oversight

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)

                                                                 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