Issue Date
September 25, 2006
Audit Report Number
2006-PH-1014
TO: James D. Cassidy, Director, Office of Public Housing, Pittsburgh Field Office,
3EPH
FROM:
SUBJECT: The Housing Authority of the City of McKeesport, McKeesport, Pennsylvania,
Needed to Improve Its Low-Rent Housing Maintenance Program
HIGHLIGHTS
What We Audited and Why
We audited the Housing Authority of the City of McKeesport’s (Authority)
management of its low-rent maintenance program. We conducted the audit
because of concerns identified during a previous audit we performed at the
Authority. Our overall audit objective was to determine whether the Authority
properly managed the maintenance of its low-rent housing program in accordance
with U.S. Department of Housing and Urban Development (HUD) rules and
regulations.
What We Found
The Authority did not properly manage the maintenance of its low-rent housing
program in accordance with HUD rules and regulations and its annual
contributions contract with HUD. The Authority’s maintenance operations
needed improvement; it received operating subsidies for ineligible units; and it
did not prevent conflict-of-interest situations with its vendors. Additionally, the
Authority did not provide adequate management oversight and control and did not
implement adequate policies and procedures to ensure its maintenance employees
completed vacant unit work orders as required.
What We Recommend
We recommend that HUD require the Authority to
• Repay the program $90,119 from nonfederal funds for the ineligible
expenditures resulting from the prohibited conflict-of-interest situations
with its vendors identified in this report.
• Implement controls and procedures to prevent and resolve conflict-of-
interest situations with its vendors, thereby putting $51,497 in vendor
payments to better use.
• Provide adequate management oversight and control to ensure that
maintenance employees document and complete vacant unit work orders
in a timely manner as required, thereby putting $439,327 to better use.
• Bring its maintenance staffing levels in line with HUD guidelines or
properly justify why the additional maintenance personnel are needed,
thereby putting $437,346 to better use.
• Implement policies and procedures to justify hiring maintenance
contractors to provide services that should be performed by the
Authority’s maintenance personnel, thereby putting $215,067 to better
use.
• Repay HUD ineligible amounts from nonfederal funds after HUD
recalculates the Authority’s operating subsidy to exclude ineligible units
from April 1, 2003, to December 31, 2004.
• Discontinue requesting subsidies for housing units that are not eligible,
thereby putting $743,135 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’s Response
We discussed the report with the Authority during the audit and at an exit
conference on August 17, 2006. The Authority provided written comments to our
draft report, including five exhibits, on August 23, 2006. The Authority generally
disagreed with the findings, but indicated it will comply with the terms of its
annual contributions contract. Also, the Authority agreed that its maintenance
department would benefit from detailed policies and procedures and that the audit
will result in improvements throughout the Authority.
The full narrative portion of the Authority’s response, without the exhibits, along
with our evaluation of that response, can be found in appendix B of this report.
The Authority’s complete response, including exhibits, is available upon request.
3
TABLE OF CONTENTS
Background and Objectives 5
Results of Audit
Finding 1: The Authority Did Not Prevent Conflict-of-Interest Situations with 6
Its Vendors
Finding 2: The Authority’s Maintenance Operations Needed Improvement 9
Finding 3: The Authority Improperly Obtained Operating Subsidies for Its 19
Vacant Units
Scope and Methodology 21
Internal Controls 22
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 24
B. Auditee Comments and OIG’s Evaluation 25
4
BACKGROUND AND OBJECTIVES
The Housing Authority of the City of McKeesport (Authority) was incorporated as a public
corporation of the Commonwealth of Pennsylvania to provide housing for qualified individuals
in accordance with the rules and regulations prescribed by the U.S. Department of Housing and
Urban Development (HUD). HUD authorized the following financial assistance to the Authority
for its fiscal years 2004 and 2005:
• $5.7 million in operating subsidies to operate and maintain its housing developments, and
• $5.6 million in Public Housing Capital Fund program funding to modernize its public
housing units.
A five-member board of commissioners governs the Authority. The commissioners are appointed
by the mayor of the City of McKeesport with advice and consent of the city council. The
appointments are for staggered five-year terms. The chairman of the Authority’s board of
commissioners, James R. Brewster, is also the mayor of the City of McKeesport and has been on
the board of commissioners since 1990 (secretary-treasurer from 1990 to 1994 and chairman from
1994 to the present). The Authority’s executive director is John H. Kooser, Jr.
The Authority owns and manages eight properties with 1,064 low-rent units. Results from the
Authority’s fiscal year 2004 Real Estate Assessment Center physical inspection reports indicated
that five of the eight properties received a failing physical condition score (less than 60 points). The
failing scores ranged from 45 to 59. Overall, the Authority is barely considered a standard
performer with a physical condition score of 18.39 out of 30 on its Public Housing Assessment
System Review.
The overall objective of the audit was to determine whether the Authority’s maintenance
program of its low-rent housing portfolio was being properly managed in accordance with HUD
rules and regulations.
5
RESULTS OF AUDIT
Finding 1: The Authority Did Not Prevent Conflict-of-Interest
Situations with Its Vendors
Contrary to its annual contributions contract and HUD regulations, the Authority did not prevent
conflict-of-interest situations with its vendors. In this regard, the Authority obtained services
from vendors that were owned either by immediate family members of the Authority’s
management staff or its board of commissioners. According to Authority officials, these
conflict-of-interest situations occurred because they were unaware of applicable requirements in
the Authority’s annual contributions contract and HUD regulations. As a result, from April 2003
to December 2004, the Authority made ineligible payments totaling $90,119 to vendors. By
creating and implementing procedures and controls to resolve and prevent these conflicts of
interest, the Authority will put $51,497 1 to better use over a one year period.
The Authority Improperly
Hired Vendors
The Authority improperly hired three vendors and paid them from April 1, 2003,
to December 31, 2004, a total of $90,119 2 to perform services for the Authority in
violation of its annual contributions contract and federal regulations thus making
the expenditure of $90,119 an ineligible use of HUD funds. Section 19(A) of the
Authority’s annual contributions contract prohibited the Authority from entering
into any contract, subcontract, or arrangement in connection with any project
under the contract in which several classes of people have an interest, direct or
indirect, during their tenure or for one year thereafter. These classes include any
present or former member or officer of the governing body of the Authority, any
Authority employee who formulates policy or who influences decisions with
respect to the project(s), and any public official who exercises functions or
responsibilities with respect to the project(s) or the Authority, or any member of
such individual’s immediate family. Similar requirements prohibiting conflicts of
interest related to the hiring of vendors are contained in 24 CFR [Code of Federal
Regulations] 85.36 and 24 CFR 982.161.
1
$51,497 was calculated as follows: $90,119 divided by 21 months (the audit period) multiplied by 12 months (to
annualize).
2
$84,609 of this amount was also identified in the audit results for finding 2; specifically, the payments totaling
$60,404 and $24,205 as discussed in this finding. To avoid reporting monetary benefits twice, we reported a
monetary benefit for these costs in this finding and excluded them from the monetary benefits reported in finding 2.
6
However, contrary to established requirements, the Authority did not prevent
conflict-of-interest situations and obtained services from businesses that were
owned either by relatives of the Authority’s management staff or members of its
board of commissioners. To illustrate,
• The Authority paid a vendor owned by the sister of the Authority’s deputy
executive director 3 $5,510 from April 2003 to December 2004, to provide
publishing services for the Authority.
• The Authority paid a vendor owned jointly by the stepbrother and the
stepfather of the chairman of the Authority’s board of commissioners3
$60,404 from April 2003 to December 2004, to provide hauling and
excavation services for the Authority.
• The Authority paid a vendor owned by the brother of the Authority’s
Section 8 program manager3 $24,205 from April 2003 to December 2004,
to provide maintenance services to the Authority.
The Authority’s annual contributions contract allowed HUD to waive the
requirements of section 19(A) of the Authority’s annual contributions contract for
good cause if such a waiver was permitted by state and local law. However,
Authority officials did not request a waiver or demonstrate good cause for
waiving the requirements of the annual contributions contract for these vendors.
On the contrary, officials stated they were unaware of the need to obtain a waiver.
Therefore, by creating measures to resolve and prevent these conflicts of interest,
the Authority will cease improperly obtaining services from vendors owned by
relatives of employees and its board members and instead properly obtain services
from vendors thereby putting $51,497 to better use. Although there will be a
recurring benefit, our estimate of funds to be put to better use reflects only the
initial year of these recurring benefits.
The Authority Did Not Follow
Its Own Personnel Policy
In addition to its violations of its annual contributions contract, the Authority also
violated provisions its own personnel policy by employing more than one member
of the same family and by not always hiring applicants that met minimum
qualification standards. The Authority’s personnel policy discouraged it from
employing more than one member of the same immediate family “insofar as
possible.” However, in 2006, the Authority planned to pay annual salaries and
benefits of $426,219 to 10 employees who are immediate family members of
other employees of the Authority. In one instance, the Authority employed five
3
The board member or manager was in place at the time the event(s) occurred.
7
employees from the same immediate family. In addition, the Authority did not
always consider minimum standards required for positions when hiring staff. For
example, our review of the personnel files of five maintenance employees showed
that one employee lacked the skills and qualifications necessary for her position.
Authority Is Being Proactive
During the audit we found the Authority employed three immediate family
members of its board of commissioners. Although the pre-existing relationships
violated the Authority’s most recent annual contributions contract, dated
November 2003, the relationships did not violate the annual contributions contract
in effect at the time these employees were hired. Therefore, the best practice in
this situation would be for the Authority to obtain the appropriate waivers for the
pre-existing relationships that violated the November 2003 contract. To its credit,
the Authority was prudent and agreed to obtain the appropriate waivers cited in its
most recent annual contributions contract in regard to its hiring of employees and
vendors.
Recommendations
We recommend that the director, Pittsburgh Office of Public Housing require the
Authority to
1A. Repay the program $90,119 from nonfederal funds for the ineligible
expenditures resulting from the prohibited conflict-of-interest situations
identified in this report.
1B. Create and implement controls and procedures to prevent future conflict-
of-interest situations and resolve existing conflict-of-interest situations
relating to entering into contracts with immediate family members as
stated in section 19(A) of its annual contributions contract and HUD
regulations, thereby putting $51,497 in funds to better use.
1C. Implement provisions of its personnel policy requiring it to refrain from
employing more than one member of the same immediate family, and to
hire only applicants meeting minimum qualification standards.
8
Finding 2: The Authority’s Maintenance Operations Needed
Improvement
The Authority’s maintenance department did not prepare its vacant units for occupancy in a
timely manner even though the department was overstaffed and hired vendors to assist in
preparing vacant units for occupancy. This occurred because the Authority did not provide
adequate management oversight and control and did not implement adequate policies and
procedures to ensure that its maintenance employees completed vacant unit work orders as
required. As a result, from April 1, 2003, to December 31, 2004, the Authority lost an
opportunity to provide 514 housing units to families in need, and it forfeited $768,822 4 in rental
income it could have otherwise earned. By providing adequate management oversight, control,
and implementing adequate policies and procedures, the Authority will provide additional
housing units to families in need, and thereby earn an additional $439,327 5 in rental income over
a one year period. Further, by bringing its staffing levels in line with HUD guidelines or
properly justifying the employment of additional maintenance staff, and improving controls and
properly justifying hiring outside contractors, the Authority will put $437,346 6 and $215,067 7 to
better use over a one year period.
The Authority Failed to
Prepare Units for Occupancy in
a Timely Manner
Contrary to HUD guidelines 8 and its own policy, the Authority’s maintenance
staff did not prepare vacant units for occupancy in a timely manner. As a result,
from April 1, 2003, to December 31, 2004, the Authority lost an opportunity to
provide 514 housing units to families in need, and it forfeited $768,822 in rental
income it could have otherwise earned. The Authority certified that it had a
failing score for its vacant unit turnaround time sub-indicator on its 2004
Management Assessment Sub-system certification. The Authority certified that it
had a vacant unit turnaround time of 51.63 days. According to the HUD scoring
criteria, a score greater than 50 is considered failing. The HUD guidelines and the
Authority’s own internal policy provide that the Authority’s vacant unit work
4
$768,822 = $431,868 received during 2004 plus $336,954 during 2005. $431,868 = $179.02 (monthly dwelling
rental charge per unit for fiscal year 2004) multiplied by 2,412.4 (the total number of months the units were vacant).
$336,954 = $184.40 (monthly dwelling rental charge per unit for fiscal year 2005) multiplied by 1,827.3 (the total
number of months the units were vacant).
5
$439,327 was calculated as follows: $768,822 divided by 21 months (the audit period) multiplied by 12 months
(to annualize).
6
$437,346 was calculated as follows: $62,478 average annual salary and benefits multiplied by seven employees.
7
$215,067 was calculated as follows: $376,367 (see footnote 2) divided by 21 months (the audit period) multiplied
by 12 months (to annualize).
8
HUD’s Management Assessment Sub-System Guidebook
9
orders should be completed within 20 days of when the low-rent unit is vacated.
The Authority was significantly deficient in this regard. To illustrate,
• From April 1, 2003, to March 31, 2004, the Authority had 436 units
vacant for more than 20 days but had not taken the steps necessary to
prepare the units for occupancy. These 436 units (41 percent of the
Authority’s inventory) had been vacant an average of 300 days.
• From April 1, 2004, to December 31, 2004, the Authority had 300 units
vacant for more than 20 days but had not taken the steps necessary to
prepare the units for occupancy. These 300 units (28 percent of the
Authority’s inventory) had been vacant an average of 456 days.
• Since none of the 514 units were prepared for occupancy, the Authority
could not lease them to families in need. In addition, it took an excessive
amount of time to prepare some of its vacant units for occupancy. The
Authority’s records showed that it took the Authority an average of 167
days to prepare rented units for occupancy, although HUD and the
Authority’s own policy expect this to be done in 20 days.
The Authority Did Not Provide
Adequate Management
Oversight and Control
Although the Authority had a maintenance staff of 32 employees during 2003 and
2004, it did not provide adequate management oversight and control to ensure that
it properly used these employees. For example, the Authority did not properly
document the work of its employees on work orders and did not prepare
performance evaluations for its maintenance employees. Since employees were
not properly held accountable for the work they were required to perform, there
was no assurance that the work was performed or that it was performed in a
timely manner.
The Authority’s lack of management oversight and control is illustrated by the
time and attendance records and the work orders completed by two maintenance
mechanics/working foremen and one laborer. The maintenance
mechanics/working foremen, based on their position descriptions, are expected to
possess the skills necessary for preparing vacant units for occupancy such as
building and installing cabinets and partitions and installing electrical wiring. The
laborers are expected to possess the skills needed to complete general work such
as cutting grass, cleaning the dumpsters and streets, and janitorial work. The
Authority did not have established procedures requiring that every hour of
maintenance work be documented by a work order. However, the Authority’s
managers agreed that every hour of maintenance work should be documented on a
10
work order and entered in the Authority’s work order computerized database to
track the work that is done by the maintenance staff.
Our review of the Authority’s records for the 21-month period from April 2003 to
December 2004 showed that the three employees often did not prepare work
orders to document what they accomplished while on the job. Additionally,
considerable time the employees documented on work orders was spent on tasks
other than preparing units for occupancy. To illustrate,
• One maintenance mechanic/working foreman documented only 4 percent
of the 1,136 hours she worked on work orders. This employee did not
complete any work orders to prepare units for occupancy. 9
• Another maintenance mechanic/working foreman documented only 27
percent of the 2,174 hours he worked on work orders. This employee
completed only seven work orders to prepare units for occupancy.
• The laborer documented only 49 percent of the 3,192 hours he worked on
work orders. However, this employee completed 90 work orders to
prepare units for occupancy.
Since managers often did not ensure that the maintenance staff prepared work
orders to account for their time on the job, the Authority could not provide
assurance that it used its employees properly to prepare its vacant units for
occupancy. In addition to failing to prepare work orders, the Authority
acknowledged it did not conduct performance evaluations of its maintenance
employees. The Authority’s maintenance superintendent informed us that he did
not complete evaluations due to an oversight on his part. Since employees were
not properly held accountable for the work they were required to perform, vacant
units were not prepared for occupancy and remained vacant for as long as 1,556
days.
The Authority Did Not Have
Adequate Maintenance Policies
and Procedures
The Authority also did not have adequate policies and procedures in place to
assist its maintenance employees in completing their work as required. The
Authority’s internal policy stated that its vacant unit work orders must be
completed within 20 days of when a low-rent unit was vacated. However, the
Authority’s policies and procedures regarding how it was to accomplish this task
were not clear, up-to-date, or approved by the Authority’s board of
commissioners. In addition, the maintenance department’s policy did not provide
9
This maintenance employee is one of five employees hired from the same immediate family noted in finding 1.
11
the staff with the explicit standard operating procedures it needed to prepare a unit
to lease. The following photographs illustrate the condition of some of the 514
units that the Authority failed to prepare for occupancy.
Crawford Village, Apartment 4G - Vacant 586 Days
We visited this unit on September 20, 2005. According to the Authority’s
vacancy database, this unit had been vacant since February 13, 2004. The unit
had been vacant for 586 days on the day of our visit.
Kitchen
Living
Room
Floor
12
Crawford Village, Apartment 5B - Vacant 555 Days
We visited this unit on September 20, 2005. According to the Authority’s
vacancy database, this unit had been vacant since March 15, 2004. The unit had
been vacant for 555 days on the day of our visit.
Bedroom
Ceiling
Living
Room Wall
13
Crawford Village, Apartment 5C - Vacant 935 Days
We visited this unit on September 20, 2005. According to the Authority’s
vacancy database, this unit had been vacant since March 1, 2003. The unit had
been vacant for 935 days on the day of our visit.
Bedroom
Ceiling
Bedroom
Floor
14
Crawford Village, Apartment 5G - Vacant 542 Days
We visited this unit on January 12, 2006. According to the Authority’s vacancy
database, this unit had been vacant since July 20, 2004. The unit had been vacant
for 542 days on the day of our visit.
Bathroom
Bedroom
#1 Ceiling
By providing adequate management oversight and control and implementing
adequate policies and procedures to ensure that its maintenance employees
complete work orders in a timely manner as required, the Authority will cease
15
allowing housing units to remain vacant for unreasonable amounts of time and,
instead will prepare these vacant units for occupancy. In addition to providing
additional housing units to families in need, the Authority will earn an additional
$439,327 in rental income. This will be a recurring benefit. However, our
estimate reflects only the initial year of these recurring benefits.
The Authority’s Maintenance
Department Was Overstaffed
The Authority’s maintenance department was overstaffed, causing it to
unnecessarily pay salaries and benefits for 11 employees. HUD guidance
provides that for a housing authority owning 1,064 low-rent units, as the
Authority does, the recommended staffing levels should reflect 50 units per
maintenance staff member, including management. This guidance would provide
for the staffing level at the Authority to be 21 employees. During 2003 and 2004,
the Authority paid salaries and benefits on average to 32 maintenance employees.
The Authority’s staffing levels unnecessarily exceeded HUD guidelines by 52
percent.
The Authority could not adequately explain why its maintenance staffing level
exceeded HUD guidelines. Authority officials told us the overstaffing may have
been needed due to the Authority’s very old housing stock and because it had
units in bad condition. While some of its housing stock was old, we disagree that
the Authority needed an additional maintenance staff of 11 employees. On the
contrary, as discussed above, the Authority’s existing maintenance staff did not
prepare its vacant units for occupancy in a timely manner because the Authority
did not provide adequate management oversight and control over its staff of 32
employees. In addition, it did not implement adequate policies and procedures to
ensure that its maintenance employees completed vacant unit work orders as
required.
During the audit, the Authority reduced its maintenance staff by four employees
to 28 employees. During 2006, the Authority’s average budgeted salaries and
benefits per maintenance employee were projected to be $62,478. Therefore, by
further bringing its staffing levels in line with HUD guidelines or properly
justifying the employment of additional maintenance staff, the Authority will put
$437,346 to better use. This will be a recurring benefit. However, our estimate
reflects only the initial year of these recurring benefits.
The Authority Unnecessarily
Hired Contractors
The Authority unnecessarily paid 12 vendors $460,976 from April 2003 to
December 2004 to assist its maintenance department in getting its vacant units
16
ready for occupancy and perform other maintenance work. The maintenance
services provided by the vendors varied, but the Authority could not adequately
justify hiring contractors to perform the services since its existing maintenance
department should have been able to perform the work. The services provided by
the vendors consisted of activities such as cleaning units, plastering walls,
installing gutters, replacing floors, painting units, and other miscellaneous tasks.
For example, the Authority paid one contractor $1,900 to install window blinds
and $2,300 to install elevator door guards and another contractor $9,400 to paint a
stock room and four boiler rooms.
The Authority could not adequately explain why it hired contractors to perform
work its maintenance department should have been able to perform in-house.
Authority officials explained that the contracts may have been justified due to the
Authority’s very old housing stock and because it had units in bad condition.
While some of its housing stock was old, we disagree that the Authority needed to
hire 12 vendors and pay them $460,976 from April 2003 to December 2004 to
assist the Authority’s maintenance department in getting its vacant units ready for
occupancy and perform other maintenance work.
On the contrary, as discussed above, the Authority’s existing maintenance staff
did not prepare its vacant units for occupancy in a timely manner because the
Authority did not provide adequate management oversight and control over its
staff of 32 employees. Moreover, it did not implement adequate policies and
procedures to ensure that its maintenance employees completed vacant unit work
orders as required. Further, as previously discussed, the Authority’s maintenance
department was overstaffed, causing it to unnecessarily pay salaries for 11
employees. Therefore, while the Authority’s staffing levels unnecessarily
exceeded HUD guidelines by 52 percent, this overstaffing should have easily
allowed it to perform its existing maintenance workload without hiring
contractors for additional help. If the Authority improves its controls and ceases
unnecessarily hiring contractors to perform maintenance work and, instead
properly justifies hiring outside contractors, it will put $215,067 10 to better use.
Although this will be a recurring benefit, our estimate reflects only the initial year
of these recurring benefits.
Recommendations
We recommend that the director, Pittsburgh Office of Public Housing require the
Authority to
10
See Footnote 7.
17
2A. Provide adequate management oversight and control to ensure that its
maintenance employees document and complete vacant unit work orders
in a timely manner as required, thereby putting $439,327 to better use.
2B. Provide adequate management oversight and control to ensure that it
prepares and conducts performance evaluations of its maintenance
employees at least annually.
2C. Create and implement adequate policies and procedures to ensure that its
maintenance employees properly complete maintenance work as required.
2D. Bring its maintenance staffing levels in line with HUD guidelines for
maintenance staffing or properly justify to HUD why the additional
maintenance personnel are needed, thereby putting $437,346 to better use.
2E. Create and implement policies and procedures to ensure that it adequately
justifies hiring contractors to provide maintenance services, thereby
putting $215,067 to better use.
18
Finding 3: The Authority Improperly Obtained Operating Subsidies for
Its Vacant Units
The Authority improperly obtained operating subsidies for its vacant units during the audit
period of April 2003 to December 2004. This occurred because it mistakenly believed and
reported to HUD that its units were vacant due to circumstances beyond its control. If the
Authority discontinues requesting and receiving operating subsidies for ineligible units, HUD
funds estimated at $743,135 11 will be put to better use over a one year period.
The Authority Improperly
Justified Its Operating
Subsidies Request
The Authority improperly justified its request for operating subsidies for its
vacant units from April 2003 to December 2004. According to 24 CFR [Code of
Federal Regulations] 990.102, a housing authority may be granted subsidies for
vacant units but only when the vacancy is due to circumstances and actions
beyond its control, such as changing market conditions. However, units vacant
because they do not meet minimum standards pertaining to construction or
habitability under federal, state, or local laws or regulations are not considered
vacant due to circumstances and actions beyond the authority’s control. In this
regard, up to 514 units in the Authority’s inventory remained vacant because the
Authority did not adequately prepare them for occupancy. In addition, the units
did not meet established physical condition standards. Therefore, the Authority
was not entitled to receive an operating subsidy for these units.
The Authority Improperly
Cited Changing Market
Conditions to Obtain Subsidies
The Authority’s rationale for requesting operating subsidies due to changing
market conditions was not proper. Regulations at 24 CFR [Code of Federal
Regulations] 990.102 provide the basis for the Authority to request subsidies for
units vacant due to circumstances and actions beyond its control. It states that
units vacant due to circumstances and actions beyond an authority’s control are
dwelling units that are vacant due to circumstances and actions that prohibit the
11
$743,135 was calculated as follows: $3,652,234 (Authority’s 2006 operating subsidy request) minus $2,909,099
(revised subsidy request based on the exclusion of 216 vacant housing units). We calculated 216 units as follows:
378 (vacant housing units in our audit results that were not designated for modernization) divided by 21 months (the
audit period) multiplied by 12 months (to annualize).
19
authority from occupying, selling, demolishing, rehabilitating, reconstructing,
consolidating, or modernizing them. The deputy director explained that units were
vacant because a large portion of the Authority’s housing inventory had not been
modernized for many years and as an example, he stated that many of the units do
not contain showers; there is only a bathtub. However, our audit did not find
circumstances and actions prohibiting the Authority from modernizing these units.
As discussed in finding 2, the Authority’s inventory included 514 vacant units
because the Authority did not adequately prepare the units for occupancy. Thus,
HUD should recalculate the Authority’s operating subsidy calculation to exclude
ineligible units and require the Authority to repay HUD with nonfederal funds for
the ineligible subsidies received from April 1, 2003, to December 31, 2004. In
addition, the Authority should discontinue future requests for operating subsidies
for units that do not meet minimum standards pertaining to construction or
habitability under federal, state, or local laws or regulations, thereby putting funds
to better use totaling $743,135.
Recommendations
We recommend that the director, Pittsburgh Office of Public Housing
3A. Recalculate the Authority’s operating subsidy calculation to exclude
ineligible units from April 1, 2003, to December 31, 2004, and require the
Authority to repay HUD ineligible amounts from nonfederal funds.
3B. Require the Authority to discontinue improperly requesting subsidies for
units that do not meet minimum standards pertaining to construction or
habitability under federal, state, or local laws or regulations, thereby
putting funds to better use totaling $743,135.
20
SCOPE AND METHODOLOGY
To accomplish our objectives, we
• Interviewed Authority and local HUD employees;
• Reviewed applicable HUD regulations, monitoring files, and systems;
• Reviewed Authority policies and procedures relating to its maintenance department;
• Reviewed Authority board of commissioners minutes and resolutions;
• Examined Authority salary and benefit compensation for its maintenance department and
employees affected by conflicts of interest; and
• Examined Authority vacancy databases for fiscal years 2004 and 2005.
We performed the majority of our fieldwork between June 2005 and July 2006 at the office of the
Authority located at 2901 Brownlee Street, McKeesport, Pennsylvania. The audit generally
covered the period April 1, 2003, to December 31, 2004, but was expanded when necessary.
We performed our review in accordance with generally accepted government auditing standards.
21
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.
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that resource use is
consistent with laws and regulations.
We assessed all of the relevant controls identified above during our audit of the
Authority’s maintenance activities. A significant weakness exists if management
controls do not provide reasonable assurance that the process for planning,
organizing, directing, and controlling program operations will meet the
organization’s objectives.
Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• The Authority failed to implement procedures and controls to ensure
compliance with state laws and HUD regulations regarding its operating
subsidy and conflicts of interest.
22
• The Authority did not provide adequate oversight and control or implement
adequate policies and procedures to ensure that its maintenance program’s
objectives were being met.
23
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Funds to be put
number to better use 2/
1A $90,119
1B $51,497
2A $439,327
2D $437,346
2E $215,067
3B $743,135
Total $90,119 $1,886,372
1/ Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
that the auditor believes are not allowable by law; contract; or federal, state, or local
polices or regulations.
2/ “Funds to be put to better use” are estimates of amounts that could be used more
efficiently if an Office of Inspector General (OIG) recommendation is implemented.
This includes reductions in outlays, deobligation of funds, withdrawal of interest subsidy
costs not incurred by implementing recommended improvements, avoidance of
unnecessary expenditures noted in preaward reviews, and any other savings which are
specifically identified. In these instances, if the Authority implements our
recommendations, it will cease 1) improperly obtaining services from vendors owned by
relatives of employees and its board members, 2) allowing housing units to remain
vacant for unreasonable amounts of time, 3) overstaffing its maintenance department, 4)
unnecessarily hiring contractors to perform maintenance work, and 5) receiving ineligible
subsidies and, instead will properly hire vendors, minimize the amount of time that
housing units are vacant, correctly justify the staffing of its maintenance department,
properly justify hiring outside contractors, and request subsidies for housing units that are
eligible to receive HUD subsidies. Once the Authority successfully improves its controls,
this will be a recurring benefit. Our estimate reflects only the initial year of these
recurring benefits.
24
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
Comment 1
Comment 1
Comment 2
25
Comment 2
Comment 3
Comment 3
26
Comment 4
Comment 5
Comment 4
Comment 2
Comment 6
Comment 2
Comment 7
27
Comment 7
Comment 4
Comment 5
Comment 4
28
Comment 4
Comment 4
Comment 4
29
Comment 4
Comment 5
Comment 8
30
Comment 2
Comment 2
Comment 9
Comment 3
Comment 10
31
Comment 9
Comment 9
Comment 2
Comment 10
Comment 3
32
Comment 3
Comment 11
33
Comment 2
Comment 11
Comment 11
Comment 3
Comment 2
Comment 12
Comment 12
Comment 12
34
Comment 12
Comment 12
35
Comment 12
Comment 7
Comment 13
Comment 3
36
Comment 3
Comment 3
Comment 3
Comment 14
37
OIG Evaluation of Auditee Comments
Comment 1 Authority officials did in fact make these statements to the auditors during a
previous audit. The primary reason we did the audit however was due to overall
concerns the auditors identified during the previous audit, which were not based
solely on the statements made by Authority officials. Therefore, we have
removed the statements from the final audit report.
Comment 2 The audit was performed in accordance with generally accepted government
auditing standards. As such, the audit team collectively possessed adequate
professional proficiency for the tasks required and was properly supervised. Our
conclusions are supported by relevant and substantial evidence documented in our
audit workpapers.
Comment 3 The Authority’s mission, established in its consolidated annual contributions
contract with HUD, is to provide decent, safe, and sanitary housing to eligible
families in a manner that promotes serviceability, economy, efficiency, and
stability of the projects. Although economic circumstances have evolved over the
years in which the Authority has been in existence, the Authority’s mission has
remained constant. It is management’s responsibility to ensure that it does not
violate its contractual obligations established in its consolidated annual
contributions contract with HUD. As described in the audit report, the
Authority’s maintenance operations needed improvement. The Authority violated
the terms of its consolidated annual contributions contract with HUD, forfeited
substantial rental income, failed to provide housing to families in need, and
received operating subsidies for units that did not meet the standards established
in this contract and HUD regulations. We did not assume the Authority had an
unlimited supply of qualified tenants. The Authority’s fiscal year 2004 agency
plan showed there were 72 families on the waiting list for public housing. It is the
Authority’s mission to follow its consolidated annual contributions contract and
provide housing to eligible families.
The Authority stated that its annual turnover rate averages 23 percent and is a
cause of its vacancy problem. However, our finding addresses issues within the
Authority’s maintenance department. As discussed in the audit report, the
Authority did not prepare units for occupancy in a timely manner, did not
properly monitor and control maintenance department employees, overstaffed its
maintenance department, and paid contractors to perform services that its
maintenance department staff should have been able to perform. Change in the
turnover rate would not abate these deficiencies. The Authority also stated it
applied to demolish/convert housing units over the past eight years and HUD
approved all of the applications. However, the documentation the Authority
provided showed HUD approved only one application for demolition prior to our
audit. We identified the housing development by comparing the dates in the
application and the fiscal year 2004 agency plan. The Authority’s vacancy data
38
base showed the majority of these housing units were undergoing modernization
and we adjusted our calculations accordingly.
Comment 4 We are pleased that the Authority has agreed that in the future it will request
required waivers to avoid any future real or apparent conflicts of interest. We
agree that the Authority did in fact execute its current consolidated annual
contributions contract with HUD in November 2003. Although pre-existing
relationships regarding employees violated the Authority’s most recent annual
contributions contract and not the previous contract, the best practice in this
situation would be for the Authority to obtain the appropriate waivers for the pre-
existing relationships which it has now agreed to do. We have revised the report
accordingly.
As for the conflicts involving vendors, section 515 of the previous annual
contributions contract prohibited the Authority and any of its contractors or their
subcontractors from entering into contracts, subcontracts or arrangements in
connection with any project or property covered under the contract in which
members, officers, or employees had an interest, either direct or indirect. We
consider the ownership situations discussed in the audit report indirect interests
for the Authority’s employees and board members. Further, conflict of interest
provisions of 24 CFR [Code of Federal Regulations] 85.36 and 24 CFR 982.161
were in effect during our audit period and applied. Moreover, the Authority used
its small purchase procedures for the purchases discussed in the audit report. As
such, each purchase transaction represented a separate contract with the vendor.
Therefore, subsequent purchases were bound by the contractual and regulatory
requirements in effect at the time the small purchase was made. Thus, the
purchases made in November 2003 and beyond were bound by the terms of the
Authority’s November 2003 annual contributions contract. If the Authority
implements our recommendations, it will cease making these ineligible
expenditures and therefore put funds to better use.
Comment 5 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. Since the contracts were paid using HUD
funding in violation of the Authority’s consolidated annual contributions contract
with HUD, these payments are ineligible costs. In these instances, if the
Authority implements our recommendations, it will cease improperly obtaining
services from vendors owned by relatives of employees and its board members.
Once the Authority successfully improves its controls, this will be a recurring
benefit. Our estimate reflects only the initial year of these recurring benefits.
Comment 6 As discussed in the audit report, the Authority did not prepare vacant units for
occupancy in a timely manner even though the Authority’s maintenance
department was overstaffed and hired vendors to assist in preparing vacant units
for occupancy. We are encouraged that the Authority has agreed that its
maintenance department would benefit from detailed policies and procedures.
39
The audit evidence showed that the Authority’s maintenance policies and
procedures were not clear, up-to-date, or approved by the Authority’s board of
commissioners.
Comment 7 As described in the audit report the Authority’s rationale for requesting operating
subsidies due to changing market conditions was not proper. Regulations at 24
CFR [Code of Federal Regulations] 990.102 provide the basis for the Authority to
request subsidies for units vacant due to circumstances and actions beyond its
control. The regulations state that units vacant due to circumstances and actions
beyond an authority’s control are dwelling units that are vacant due to
circumstances and actions that prohibit the authority from occupying, selling,
demolishing, rehabilitating, reconstructing, consolidating, or modernizing them.
However, units vacant because they do not meet minimum standards pertaining to
construction or habitability under federal, state, or local laws or regulations are
not considered vacant due to circumstances and actions beyond the authority’s
control. In this regard, many units in the Authority’s inventory remained vacant
because the Authority did not adequately prepare them for occupancy. We
believe our interpretation of HUD regulations is correct. Additionally, the
consultant the Authority hired to evaluate our audit finding did not conclude that
our finding lacked merit. Rather, the consultant stated that the amount and nature
of the repayment requirement should be revised. It should be noted that the
consultant’s report addressed an initial finding outline that was presented to the
Authority during the audit for comment and feedback. Since that time, the
finding and the draft report were reviewed and revised through our internal review
process. As a result of those reviews, we revised the finding and
recommendation. We did not recommend that the Authority repay a specific
amount to HUD. Rather, our recommendation is to the director, Pittsburgh Office
of Public Housing to recalculate the Authority’s operating subsidy calculation to
exclude ineligible units and require the Authority to repay HUD amounts
subsequently determined to be ineligible. Therefore, we addressed the
Authority’s concern by revising the draft report that we provided to the Authority
prior to our August 17, 2006, exit conference.
Comment 8 We are pleased the Authority recognizes the standard for its vacant unit
turnaround. This standard is one that the Authority must strive for to ensure it
provides decent, safe, and sanitary housing to assist eligible families.
Comment 9 As described in this report, the Authority’s maintenance department did not
prepare its vacant units for occupancy in a timely manner even though the
department was overstaffed and hired vendors to assist in preparing vacant units
for occupancy. Overall, these problems occurred because the Authority did not
provide adequate management oversight and control and failed to implement
adequate policies and procedures to ensure that its maintenance employees
completed vacant unit work orders as required. As a result, from April 1, 2003, to
December 31, 2004, the Authority lost an opportunity to provide 514 housing
units to families in need, and it forfeited $768,822 in rental income it could have
40
otherwise earned. By providing adequate management oversight, control, and
implementing adequate policies and procedures, the Authority will provide
additional housing units to families in need and thereby earn an additional
$439,327 in rental income over a one year period. In calculating our annual
estimate of funds to be put to better use we counted the lost revenue for these
units only for the period in which they units were vacant. We also properly
accounted for units scheduled to be modernized or demolished and adjusted our
estimate accordingly. Although this will be a recurring benefit, our estimate
reflects only the initial year of these recurring benefits.
Comment 10 We completed our analysis of the Authority’s vacancies using the data that the
Authority was required to maintain in support of its Management Assessment
Subsystem certificate submission. The analysis showed that the Authority had
514 units vacant during the review period. We do not take exception to the
Authority’s comment that the highest number of vacant units at one point in time
may have occurred in July 2004. We understand that the number of vacant units
will fluctuate from month to month. However, as discussed in the audit report,
our analysis showed that the Authority had 514 units vacant for more than 20 days
after being vacated or more than 24 months if undergoing modernization during
the review period April 1, 2003, to December 31, 2004. Some of the units may
have been vacated on more than one occasion throughout the 21-month audit
period. However, in calculating our annual estimate of lost rental revenue we
counted the lost revenue only for the period in which each unit was vacant. The
fact remains that if the Authority had made these units available for occupancy,
the Authority would have been able to provide additional decent, safe, and
sanitary housing to assist eligible families.
Comment 11 The audit report references the same guidance identified by the Authority and
uses it just as that – a guide. As such, we recommended that the Authority be
required to bring its maintenance staffing levels in line with HUD guidelines for
maintenance staffing or properly justify to HUD why the additional maintenance
personnel are needed. The HUD guidance specifically states the following:
“Upon determination of the goals and schedules for the fiscal year, develop
staffing requirements (see Chapter Three) to accomplish the stated tasks. A
general rule of thumb is that one maintenance employee is required for every 50
dwelling units, although this will depend upon the age and condition of each
development and its resident composition. For example, an authority with 250
units may have five maintenance employees: one Working Foreman, two
Maintenance Mechanics, one Maintenance Mechanic Assistant, and one Laborer.”
For our analysis, we contacted responsible HUD staff to clarify our interpretation
of the guidance. An engineer from the Pittsburgh Office of Public Housing
advised us that the ratio would include maintenance management staff.
Comment 12 We are pleased that the Authority recognizes that it lost the potential to earn
additional rental income by not preparing vacant units for occupancy in a timely
manner. However, the report does not state, nor do we believe that the Authority
41
should have an additional $768,822 in the bank. Rather, the report states that by
providing adequate management oversight, control, and implementing adequate
policies and procedures, the Authority will prepare units for occupancy in a
timely manner and therefore it will provide additional housing to families in need
and earn an additional $439,327 in rental income over a one year period. We
agree with the Authority that when a unit is occupied there will be additional
expenses such as increased utilities. However, the Authority is also being paid a
HUD subsidy for those units and is required to use HUD funds to provide decent,
safe, and sanitary housing to assist eligible families. By failing to prepare units
for occupancy in a timely manner, the Authority is not achieving this mission.
Comment 13 We adjusted the wording in the final audit report to agree with the wording in the
Authority’s response.
Comment 14 If the Authority implements our recommendation, it will discontinue improperly
requesting subsidies for ineligible units. Once the Authority takes the corrective
action, there will be a recurring benefit. Our estimate reflects only the initial year
of these recurring benefits attributable to the corrective action taken.
42
The Housing Authority of the City of McKeesport, McKeesport, Pennsylvania, Needed to Improve Its Low-Rent Housing Maintenance Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-09-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)