefits Contrary to the above board resolutions, during the period January 1, 2003, through June 30, 2005, the Authority paid for the costs of medical insurance premiums, including riders for dental benefits and prescription drug coverage, for Civil Service Employee Association affiliated and non-Civil Service Employee Association affiliated retirees who did not meet the board requirements. A summary of the unauthorized costs incurred is shown as follows: January to June 2005 Description 2003 2004 Total Pre-Dec. 27, 1994, Retirees’ $104,692 $114,661 $57,631 $276,984 Dental & Prescription Riders Post-Dec. 27, 1994, Retirees’ $43,890 $50,711 $29,776 $124,377 Dental & Prescription Riders Post-Dec. 27, 1994, Retirees’ $39,395 $44,833 $25,891 $110,119 Medical Insurance Premiums Totals $187,977 $210,205 $113,298 $511,480 OMB Circular A-87 and the annual contribution contract require operations to be conducted in a manner that promotes economy and efficiency and that requires costs to be necessary and reasonable. Since these retirees did not meet the board requirements, these payments amounting to $511,480 are not necessary and reasonable and should be considered to be ineligible. Controls Needed Although the Authority has taken steps to address the issue of retiree medical insurance benefits by trying to clarify its board resolutions going forward, notifying retirees that the Authority will no longer pay certain medical insurance, dental and prescription riders, significant scarce resources were expended on unauthorized items. Accordingly, management needs to establish better controls to ensure that board policies and procedures are implemented in a timely manner in accordance with stated directives to prevent these types of payments in the future. 7 Recommendations We recommend that the director of HUD’s Office of Public Housing instruct the Authority to 1A. Establish controls to ensure that policies enacted by its board are fully implemented in a timely manner. 1B. Reimburse the low-income housing program from nonfederal funds the $511,480 in medical benefits paid to Civil Service Employee Association and non-Civil Service Employee Association retirees who did not meet the board requirements for receiving health, dental, and prescription benefits. 8 Finding 2: The Authority’s System for Procuring Contracts Is Deficient The Authority’s procurement and contract award activities did not always comply with HUD regulations and requirements. The Authority (1) procured legal services without executing a contract, (2) made contract payments without adequate supporting documentation, (3) failed to enforce contract provisions for elevator construction services, and (4) did not procure auditing services in a manner allowing for full and open competition. These deficiencies can be attributed to the Authority’s weak system of controls over the processing of procurement actions. As a result, the Authority incurred questionable costs of $140,116 and could not ensure that costs incurred for procured contract services were reasonable and necessary. Our review of procurement activities focused on actions, which occurred during the audit period of January 1, 2003, through April 30, 2005. We selected a nonstatistical sample of six contracts and/or procurement activities for review. Included in the sample were professional service contracts relating to legal, consulting, auditing, and fee accounting services. In addition, one construction contract was selected for testing because of deficiencies identified during our survey. Our review disclosed that four of the six contracts reviewed did not comply with HUD regulations and requirements. The deficiencies and noncompliances are discussed below. Legal Services Procured without A Contract The Authority did not execute a contract for legal services; rather, it procured the services based on the bid proposal that was accepted in response to the request for proposals. On October 29, 2001, the Authority advertised a request for proposals for legal services for a period of three years. The scope of legal services requested encompassed the ordinary business and management of the Authority. The firm proposed to provide general legal services to the Authority on an annual basis for the annual sum of $24,000. The proposal included 11 areas of services to be provided. However, the Authority never executed a written contract with the law firm. By not executing a contract, the Authority did not obtain a legally binding document that would protect it against nonperformance by the contractor. Further, failure to execute a contract precludes the Authority from identifying the services expected to be completed and the period of performance. 9 Contract Payments Made without Adequate Supporting Documentation Review of the supporting documentation for the legal services disclosed that the Authority routinely paid for the legal services without obtaining a bill or invoice as evidence that the services were provided. Office of Management and Budget Circular A-87 provides that to be allowable under a grant program, costs must be necessay and reasonable for proper and efficient administration of the program. Making payments without consideration given to the level and extent of the services provided precludes the Authority from assuring that the costs incurred are necessary and reasonable and that the services contracted for have been provided. Since payments were made for legal services without any bill or invoice to indicate that services had been provided, there is no evidence to show which of the 11 types of services were provided. Hence, the payments may not represent necessary operating expenditures; therefore, the amount paid during the audit period of $46,666 is considered to be unsupported. Labor Relations Services In another instance, the Authority entered into a three-year contract with a law firm to provide labor representation services for the Authority’s operations. The contract provided for a monthly payment based on the five areas of labor services to be provided, such as 1) comprehensive negotiating services for collective bargaining units; 2) consultation regarding rights and liabilities; 3) advice and representation in connection with contract grievances and matters before the Public Employment Relations Board; 4) management training in connection with employee corrective action, contract administration, and other agreed upon topics; and 5) periodic reports containing public-sector labor relations information. The contract was executed on April 6, 2001, while the request for proposal was accepted on November 16, 2001; a clear indication of backdating the contract. Further, during the audit period, the law firm was paid $62,015 for legal services; however, $51,650 of the costs were not adequately supported since the billings submitted were unclear as to the actual services provided, merely stating, “For labor relations services rendered.” Chapter II of Public and Indian Housing Low-Rent Technical Accounting Guide, 7510.1G, stipulates that the public housing authority must maintain source documents and files that support the financial transactions recorded in the books of account and provide an adequate audit trail. 10 Since payments were made for legal costs without adequate documentation as to the services provided, the costs may not represent necessary or reasonable operating expenditures. Thus, the charges totaling $51,650 are considered to be unsupported pending a HUD eligibility determination. Failure to Enforce Elevator Contract Terms The Authority did not enforce the damage clause of its elevator contract. On June 4, 2004, it executed a contract for elevator construction services. The contract stipulated that all contract work items, including any punch list items, must be 100 percent complete within 180 calendar days of the notice to proceed or by December 1, 2004. It further stated that if the contractor fails to complete all work covered under the contract within the established time parameters, the contractor will pay the Authority damages in the amount of $150 per day for each day beyond the stated completion date that the work remains unusable for its intended purpose by the Authority. Federal regulations at 24 CFR [Code of Federal Regulations] 85.36(b)(2) require public housing authorities to maintain a contract administration system which ensures that contractors perform in accordance with the terms, conditions, and specifications of their contracts. However, contrary to these requirements, the Authority did not enforce the damages clause of the elevator contract. Since the contractor had not completed the elevator work by the December 1, 2004, deadline, the Authority should have assessed penalties on the contractor. As a result, the Authority was deprived of $33,150 in penalty income that should have been recovered from the elevator contractor and could represent funds to be put to better use when collected. Auditing Services Improperly Procured A contract for auditing services was improperly procured. The Authority’s ranking/award process seems to preclude full and open competition. Documentation in the files shows that the Authority received two bid proposals; however, the ranking and rating of the two proposals showed that the contract was awarded to the higher bidder. Federal regulations at 24 CFR [Code of Federations] 85.36 provide that all procurement transactions will be conducted in a manner that provides for full and open competition, and Office of Manament and Budget Circular A-87 requires costs charged to be necessary and reasonable for efficient operations. Both proposals showed that the contractors had similar qualificiations and relevant prior work experience. However, the Authority’s ranking scores rated 11 the high bidder’s proposal as significantly better than that of the low–bidder even though the scope of services to be provided was the same for both bidders. Therefore, the Authority’s proposal evaluation and analysis of the criteria and categories considered in the evaluation process appear to be both inconsistent and restrictive to competition. For instance, one of the Authority’s ranking factors is based on previous experience with the contractor. Not only is this ranking factor unnecessary for the scope of services to be provided, but it also restricts competition since bidders that have not had a previous contract with the Authority receive a ranking of zero for this factor. A more appropriate factor is the Authority’s evaluation category that considers a bidder’s previous experience with conducting audits of federal programs and housing authorities. The Authority’s rating form also contained a ranking factor that considered cost as it relates to contract performance. However, the Authority did not accurately assign scores for this factor since the high bidder received a better score for this factor. Since the scope of services to be provided was the same for all bidders, it follows that the low bidder should have received the best score for this ranking factor. Based on the above, the Authority did not properly procure this contract since the lower bidder did not win the contract. As a result, the Authority incurred unnecessary operating costs contrary to applicable program regulations. Consequently, the costs incurred in excess of the low bid amount are considered ineligible costs that should be repaid. A summary of the ineligible costs is as follows: High-bid contract payments $ 46,750 Less: low-bid contract proposal (38,100) Ineligible costs incurred $ 8,650 Conclusion The above deficiencies show that the Authority’s controls over procurements and/or contract awards did not ensure that costs incurred for procured contract services were reasonable and necessary. Recommendations We recommend that the director of HUD’s Office of Public Housing instruct the Authority to 2A. Establish controls to ensure compliance with all applicable federal, state and local procurement policies and regulations, to include compliance in the areas of (1) performing cost estimates and/or price analyses for all future procurement activities, (2) adequately soliciting and documenting all proposals submitted in response to a request for proposals for 12 professional services to substantiate the selection, and (3) properly executing contracts for all professional services provided. 2B. Provide documentation to justify the $98,316 in unsupported costs ($46,666 for legal services and $51,650 for labor relations services) so that HUD can make an eligibility determination. 2C. Reimburse from nonfederal funds the amount of any unsupported costs determined to be ineligible. 2D. Enforce the damages clause of the elevator contract to ensure that the program is not deprived of $33,150 in penalty income, thus resulting in funds to be put to better use. The penalty amount should also be increased if the work is not completed. 2E. Reimburse from nonfederal funds the ineligible costs of $8,650 incurred from improperly procuring auditing services. 13 Finding 3: The Authority Did Not Fully Perform Monitoring Responsibilities as a Contract Administrator for HUD The Authority, acting as a contract administrator for seven HUD-assisted Section 8 11B projects, did not fully perform the administrator’s responsibilities. It failed to conduct the required oversight management reviews and on-site management reviews. It believed that the requirements had changed and the monitoring reviews were no longer necessary. As a result, there is a lack of assurance that the projects were administered in accordance with HUD Section 8 program requirements. Consequently, the Authority did not demonstrate that it fully earned the Section 8 administrative fees it was paid. Contract Administrator for Seven Section 8 11B Projects The Authority is the contract administrator for seven Section 8-assisted 11B projects consisting of 515 units. As contract administrator, the Authority is responsibile for performing a comprehensive examination of the projects’ operations through annual on-site management reviews and physical inspections of the projects. In addition, the Authority is required to conduct annual inspections on 25 of every 100 units under contract and on all vacant units. To compensate the Authority as contract administrator, HUD has authorized the payment of an administrative fee. The Authority received adminstrative fees for fiscal years 2003 and 2004 in the amounts of $138,624 and $140,658, respectively. Contract Administrator Responsibilities Not Fully Performed HUD Handbook 4350.5, paragraph 15-8, provides that the contract administrator must perform the following functions: a) assess the project’s operating policies and procedures, b) determine known or suspected fraudulent practices, c) ensure rent requests are submitted in a timely manner, d) review project operating budgets, e) review rent collection procedures, f) conduct vacancy rate comparabilities, g) review reserve for replacement withdrawal requests, h) verify tenant selection, i) verify that pet ownership rules are established for the elderly and handicapped, j) review Section 8 utilization reports, k) verify distributions to project owners, l) review utility allowance adjustments, and m) review Section 8 special claims vouchers. The Authority did not perform all of the contract administrator responsibilites as required by the handbook. It did not (a) perform on-site reviews during the past 10 years to review the project’s operating policies and procedures, (b) determine 14 whether known or suspected fraudulent practices existed, (c) verify whether project owner and/or management agents were selecting tenants in accordance with program requirements, (d) review project leases to ensure that the house rules for pet ownership had been established, and (e) ensure that distributions were made to project owners. By not performing all of the contract administrator responsibilities, the Authority was not assured that the owners and/or management agents understood and properly carried out their responsibilities to the projects. Oversight Management Not Performed HUD Handbook 4350.5, paragraph 15-1, requires contract administrators to provide oversight management of project owners and management agents to assure compliance with the terms of the Section 8 rental subsidy contract, HUD regulatory agreement, applicable HUD regulations, and other administrative requirements. An Authority official, employed at the Authority since 1988, stated that the Authority had not monitored the owners and/or management agents of the seven Section 8 11B projects for at least 10 years. The Authority believed that the requirements had changed and that monitoring reviews were no longer necessary. In addition, the Authority official contended that the Authority did not have the resources to perform site monitoring due to the lack of adequate staff. By not performing oversight management, the Authority was not assured that the projects were managed and maintained in accordance with HUD regulations, the subsidy contract, and administrative requirements. On-Site Reviews Not Conducted HUD Handbook 4350.5, paragraph 15-9, requires that on-site reviews of HUD- subsidized projects be conducted as an essential aspect of a contract administrator’s monitoring. Further, contract administrators are required to perform the following types of on-site project reviews: on-site management reviews, physical inspections, and unit inspections. For the seven projects reviewed, the required annual on-site management reviews and physical inspections were not performed. The Authority could not provide documentation to indicate the last time an on-site review had been performed at any of the seven projects. Consequently, the Authority did not have adequate assurance that the projects were being properly maintained and that Section 8 program assistance was provided to eligible tenants appropriately. 15 The Authority performed inspections on vacant units, as required; however, no unit inspections were performed on occupied units. HUD handbook criteria require that the Authority perform annual housing quality standards inspections for all vacant units and at a minimum, 25 percent of occupied units. Contrary to this requirement, there were no inspections performed on occupied units even though the majority of the 515 units under contract were occupied. Without adequate housing quality standards inspections, the Authority could not be assured that Section 8 assistance was provided only for units that were in decent, safe, and sanitary condition. Conclusion The Authority did not fully perform its duties as contract administrator for seven HUD-assisted Section 8 projects. The Authority did not perform oversight management and on-site reviews during the past 10 years. Since the Authority did not visit the projects, interview staff, or evaluate the project’s policies and procedures, instances of known or suspected fraudulent practices may have gone undetected. In addition, there was no assurance that the owners and/or management agents selected tenants in accordance with HUD requirements. Further, the Authority did not review project leases to ensure that the house rules for pet ownership had been established and did not ensure that distributions were made to project owners. Since the Authority failed to perform comprehensive examinations of the project operations through oversight management, on-site reviews, and physical inspections, it lacked assurance that the projects were administered in accordance with HUD Section 8 program regulations. Consequently, the Authority did not demonstrate that it fully earned the Section 8 administrative fees it was paid. Based on our analysis, the Authority did not succeed in performing at least half of the duties required of it as contract administrator. Accordingly, HUD should consider 50 percent of the administrative fee paid during fiscal years 2003 and 2004 or $139,641 unsupported pending an eligibility determination. Recommendations We recommend that the director of HUD’s Office of Multifamily Housing instruct the Authority to 3A. Implement procedures and controls to ensure that all of the contract administrator’s responsibilities are performed and documented. 3B. Determine whether the Authority fully earned $139,641 (50 percent) of the $279,282 Section 8 administrative fee paid to it during our review period. If any of the fees are determined to be ineligible, that amount is to be reimbursed to HUD from nonfederal funds. 16 SCOPE AND METHODOLOGY Our review focused on selected general operations of the Authority. To accomplish our objectives, we • Interviewed HUD field office staff, as well as employees of the Authority. • Reviewed applicable HUD regulations and requirements. • Obtained an understanding of the Authority’s management controls as they related to our objectives. • Reviewed financial statements, the general ledger, and procurement contract files maintained at HUD and the Authority. • Sampled procurement activities related to six contracts to verify the Authority’s compliance with applicable HUD regulations and requirements. • Reviewed program records for the low-rent housing and Section 8 programs. • Reviewed Section 8 11B project files to verify the accuracy and completeness of the Authority’s oversight and management. The review covered the period between January 1, 2003, and April 30, 2005, and was extended when necessary. We performed our audit work from May through December 2005 at the Authority’s office located at 509 Second Street, Utica, New York. The review was conducted in accordance with generally accepted government auditing standards. 17 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: • Program operations – Policies and procedures that management has implemented to reasonably ensure that a program meets its objectives. • Controls over the validity and reliability of data – Policies and procedures that management has implemented to reasonably ensure that valid and reliable data are obtained, maintained, and fairly disclosed in reports. • Compliance with laws and regulations – Policies and procedures that management has implemented to reasonably ensure that resource use is consistent with laws and regulations. • Safeguarding of resources – Policies and procedures that management has implemented to reasonably ensure that resources are safeguarded against waste, loss, and misuse. We assessed the relevant controls identified above. A significant weakness exists if management controls do not provide reasonable assurance that the process for planning, organizing, directing, and controlling program operations will meet the organization’s objectives. 18 Significant Weaknesses Based on our review, we believe the following items are significant weaknesses: • The Authority did not have procedures to ensure that its program operations would meet all contract administrator responsibilities (see finding 3). • The Authority did not have an adequate system to ensure compliance with laws and regulations relating to the payment of retiree medical insurance, the processing of procurement activities, and performing monitoring responsibilities as a Section 8 contract administrator (see findings 1, 2, and 3). • The Authority did not have an adequate system to ensure that resources were properly safeguarded when it paid $511,480 for unsupported retiree medical insurance costs and made questionable payments of $140,116 for procurement activities (see findings 1 and 2). 19 APPENDIXES Appendix A SCHEDULE OF QUESTIONED COSTS AND FUNDS TO BE PUT TO BETTER USE Recommendation Type of questioned cost Funds to be put number Ineligible 1/ Unsupported 2/ to better use 3/ 1B $511,480 2B $ 98,316 2D $33,150 2E $ 8,650 3B $139,641 ______________________________________________________ Total $520,130 $237,957 $33,150 1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity that the auditor believes are not allowable by law; contract; or federal, state, or local policies or regulations. 2/ Unsupported costs are costs charged to a HUD-financed or HUD-insured program or activity 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. 3/ “Funds to be put to better use” are quantifiable savings that are anticipated to occur if an Office of Inspector General (OIG) recommendation is implemented, resulting in reduced expenditures at a later time for the activities in question. This includes costs not incurred, deobligation of funds, withdrawal of interest, reductions in outlays, avoidance of unnecessary expenditures, loans and guarantees not made, and other savings. 20 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments 21 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 1 22 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments 23 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 2 Comment 3 24 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 4 Comment 4 Comment 5 25 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 5 26 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 5 27 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 5 28 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 6 Comment 7 29 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 7 30 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 8 Comment 9 31 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 9 Comment 9 32 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 9 33 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 9 Comment 9 34 Appendix B AUDITEE COMMENTS AND OIG’s EVALUATION Ref to OIG Evaluation Auditee Comments Comment 9 Comment 9 35 OIG Evaluation of Auditee Comments Comment 1 Officials of the Authority state that all persons who have separated or retired from the Authority and now receiving health insurance are over 65 years of age. All persons not affiliated with the CSEA are eligible only for a $500 annual stipend provided that they apply directly for Medicare D. All other retirees, all being CSEA affiliated, are not to have health insurance altered until the resolution of a Declaratory Judgment as directed by legal counsel. Based upon the thorough and conscientious action taken by the Authority over the last two years, initiated prior to the HUD OIG review, the Authority has made and continues to make significant progress at reducing its provision of health insurance assistance provided to retirees. While the Authority has demonstrated its ability to promote economy and efficiency of health insurance coverage for retirees, the Authority is still responsible for the actions taken in the past. As such, the Authority is therefore liable for reimbursement to the low-income housing program for the $511,480 of previous health insurance payments to retirees who did not meet the board requirements for receiving health, dental and prescription benefits. Comment 2 The Authority’s actions are responsive to our recommendations. Comment 3 Officials for the Authority contend that it was an oversight not to prepare a general counsel contract based on the assumption that the previous agreement with the legal counsel had been extended. As such, the Authority has instituted a Board Directives Compliance Book to insure proper follow-up of board resolutions including execution of contracts following award. Comment 4 Officials for the Authority were unaware of the requirement to obtain detailed invoices for services rendered on a retainer basis. As a result, if the supporting documentation cannot be provided, the Authority should reimburse HUD the $46,666 paid for legal services and the $51,650 paid for labor relations’ services. Comment 5 Officials for the Authority contend that the imposition of liquidated damages may not be warranted or is difficult to establish because the actual damages suffered by the Authority was very minimal. The Authority admits that a priority determination had been made that essentially extended the completion deadline of the elevator contract, knowing full well that this decision would negatively impact the schedule for the elevator project. 36 Federal regulations (24 CFR 85.36(b)(2) requires the Authority to maintain a contract administration system, which ensures that contractors perform in accordance with the terms, conditions, and specifications of their contract. As such, the imposition of liquidated damages is not difficult to establish; the contract with the contractor provides that damages would be assessed in the amount of $150 a day for each day beyond the stated completion date that the work is not usable for its intended purpose. The purpose of this specific contract clause is to (1) protect the legal rights of all parties involved, and (2) clearly detail the process for remediation when either party fails to perform as agreed to. Since the contractor was well over its time for completion, the Authority did not act in the best interests of efficiency and economy of resources by not enforcing liquidated damages upon the elevator contractor. Thus, the low-income housing program has been deprived of the $33,150 in penalty income; therefore we maintain that our recommendation to enforce the damage clause of the contract be implemented. Comment 6 Officials for the Authority contend that the request for proposal factor number 6 requiring prior experience as auditor or fee accountant with the Authority is valuable in the assessment of bidders and is weighted more, in accordance with OMB Circular A-110 Subpart C, Subsection 44 (d). However, we disagree that the factor should be weighted so excessively to the point that it restricts competition. OMB Circular A-110 Subpart C, Subsection 44 provides that all procurement transactions shall be conducted in a manner to provide, to the maximum extent practical, open and free competition. Comment 7 Officials for the Authority contend that when evaluating factor number 4 pertaining to overall cost based on scope of service, the total audit cost quoted by the low bidder was not consistent with the hourly rates and estimated man hours quoted. The Authority decided it would be fair and equitable to compare hourly rates, which we agree is a fair and equitable method. However, the Authority misinterpreted the Yellow Book standards pertaining to the proper supervision of fieldwork. The Authority felt because the low bidder proposed to use staff other than a Certified Public Accountant for a portion of the audit process, the quality of work proposed would be deficient. This inaccurate interpretation of the standards resulted in the high bidder being unjustly awarded the contract. Consequently, the costs of $8,650 incurred in excess of the low bidder are considered ineligible and should be reimbursed to HUD. Comment 8 Upon review of our draft audit report, officials for the Authority provided a certified cost analysis and documentation from HUD supporting the procurement of services provided by a financial consultant. As a result, we concluded that the services of the financial consultant were procured 37 properly and the payment of $2,100 for such services is supported. Consequently, this issue has been eliminated from our final report. Comment 9 Officials for the Authority contend that all of the required contract administrator responsibilities as required by the HUD Handbook are either now currently being carried out or will be implemented. As such, this gives credence to the fact that the Authority did not fully earn at least 50 percent of the administrative fee paid to it during our review. 38
Utica Municipal Housing Housing Authority, Utica, New York; Operational and Administrative Weaknesses Have Resulted in Unsupported and Ineligible Expenditures
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-02-21.
Below is a raw (and likely hideous) rendition of the original report. (PDF)