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.
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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.
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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
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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.
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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
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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.
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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.
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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.
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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.
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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
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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
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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.
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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
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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.
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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.
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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.
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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.
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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).
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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.
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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)