oversight

Utica Municipal Housing Authority, Utica, New York, Needs to Make Improvements in Administering Its HOPE VI Revitalization Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2006-11-02.

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

                                                                Issue Date
                                                                     November 2, 2006
                                                                Audit Report Number
                                                                     2007-NY-1001




TO:        Joan Spilman, Director, Office of Public Housing, 2CPH


FROM:      Edgar Moore, Regional Inspector General for Audit, 2AGA

SUBJECT: Utica Municipal Housing Authority, Utica, New York, Needs to Make
         Improvements in Administering Its HOPE VI Revitalization Program


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Utica Municipal Housing Authority (Authority) regarding its
             administration of its HOPE VI grant program because of issues identified during
             our initial audit of the Authority’s general operations. We wanted to determine
             whether the Authority (1) administered its HOPE VI grant program and activities
             effectively, efficiently, and economically in accordance with grant agreements
             and applicable rules and regulations; (2) complied with applicable procurement
             requirements; (3) implemented sufficient disbursement controls over
             administrative costs charged to the program; and (4) had a cost allocation plan to
             adequately account for and distribute costs to the program.

 What We Found
             The Authority’s HOPE VI program is not achieving vital revitalization objectives
             in a timely manner or in accordance with program goals and requirements as
             specified in its application, revitalization plan, and grant agreement. For three
             professional services contracts associated with the HOPE VI program, 1)
             excessive fees were paid for application services, 2) a consulting contract was
             improperly modified, and 3) administration of a financial consulting contract was
           inadequate. Questionable administrative costs were also charged to the program.
           In addition, the Authority periodically allocated certain costs such as wages and
           fringe benefits but neglected to allocate other indirect costs, and its allocation plan
           for wages and fringe benefits was not adequately supported or detailed.

What We Recommend


           We recommend that the U.S. Department of Housing and Urban Development
           (HUD) director, Buffalo Office of Public Housing, instruct the Authority to
           implement procedures that will ensure that all collateral investments and in-kind
           services for the Hope VI project are documented and quantified. Reevaluate the
           scope of its revitalization plan and amend the plan accordingly so that HUD can
           reassess whether the Authority is able to meet its primary objective of revitalizing
           the project neighborhood known as Cornhill. Based on this reassessment, HUD
           should determine whether the amended plan is effective enough to ensure that the
           remaining $7.47 million will be put to better use, or if the Authority can only
           achieve certain objectives, HUD should consider reducing the remaining amount
           of grant funds proportionately. We also recommend that HUD require the
           Authority to establish controls to ensure compliance with all applicable federal,
           state, and local procurement policies and regulations. Further, the Authority
           should be required to submit supporting documentation to justify all unsupported
           costs, so that HUD can make an eligibility determination, and reimburse the
           program from nonfederal funds all amounts determined to be ineligible. In
           addition, we recommend that the Authority develop and implement a cost
           allocation plan or establish an indirect cost rate proposal to ensure that all costs
           are properly allocated to the benefitting sources.

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

Auditee’s Response


           We discussed the results of our review during the audit and at an exit conference
           held on September 7, 2006. Authority officials did not agree with our findings
           and provided their written comments during the exit conference. The Authority’s
           comments included alternative recommendations, which we have reviewed and
           taken into consideration. Based on this review, we revised our recommendations
           that pertain to finding one. Also, the Authority’s comments included numerous
           appendixes that were too voluminous to include in this report, but will be
           provided to your office. The complete text of the auditee’s response, along with
           our evaluation of that response, can be found in appendix B of this report.




                                             2
                            TABLE OF CONTENTS

Background and Objectives                                                             4

Results of Audit
      Finding 1: The Authority’s HOPE VI Program Was Not Achieving Vital              5
                 Revitalization Objectives

      Finding 2: The Authority’s Controls over HOPE VI Contract Administration        14
                 Were Inadequate

      Finding 3: Questionable Administrative Costs Were Charged to the HOPE VI        19
                 Program

     Finding 4: The Authority Lacked an Acceptable Plan for Allocating Costs to Its   24
                HOPE VI Program


Scope and Methodology                                                                 27

Internal Controls                                                                     28

Followup on Prior Audits                                                              30

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use                  31
   B. Auditee Comments and OIG’s Evaluation                                           32
   C. Questionable Administrative Costs Charged to the HOPE VI Program                69




                                             3
                     BACKGROUND AND OBJECTIVES

The Utica Municipal Housing Authority (Authority) was organized pursuant to the Housing Act
of 1937 and the laws of the State of New York. Its primary objective is to provide low-income
housing to the citizens of Utica, New York, and surrounding areas in compliance with its annual
contributions contract (contract) with the U.S. Department of Housing and Urban Development
(HUD). The Authority is governed by a board of commissioners (board) composed of seven
members, five appointed by the mayor and two elected by the tenants. The executive director is
hired by the board and is responsible for the day-to-day operations of the Authority.

HUD awarded the Authority an $11.5 million HOPE VI grant effective July 3, 2003. The grant
funds are earmarked for developing replacement units for relocated public housing residents and
new housing unit rentals and providing an opportunity for homeownership and renovated
housing in Utica’s most severely distressed neighborhood known as Cornhill. In addition, the
Authority owns and manages eight federally funded developments with 932 low-rent units. It
also administers Section 8 programs consisting of 515 units at seven Section 8, 11B,
developments and 174 housing choice voucher units.

To administer the HOPE VI grant and related activities, the Authority created the not-for-profit
corporation, Rebuild Mohawk Valley, Inc. (Rebuild Mohawk), on January 8, 2003. On July 11,
2003, the Internal Revenue Service designated Rebuild Mohawk as exempt from federal income
tax under section 501(a) of the Internal Revenue Code as a nonprofit organization described in
section 501(c)(3). Rebuild Mohawk is governed by a board of directors, composed of nine
voting members and five ex-officio members. The HOPE VI coordinator is responsible for
implementing policies and administering Rebuild Mohawk. Since the Authority was awarded
the HOPE VI grant, it maintains responsibility for the grant as grantee; therefore, Rebuild
Mohawk and the Authority are referred to interchangeably throughout this report.

We selected the Authority for audit based on issues identified during our review of the
Authority’s general operations, audit report number 2006-NY-1005, issued on February 21,
2006.

The objectives of our audit were to determine whether the Authority (1) administered its HOPE
VI grant program and activities effectively, efficiently, and economically in accordance with
grant agreements and applicable rules and regulations; (2) complied with applicable procurement
requirements; (3) implemented sufficient disbursement controls over administrative costs
charged to the program; and (4) had a cost allocation plan to adequately account for and
distribute costs to the program.




                                               4
                                RESULTS OF AUDIT

Finding 1: The Authority’s HOPE VI Program Was Not Achieving Vital
           Revitalization Objectives
Contrary to its HUD-approved grant application, the Authority was not accomplishing its HOPE
VI program objectives and did not show adequate progress toward completing key planned
activities. Specifically, 1) overall progress was lacking and activities were not tracked; 2)
partnership with the City of Utica (City) lacked progress and cooperation; 3) there had been
limited activity or progress on Cornhill Commons, which is integral to the HOPE VI program as
the central hub of the neighborhood revitalization project; 4) planned housing goals will not be
attained, and target area code enforcement was inadequate to achieve revitalization objectives;
and 5) the relocated tenants of the Washington Court development have not benefited as intended
in the HOPE VI application. These deficiencies can be attributed to Authority’s inadequate
management of the HOPE VI program and its inability to handle a large redevelopment project.
As a result, the HOPE VI program has not benefited the Cornhill neighborhood target area and
residents as proposed in the application, plan, and grant agreement. Thus, the Authority has a
limited chance of success in completing vital HOPE VI activities and achieving revitalization
goals.


 HOPE VI Program Objectives


              In December 2002, the Authority applied for a HOPE VI grant in accordance with
              the notice of funding availability for the fiscal year 2002 HOPE VI program,
              published in the Federal Register, Volume 67, No. 147. In March 2003, HUD
              officially notified the Authority that its HOPE VI grant application had been
              approved. The grant agreement was executed in July 2003 and incorporates the
              notice and grant application. The total approved HOPE VI program budget to be
              expended was more than $82 million, of which $11.5 million was HUD funding,
              thus leveraging was an important component. The Authority received the
              maximum number of points for leveraged funds in its application rating due to the
              amount of leveraged funds that were to be provided in addition to the HOPE VI
              grant. In accordance with program requirements, all of the HOPE VI activities
              are to be completed and funds expended by September 30, 2008.

              The Authority’s approved application proposed to revitalize a community area
              known as the Cornhill section of Utica, which was experiencing the greatest
              distress and drain on local resources. With pledged support from City, county,
              school, and other agency leaders, the Authority planned to (1) offer the 70
              families remaining at its Washington Courts Development the opportunity to
              move to new replacement housing in Cornhill; (2) demolish the Washington
              Courts Development and sell the site to the City for use as an economic



                                               5
            development site, creating job opportunities for residents of Washington Courts;
            and (3) transform Cornhill into a mixed-income neighborhood with new
            community assets and services. However, numerous revitalization investments
            critical to the success of the HOPE VI program have shown little progress, with
            available records indicating that only $802,000 of the $27 million in collateral
            investments had been expended as of March 31, 2006.

Progress Lacking and Activities
Not Tracked

            The Authority was not carrying out its HOPE VI revitalization program in a timely
            manner and in accordance with program requirements as proposed in its application,
            plan, and grant agreement. Due to a lack of adequate recordkeeping by the
            Authority, it is difficult to determine the exact amount expended and the overall
            progress for all HOPE VI activities. The total HOPE VI program budget of $82.3
            million has to be expended by September 30, 2008; however, only $22.6 million had
            been expended as of March 31, 2006.

            Based upon information provided by the Authority and the HOPE VI program
            quarterly progress report, the expenditures as of March 31, 2006, were as follows:

                   Source                   Budget                Expended
                   HOPE VI award            $11,501,039           $ 4,034,362
                   Other federal funds        5,620,876             2,325,584
                   Nonfederal funds          38,208,159            15,455,661

                   Subtotal                  55,330,074           21,815,607

                   Collateral investments    27,039,088               801,936

                   Total HOPE VI            $82,369,162           $22,617,543

            As detailed above, only 27 percent of the overall budget had been expended as of
            March 31, 2006. Further, only 3 percent of funds for the important collateral
            investments had been expended.

            The table below reflects activity on collateral investments as of March 31, 2006.

                   Activity                              Budget          Expended
                   New school                        $16,000,000         $     -0-
                   Rescue mission                      2,800,000               -0-
                   Cosmopolitan center                 2,500,000               -0-
                   City of Utica:
                           Policing                       400,000          111,600
                           Code enforcement               863,000           20,073


                                              6
              Economic development            500,000                -0-
              Cornhill match                  500,000                -0-
              Residential rehabilitation      500,000           174,445
              Lead paint program              500,000           375,000
              In-kind staff                 1,092,000           120,818
       County of Oneida:
              Health department               270,000                -0-
              Residential rehabilitation    1,024,088                -0-
       Habitat for Humanity                    90,000                -0-

       Total collateral investments        $27,039,088        $ 801,936

The Authority’s tracking system is incomplete and unsupported since it did not
track the $27 million of collateral activities. The Authority could not provide any
expenditure reports regarding the $27 million in collateral investments. The
Authority had to request information from the City and other partners in an
attempt to provide us with basic information; however, the responses we received
were inadequate. Since the Authority did not maintain records on the $27 million
in collateral funding, there is no assurance as to the accuracy of the expenditures.

In addition to the lack of progress on collateral investments, the March 2006
quarterly report submitted to HUD shows that $13.5 million of the nonfederal
funds is planned for community services; however, only $3.9 million has been
expended. This represents only 29 percent of the total. Moreover, numerous
partners who pledged support have not provided any funding as of this date. As a
result, many of the leveraged activities, which are an integral part of the HOPE VI
program, have not progressed satisfactorily.

HUD Monitoring Review Cited Concerns

HUD recognized the lack of progress and focus by the Authority in a May 2004
monitoring review. The monitoring report states that the Authority had not
focused on accomplishing any one thing, was trying to accomplish everything at
the same time, and did not have the necessary experience to do so. The
monitoring review report further stated that the Authority needed to focus its
energies on progress, which has been slow as evidenced by the Authority not
meeting projected start dates and the actions not being completed. HUD
recommended that a quarterly source of funds report be developed for each of the
four categories of financial commitments (physical development resources,
community services resources, collateral investments, and anticipatory
investments). Similar to the community services resources report now in place,
we suggest that each report individually list the amounts comprising the total
commitment as well as the year-to-date proceeds and/or services received. When
completed, these reports should reconcile with the quarterly report.




                                  7
Lack of Progress and
Cooperation in Partnership
with City

          The HUD 2004 monitoring review further cited a lack of cooperation between the
          Authority and the City, a main HOPE VI program partner. The City pledged
          significant funds and activities for the HOPE VI project; however, the Authority
          has not obtained progress reports from the City. Many of the City activities
          included not only collateral investments, but also infrastructure improvements for
          the development budget.

          Based on the records available at the Authority, we estimated that approximately
          $17 million would be provided by the City for HOPE VI activities. However, the
          Authority obtained City records that show more than $19 million in HOPE VI
          program planned items with only around $4 million expended and invested in the
          program area at March 2006. The Authority provided the documents to us
          without a detailed write-up or reconciliation.

          More importantly, as of March 31, 2006 key activities from the City that are
          critical to the success of the HOPE VI program have been slow to materialize.
          These include:

             •   $1 million in community assets and services to develop the Cornhill
                 neighborhood, including a new community school, recreational park,
                 outdoor ice skating rink, and community plaza.

             •   More than $800,000 promised by the City for systematic code
                 enforcement activities, of which the City has provided only $20,000 for
                 this activity.

             •   More than $5.5 million in infrastructure improvements to be made in the
                 HOPE VI program target area. The City is claiming only $343,000.
                 During our site visit to the target area, we noticed very few street and/or
                 sidewalk improvements.

             •   More than $500,000 committed by the City for economic development, of
                 which no activity has been completed.

             •   $245,000 committed for facade improvements. So far, only six businesses
                 have been assisted for a total investment of only $30,000.

          The Authority did not maintain records as to the level of expenditures. Since it is
          responsible for ensuring the success of its HOPE VI program as required by the
          grant agreement, it should track the impact that the activities are having in the


                                           8
          revitalization zone. Further, there was no overall assessment of the impact of
          collateral investments.

 Limited Activity or Progress on
 Cornhill Commons

          The Authority’s HOPE VI application states that one of the primary objectives of
          the HOPE VI program is to transform the Cornhill neighborhood once again into
          a mixed-income neighborhood with new community assets and services. The
          application provides that the City made a commitment of $1 million to develop a
          new recreational park in the middle of Cornhill. The park is to have a new
          community school, multipurpose fields, softball fields, playgrounds, an outdoor
          ice rink, and a community plaza. This will bring a much-needed recreational
          asset to this area of the City. The Cosmopolitan Center will construct a $2.5
          million facility that will be part of the community school. The facility will host
          the administrative functions for its own organization, the Authority, the Cornhill
          Senior Center, and other neighborhood groups.

          There has been limited activity or progress on the vital components comprising
          Cornhill Commons. Available records indicate that more than $20 million was to
          be expended for the benefit of Cornhill Commons; however, as of April 2006, no
          funds had been invested. Authority officials also stated that the Authority still
          does not have site control over 12 houses within the seven-acre area needed for
          the Cornhill Commons project. In April 2006, we conducted a visual tour of the
          HOPE VI program target zone and confirmed that there had been limited activity
          in Cornhill Commons.


Housing Goals Not Attained
and Target Area Code
Enforcement Inadequate

          The HOPE VI application was approved on the basis that the Authority would
          construct 74 new homeownership units and 120 new rental housing units for a
          total of 194 housing units. In addition, the application provided that 70 public
          housing units (consisting of 24 homeowner units and 46 rental units) would be
          developed with funds from this HOPE VI program grant.

          The application section also provided that 24 of the 74 homeowner units will be
          available as lease to purchase public housing agency-owned units and 44 rental
          units would be available as homeowner units after 15 years of rental.

          However, based upon information available as of March 31, 2006, the housing
          goals will not be met. The basis for this conclusion is as follows:




                                           9
   •   The 24 lease to purchase public housing agency-owned units have been
       eliminated from the program. The Authority is now planning on only 54
       homeowner units, down from the 74 planned. Of these 54 homeowner
       units, 23 units are targeted for 2007 and 2008.

   •   Only 11 of the originally planned 74 homeowner units have been
       completed.

   •   The total of 44 rental units (Rutger Manor) that were to be homeowner
       units after 15 years of rental has been reduced. The Authority now plans
       only 33 of these units.

Code Enforcement Is Not Adequate

The HOPE VI application provided that the replacement housing would be tied to
“systematic code enforcement,” for which the City promised $863,000. However,
documentation provided by the Authority shows that the City had provided only
$20,000 for this activity as of March 31, 2006. In addition, the Authority noted
many code violations in the HOPE VI target area and informed the City of such
violations; however, little or no action has been taken by the City.

In April 2006, we toured the HOPE VI target area and noticed many code
violations of properties located next to the new HOPE VI program homes. The
following photos illustrate code concerns in the HOPE VI target area.




Street pavement and curb deterioration on Leah Street




                               10
         Poorly maintained grounds of vacant boarded-up property



Relocated Washington Court
Tenants Not Benefiting as
Intended

         A primary objective of the HOPE VI program was to give the tenants of
         Washington Courts the opportunity to relocate to HOPE VI housing in the
         Cornhill neighborhood area and hopefully become homeowners. According to
         the approved application, the HOPE VI project was designed to provide quality,
         affordable housing in combination with support services to empower the former
         residents of Washington Courts. The replacement housing is located in the
         Cornhill neighborhood of Utica with close proximity to shopping, banking,
         human service programs, and other facilities.

         However, the vast majority of the displaced tenants have been relocated to other
         public housing. Only seven of the relocated Washington Court tenants now reside
         in the Cornhill neighborhood, with only one family having purchased a HOPE VI
         home. Most of the relocated Washington Court tenants are currently not residing
         in the Cornhill neighborhood and are not homeowners.

         Washington Court Residents Have Not Benefited From Job Opportunities

         According to the HOPE VI application, another one of the primary objectives of
         the HOPE VI program was to demolish Washington Courts and sell the site to the
         City for use in economic development including providing job opportunities for
         relocated residents of Washington Court. However, we conducted a visual
         inspection of the Washington Court site in April 2006 and noted that the
         demolition work had only recently begun. Thus, the job opportunities, if any, for
         the relocated residents appear to be many years away. More importantly, the
         Authority was to provide job opportunities during construction of the HOPE VI


                                         11
             homes by giving priority to the relocated residents of Washington Court, residents
             of other public and assisted housing, and persons in the Cornhill neighborhood.

             The application provided that there were to be 1) aggressive procurement and
             contracting guidelines to ensure that HOPE VI program construction funds benefit
             the Authority’s residents; 2) use of in-house labor or the Authority’s residents to
             create hiring opportunities in the construction of the for-sale homes; and 3)
             proactive recruitment campaigns to attract private-sector partners, mainstream
             contractors, and minority business owners willing to agree to resident hiring
             goals. Despite these promises and assertions, the Authority has not hired the
             relocated Washington Court residents or any other public housing residents for
             the HOPE VI project.


Conclusion


             The Authority was not carrying out its HOPE VI revitalization program in a
             timely manner and in accordance with program requirements as proposed in its
             application, plan, and grant agreement. Further, the HOPE VI program was not
             benefiting the Cornhill neighborhood target area residents as planned, and the
             Authority has a limited chance of success for completing vital HOPE VI activities
             and achieving revitalization goals within the current timeframes.

             These failures can be attributed to Authority mismanagement of the HOPE VI
             program and the Authority’s inability to administer a large redevelopment project.
             Without knowing the financial and programmatic status of many of its HOPE VI
             activities, the Authority cannot adequately administer its HOPE VI program in an
             economic and effective manner and with assurance of success. In 2004, HUD
             questioned the Authority’s accomplishments and abilities and made several
             recommendations for improvements. However, the Authority did not make any
             measurable improvements. As such, not until the Authority reevaluates the scope
             and amends its plan so that the project neighborhood can be revitalized and
             program objectives can be achieved in a timely manner, will the remaining
             balance of $7,466,678 in HOPEVI funds be more efficiently used and the reduced
             costs will benefit the program.

             The remaining findings contained in this audit report are also indicative of the
             Authority’s inability to manage the HOPE VI program in accordance with
             appropriate requirements.




                                              12
Recommendations



          We recommend that the director, Buffalo Office of Public Housing, require the
          Authority to

          1A.     Implement procedures that will ensure that all collateral investments and in-
                  kind services for the HOPE VI project are documented and quantified. In
                  addition, the Authority should continue to work collaboratively with its
                  partners on this project.

          1B.     Reevaluate the scope of its revitalization plan and amend the plan
                  accordingly, so that HUD can reassess whether the Authority is able to meet
                  its primary objective of revitalizing the project neighborhood.

          We also recommend that the director, Buffalo Office of Public Housing,

          1C.     Determine whether the amended revitalization plan is effective enough to
                  ensure that the remaining $7,466,678 in funds will be put to better use or if
                  the Authority can only achieve certain objectives, consider reducing the
                  remaining amount of grant funds proportionately.




                                            13
Finding 2: The Authority’s Controls over HOPE VI Contract
           Administration Were Inadequate
The Authority’s administration of HOPE VI professional service contracts did not fully comply
with applicable HUD regulations and requirements. For three professional services contracts
associated with the HOPE VI program, 1) excessive fees were paid for application services, 2) a
consulting contract was improperly modified, and 3) administration of a financial consulting
contract was inadequate. As a result of the noncompliances, the Authority incurred unsupported
costs of $242,664, and cost efficiencies totaling $74,099 were identified. The deficiencies can be
attributed to the Authority’s weak system of controls over contract administration.

               Several contracts were modified by change orders that authorized increased cost
               limitations. Therefore, we selected a sample for review consisting of the three
               contracts that included the largest cost limit modifications. The three contracts
               were for professional services and were originally executed with not-to-exceed
               cost limitations. Nonetheless, each contract was modified to provide additional
               funding for significant changes to the scope of services. All three contracts failed
               to comply with HUD regulations and requirements.


     Excessive Fees Paid for HOPE
     VI Application Services

               Because the Authority did not follow federal procurement regulations, $181,762
               was paid to an architectural firm for a contract that was not to exceed $40,000.
               The excessive costs, which were more than 350 percent above the original
               maximum amount, were for architectural preconstruction and community
               planning services enabling preparation of the HOPE VI application. Federal
               regulations at 24 CFR [Code of Federal Regulations] 85.36(2) require grantees to
               maintain a contract administration system, which ensures that contractors perform
               in accordance with the terms, conditions, and specifications of their contracts.

               The selected contractor submitted a letter to the Authority before the competitive
               request for proposals, indicating familiarity with the HOPE VI target area of
               Cornhill. In responding to the request, the contractor promoted its firm as being
               experienced in the Cornhill neighborhood and agreed to do all of the HOPE VI
               application preparation for a not-to-exceed fee of $40,000. A review of the
               selection process shows that this contractor was chosen over competing proposals
               based upon the low price of $40,000.

               The contract was executed in March 2002. However, despite its agreement to
               conduct all of the required application work for the $40,000 fee, the company
               billed $80,000 and at least 1,389 hours through September 2002. The Authority,
               however, did not approve the $40,000 contract increase until October 2002. As a
               result, the work performed in relation to the billings over the original $40,000 was



                                                14
        done without authorization. Thus, the contractor had no contractual authority to
        incur those charges.

        The contractor then billed an additional $89,152 for application services from
        September to December 2002. Once again, the work and billings were conducted
        without approval and authorization. The approval to go from $80,000 to
        $180,000 was not provided by the Authority’s board until March 19, 2003, and
        was signed by the executive director on April 7, 2003. All of the billings were for
        HOPE VI application services, and the services provided were promised under the
        contract for the $40,000. From September through December 2002, the
        contractor billed another 1,345.5 hours. More than 2,900 hours were eventually
        billed for HOPE VI application services.

        Representatives of the contractor and the Authority attempted to provide
        justification for the substantial price increases. Our review of the change order
        justifications determined that the reasons provided for the increases were not
        valid. First, the contractor and the Authority cited the increased number of
        meetings and revisions to the plan. However, the scope of work required the firm
        to attend all necessary meetings and conduct whatever work was necessary to
        assist the Authority with the HOPE VI application. Second, the contractor and
        the Authority cited a larger area than anticipated when the proposal was
        submitted, yet this argument does not have merit when compared with the request
        for proposal’s scope of services.

        The total amount paid for the HOPE VI application services was $181,762, when
        the maximum allowed by the procurement and contract process was $40,000. For
        this reason and the reasons mentioned above, we consider $141,762, which
        represents the amount paid in excess of the $40,000, as excessive costs for the
        HOPE VI application services.


Consulting Contract
Improperly Modified

        A contract for consulting services with a not-to-exceed limit of $85,000 was
        awarded on March 28, 2002, to assist the Authority with its HOPE VI application
        process, although the contractor’s proposal did not fully comply with the request
        for proposals provisions. The Authority authorized a change order increasing the
        contract limit by $20,000 on the same day the contract was awarded. The contract
        was modified three more times by change orders through November 5, 2003,
        adding an additional $85,000 to the contract dollar limit. These four change
        orders increased the contract from a not-to-exceed limit of $85,000 to a modified
        amount of $190,000, thus increasing the original contract amount by about 124
        percent and significantly modifying the scope of services to be provided. Rather
        than initiating a new request for proposals, the Authority opted to arbritrarily
        modify the contract on four occassions, thereby inappropriatly restricting



                                        15
competition for the additional services. In addition, contrary to regulations, the
Authority did not conduct the required cost or price analysis for any of the four
contract change orders executed.

Federal regulations at 24 CFR [Code of Federal Regulations] 85.36(f)(1) require
grantees and subgrantees to perform a cost or price analysis in connection with
every procurement action including contract modifications. Further, 24 CFR
[Code of Federal Regulations] 85.36(a)(9) requires grantees and subgrantees to
maintain records sufficient to detail the significant history of a procurement.
These records will include but are not limited to the rationale for the method of
procurement, selection of a contract type, contractor selection or rejection, and the
basis for the contract price.

The Authority did not maintain sufficient records to track the history of the
procurements as required. From the number of change orders processed, it is
clear that the Authority paid for services well beyond the initial funding
limitations for this contract. Further, it appears that the Authority was instructing
the contractor to submit change orders.

For example, in a February 26, 2003, correspondence, Authority officials advised
the contractor that the balance left on the contract was $6,563, while further
instructing the contractor to provide the authority with an outline of additional
costs it would recommend for the HOPE VI grant implementation period.
Authority officials further requested that the contractor provide the information as
soon as possible so that the Authority could determine the size of the change order
to approve at that time. Accordingly, it appears that the Authority initiated at
least one modification to the contract by requesting that the contractor determine
the level of additional funding to be included in a proposed change order. This
does not appear to be in compliance with 24 CFR [Code of Federal Regulations]
85.36, which provides that all procurement transactions will be conducted in a
manner that provides for full and open competition.

The history of this procurement action illustrates that administration over the
consulting contract was mismanaged, thereby violating the above federal
regulations. This not-to-exceed consulting contract went from $85,000 to
$190,000 due to change orders that improperly modified the contract and
prevented open competition. As of March 2004, the Authority had disbursed
$164,873, leaving a balance of $25,127. As a result of these noncompliances,
$79,874, which represents all disbursements made in excess of the original
contract amount ($164,873 – 85,000), is considered to be unsupported, and the
Authority should be prohibited from expending the undisbursed contract balance
of $25,127; this amount should be considered a cost efficiency.




                                 16
Administration of Financial
Consulting Contract Was
Inadequate.


              On November 14, 2003, the Authority awarded a contract for HOPE VI financial
              consulting services with a not-to-exceed limit of $30,000. Less than seven
              months later, on June 4, 2004, the Authority authorized a change order of $70,000
              to add additional funds to the contract limit, while also indicating a new
              completion date of September 1, 2007. The $70,000 change order represents a
              233 percent increase from the original contract, and it modified the contract limit
              to $100,000. Therefore, the change order represented a significant change in the
              scope of services to be provided.

              The Authority could not provide evidence that the required cost price analysis had
              been conducted before contract modification. The only documentation
              maintained in the Authority’s contract files relating to the change order was two
              faxed documents, dated September 20, 2004. One of the documents contained the
              change order itself and indicated a change order initiation date of April 1, 2004;
              however, the document signatures indicate that it was signed by the Authority on
              June 4, 2004, and by the contractor on June 5, 2004. The second faxed document
              was identified as a change order request, and it included details explaining that
              additional services had already been completed and that other services were
              needed. Therefore, it is unclear from the documentation whether certain services
              were provided by the contractor before execution of the change order.

              Since the Authority did not conduct a price cost analysis for the contract
              modification, costs incurred of $21,028, which exceeded the original not-to-
              exceed contract limit of $30,000, are considered unsupported, and the Authority
              should be prohibited from expending the undisbursed modified contract balance
              of $48,972, which should be considered a cost efficiency.


 Conclusion

              The above deficiencies show that the Authority’s controls over contract
              administration relating to the HOPE VI program did not ensure that costs incurred
              for services were reasonable and necessary.

 Recommendations

              We recommend that the director, Buffalo Office of Public Housing, instruct the
              Authority to




                                              17
2A.   Establish controls to ensure compliance with all applicable federal, state,
      and local procurement policies and regulations, to include compliance in
      the areas of (1) performing cost estimates and/or price analyses for all
      future procurement activities, (2) ensuring that all procurement
      transactions are conducted in a manner that provides for full and open
      competition, and (3) properly administering contracts after execution.

2B.   Provide documentation to justify the $242,664 in unsupported costs
      [$141,762 + $79,874 + $21,028], so that HUD can make an eligibility
      determination, and reimburse from nonfederal funds the amount of any
      unsupported costs determined to be ineligible.

2C.   Discontinue activities associated with the consulting and financial
      consulting contracts that were improperly modified and ensure that the
      remaining contract balance of $74,099 [$25,127 for the consulting
      contract and $48,972 for the financial consulting contract] is not
      disbursed.

2D.   Prepare new requests for proposal if additional consulting or financial
      consulting services are deemed necessary.




                               18
Finding 3: Questionable Administrative Costs Were Charged to the
           HOPE VI Program
Contrary to its grant agreement and federal requirements, the Authority disbursed HOPE VI
program funds for questionable administrative expenditures. These expenditures were associated
with (a) salary allocations; (b) office supplies, equipment, and computer software; (c)
reimbursement to the Authority for various expenditures; (d) credit card charges; (e) other
miscellaneous expenses; (f) local utilities and taxes; and (g) food and beverages. We attribute
these deficiencies to the Authority’s failure to implement controls over disbursements that were
sufficient to ensure compliance with applicable regulations. Consequently, Authority officials
cannot ensure that they charged only reasonable and necessary administrative costs to the HOPE
VI program.


     Federal Regulations

              Federal regulations at 24 CFR [Code of Federal Regulations] 85.3 include “any
              public housing agency” in the definition of a local government. The HOPE VI
              grant agreement between HUD and the Authority and 24 CFR [Code of Federal
              Regulations] 85.22(b) require the Authority to comply with the cost principles of
              Office of Management and Budget Circular A-87, “Cost Principles for State,
              Local, and Indian Tribal Governments.” Attachment A, paragraph C(1)(a),
              requires that all costs be necessary and reasonable for proper and efficient
              performance and administration of federal awards, and paragraph C(1)(j) requires
              that all costs be documented. Therefore, the Authority is required to maintain
              records sufficient to document the reasonableness and necessity of expenditures.

              In addition, 24 CFR [Code of Federal Regulations] 85.20 requires that accounting
              records be supported by source documentation such as cancelled checks, paid
              bills, payrolls, time and attendance records, contract and subgrant awards
              documents, etc.

              Between July 3, 2003, and December 31, 2005, the Authority disbursed HOPE VI
              program funds totalling $75,869 to pay for questionable administrative
              expenditures. The details are described as below.

   Salary Allocations


              During the audit period, the Authority made journal entries detailing $30,076
              charged to the HOPE VI program for salary allocation for fiscal years ending June
              30, 2004, and June 30, 2005. The Authority was unable to provide sufficient
              payroll data to support the salaries allocated, and the journal entries were not
              descriptive. Further, as discussed in finding 4, the Authority lacked an acceptable
              cost allocation plan. As a result, we question the $30,076 pending an eligibility
              determination by HUD.


                                              19
 Payments for Office Supplies,
 Equipment and Computer
 Software

          The Authority could not provide adequate documentation to support expenditures
          totalling $20,148 for a laptop computer, computer software, file cabinents, a
          digital projector, general office supplies, and copier machine lease fees and their
          related supplies. There was no evidence to support that price quotes had been
          obtained for these purchases. Also, there was no invoice on file for the purchase
          of the digital projector, and it appears that payment, which occurred from two to
          six months after the purchase of the projector, was based on the vendor’s
          statement of account. In addition, contrary to the Authority’s policy requiring
          purchase orders of more than $1,000 to be signed by the cxecutive director,
          computer software was purchased without the appropriately authorized purchase
          order. Further, the purchase requistion and purchase order to support the costs
          associated with the copiers and their related supplies were not properly signed.
          The Authority did not have a copy of the maintenance agreement for the leased
          copier on file. It could not provide adequate supporting documentation, such as
          vendor invoices, purchase requisitions, and purchase orders, for overage charges
          for excessive copies. Accordingly, we consider the $20,148 to be unsupported
          and recommend that HUD make a determination on the eligibility of these
          charges.

Reimbursements to the
Authority for Various Expenses

          The Authority reimbursed its general operating account $11,628 for various costs
          including wages, benefits, office equipment, and supplies. The supporting
          documentation for these expenditures was nondescriptive in detailing the purpose
          and providing justification for the charges to the HOPE VI program. The
          Authority was unable to provide adequate accounting support such as vendor
          invoices, purchase requisitions, purchase orders, receiving reports, etc. Further,
          the small amount of supporting documentation that was provided does not agree
          with the amount charged to the HOPE VI program. Therefore, since the
          Authority did not provide adequate supporting documentation to substantiate that
          these expenditures were for reasonable expenses, we consider the $11,628 to be
          unsupported and recommend that HUD make a determination on the eligibility of
          these charges.




                                           20
Credit Card Charges

           The Authority was unable to provide adequate documentation to support
           disbursements totalling $7,104 for charges made to a credit card. The charges
           included finance charges, Dunkin Donuts, airline tickets, gasoline, hotel rooms,
           late fees, travel advances, software, and tuition reimbursement. The
           documentation provided to us for review lacked adequate accounting support such
           as vendor invoices, purchase requisitions, purchase orders, and receiving reports.
           Accordingly, we consider the $7,104 to be unsupported and recommend that
           HUD make a determination on the eligibility on these charges.

           In addition, the documentation that the Authority provided to support some of the
           credit card purchases was disorganized, and the billing dates could not be
           reconciled to the amount of payment or to budget line item distribution. In
           addition, certain charges, such as those for Dunkin Donuts, gasoline, groceries,
           and miscellaneous expenses classified as marketing expenses, are questionable as
           to their eligibility. The marketing expenses included potpourri, candles, greeting
           cards, ribbons, shrink roll, liquid soap, laundry baskets, and a mirror. Further,
           Office of Management and Budget Circular A-87, attachment B, provides that
           costs incurred for interest on borrowed capital are unallowable. Some payments
           were made from two to six months after the items were purchased; thus, certain
           credit card billings included finance charges and late fees, which are not eligible
           uses of funds. Therefore, we recommend that $68 in ineligible costs be
           reimbursed to the HOPE VI program by the Authority from nonfederal funds.


 Other Miscellaneous Expenses

           The Authority could not provide adequate documentation to support expenditures
           totalling $3,821. The items include flooring materials, flooring installation,
           digital prints, and black and white copies. There was no evidence to support that
           price quotes had been obtained for these purchases. In addition, contrary to the
           Authority’s policy requiring purchase orders of more than $1,000 to be signed by
           the executive director, the digital prints and black and white copies were
           purchased without the appropriately authorized purchase order. The
           documentation that the Authority provided to support telephone conference call
           expenditures was nondescriptive as to the purpose and did not provide sufficient
           justification for the expenditure. Accordingly, we consider $3,821 in costs to be
           unsupported and recommend that HUD make a determination on the eligibility of
           these charges.




                                            21
Payments for Local Utilities and
School Taxes


              The Authority disbursed checks totalling $1,562 from HOPE VI program funds
              for payment of local utilities and school taxes that we consider ineligible
              expenses. The utility payments were for gas, electric, and municipal use in
              addition to municipal school taxes. The payments related to property not owned
              by the Authority. The property in question is owned by Stuben Manor, LLC, a
              limited liability partnership created by HOPE VI Developer Housing Visions,
              Inc., and Key Bank. The Authority charged these disbursements to account
              number 1400, entitled “Fees and Costs.” However, these payments do not have a
              proper relationship to HOPE VI program administrative costs. Accordingly, we
              consider the $1,562 to be ineligible and recommend that the Authority be
              instructed to reimburse this amount to the HOPE VI program with nonfederal
              funds.

Food and Beverages Expenses


              The Authority was unable to provide adequate documentation to support the
              necessity of disbursements totalling $1,153 for food and beverage items
              consumed during meetings related to the HOPE VI program. These expenses
              consisted of assorted food items, a luncheon for the HOPE VI program partners,
              and a banquet. Accordingly, we consider the $1,153 to be unsupported and
              recommend that HUD make a determination on the eligibility of these charges.

              The documentation that the Authority provided to support the banquet
              expenditure was nondescriptive as to the purpose and did not provide sufficient
              justification for the expenditure. In addition, the total amount paid exceeded the
              authorized purchase order amount by $304. Therefore, we recommend that the
              $304 be reimbursed to the HOPE VI program by the Authority from nonfederal
              funds.

              Appendix C contains a summary of questionable administrative costs chagred to
              the HOPE VI program.

 Conclusion

              The above deficiencies show that the Authority’s controls over administrative
              costs did not ensure that the costs incurred were reasonable and necessary
              expenses. The lack of controls has allowed for questionable administrative costs
              to be charged to the HOPE VI grant program.




                                               22
          Contrary to applicable requirements, the Authority lacked documentation to show
          that $75,869 in HUD funds used to pay for administrative costs was for
          reasonable and necessary expenses. The Authority paid $1,935 in ineligible costs
          and $73,934 in unsupported costs from HUD funds charged to the HOPE VI
          project.

Recommendations

          We recommend that the director, Buffalo Office of Public Housing, require the
          Authority to

          3A.     Implement procedures and effective disbursement controls to ensure that
                  all transactions charged to the HOPE VI grant are properly incurred,
                  supported, and in compliance with applicable regulations.

          3B.     Reimburse the grant from nonfederal funds the $1,935 in ineligible costs.

          3C.     Provide additional documentation and justification for the $73,934 in
                  unsupported costs so that HUD can make an eligibility determination. If
                  any unsupported costs are determined to be ineligible, they should be
                  reimbursed from nonfederal funds.




                                          23
Finding 4: The Authority Lacked an Acceptable Plan for Allocating
           Costs to Its HOPE VI Program

Contrary to federal requirements, the Authority did not have an acceptable plan to support the
allocation of costs to its HOPE VI program. It periodically allocated certain costs such as wages
and fringe benefits but neglected to allocate other indirect costs. The Authority’s allocation plan
for wages and fringe benefits was not adequately supported or detailed. We attribute these
deficiencies to the Authority’s unfamiliarity with federal cost allocation procedures. As a result,
the Authority’s method of allocating costs to the HOPE VI grant was incomplete and did not
ensure that the grant was bearing a fair share of the costs as required.


 Federal Requirements


               Federal regulations at 24 CFR [Code of Federal Regulations] 85.22(b) require the
               Authority to follow Office of Management and Budget Circular A-87, “Cost
               Principles for State, Local, and Indian Tribal Governments.” Section 85.3 of the
               regulation includes “any public housing agency” in its definition of a local
               government.

               Office of Management and Budget Circular A-87, attachment A, paragraph A1,
               provides that state, local, and federally recognized Indian tribal governments shall
               establish principles to provide that federal awards bear their share of costs. Office
               of Management and Budget Circular A-87, attachment E, section B3 and 4, states
               that an “indirect cost pool” is the accumulated costs that jointly benefit two or
               more programs or other cost objectives, and “base” means the accumulated direct
               costs (normally either total direct salaries and wages or total direct costs exclusive
               of any extraordinary or distorting expenditures) used to distribute indirect costs to
               individual federal awards. The direct cost base selected should result in each
               award bearing a fair share of the indirect costs in reasonable relation to the
               benefits received from the costs.

               Further, Office of Management and Budget Circular A-87 provides two methods
               that local governments can use to allocate costs to federal grants. The first
               method, as detailed in attachment C, paragraph A1, states that governments need
               a process whereby costs can be assigned to benefited activities on a reasonable
               and consistent basis. The cost allocation plan provides that process. All cost and
               other data used to distribute the costs included in the plan should be supported by
               formal accounting and other records that support the propriety of the costs
               assigned to federal awards. The second method, as detailed in attachment E,
               section D1, states that all departments or agencies of the governmental unit
               desiring to claim indirect costs under federal awards must prepare an indirect cost
               rate proposal and related documentation to support those costs.




                                                24
Certain Costs Periodically
Allocated

          The Authority’s plan for allocating costs included salary and fringe benefit
          allocations for selected staff but failed to include other allocable costs or an
          explanation as to why other costs were not included in the plan. The HOPE VI
          coordinator explained that certain costs such as salaries and wages were allocated
          periodically; however, other indirect costs were not allocated to the grant.

          HUD’s HOPE VI budget guidance, dated June 2005, provides that budget line
          item 1410 [Administration] is intended for costs associated with the general,
          overall administration of the HOPE VI grant by the grantee. In addition to staff
          salaries and benefits, the budget guidance lists several other specific eligible
          administration expenses, including such costs as those incurred for office space
          and utilities for office space, etc. Further, Office of Management and Budget
          Circular A-87, attachment E, section A4, states that typical examples of indirect
          costs may include certain state/local central service costs, general administration
          of the grantee department or agency, accounting and personnel services
          performed within the grantee department or agency, depreciation or use
          allowances on buildings and equipment, the costs of operating and maintaining
          facilities, etc.

 The Authority’s Method for
 Allocating Costs Was Not
 Documented


          The Authority did not have adequate documentation to support its allocation plan.
          For instance, the Authority’s plan was not adequately supported with detailed
          time sheets or a time study to support the rates used to allocate wages by staff
          position, nor did the plan provide reasoning for not allocating nonsalary indirect
          costs to the grant. The Authority’s plan merely listed (1) selected employee by
          name and title, (2) an apparent percentage of time and number of hours spent on
          HOPE VI activities, (3) general HOPE VI duties conducted by position, and (4) a
          notation stating cost per employee plus benefits. No additional documentation
          was included with the Authority’s plan to indicate how the allocable percentages
          were determined or how the salary cost totals were calculated. In addition, the
          fringe benefits section of the plan did not describe the nature of the fringe
          benefits, nor did it describe how the fringe benefit amounts would be determined.




                                           25
Cost Allocation Issue Previously
Noted by HUD


              The HUD Buffalo Office of Public Housing conducted a financial review of the
              Authority in May 2004. The Authority was cited by HUD for not having
              established and/or updated a formal cost allocation plan. HUD recommended that
              a formal allocation plan be developed in accordance with Office of Management
              and Budget requirements. HUD further recommended that the plan contain the
              rationale for the allocation process, as well as how it would be executed and when
              it would be adjusted to reflect updated information.

              Two years later and despite HUD’s recommendations, the Authority had not
              established an acceptable cost allocation plan to include the HOPE VI grant. In
              particular, as discussed above, the Authority’s allocation plan did not contain the
              rationale for the allocation process.

 Conclusion

              Authority management had not implemented a cost allocation plan to ensure that
              costs allocated to the HOPE VI grant were accurate and reasonable. As a result,
              the Authority lacked assurance that costs charged to the HOPE VI program were
              reasonable in relation to the benefits derived from the costs incurred. Further, it is
              likely that the Authority’s operating fund has been charged with other allocable
              indirect costs that have provided benefit to the HOPE VI program, further
              burdening an already stressed operating budget. Consequently, the Authority’s
              ability to effectively control its HOPE VI program budget is diminished.

 Recommendations

              We recommend that the director, Buffalo Office of Public Housing, require the
              Authority to

              4A.    Develop and implement a cost allocation plan and/or establish an indirect
                     cost rate proposal in accordance with Office of Management and Budget
                     requirements. Once an acceptable cost allocation plan or indirect cost rate
                     proposal is developed, the Authority should ensure that all costs are
                     properly allocated to benefitting sources.

              4B.    Establish procedures and controls to ensure that its plan for allocating
                     costs is updated as necessary.




                                               26
                         SCOPE AND METHODOLOGY

Our review focused on the Authority’s HOPE VI grant program. To accomplish our objectives,
we interviewed HUD officials and Authority staff. In addition, we reviewed applicable laws,
regulations, and other HUD program requirements and the Authority’s program files for the
HOPE VI grant program.

Various documents including financial statements, general ledgers, bank statements, invoices,
purchase orders, contracts, check vouchers, HUD monitoring reports, and the Authority’s audited
financial statements were also reviewed during the audit.

As of the end of our fieldwork, $7,466,678 of the $11.5 million in HOPE VI funding provided by
HUD, was unspent. If the Authority implements our recommendations by amending its
revitalization plan so that the project neighborhood can be revitalized and the program objectives
can be achieved in a timely manner, the remaining balance of HOPE VI funds will be more
efficiently used and the reduced costs will be a benefit to the program. As such, the Authority
could then assure HUD that the remaining funds are being put to better use.

The review covered the period between January 1, 2003 and December 31, 2005, and was
extended as necessary. We performed our audit work from February through June 2006 at the
Authority’s office located at 509 Second Street, Utica, New York. We also performed audit
work at the offices of the Authority’s not-for-profit corporation, the Rebuild Mohawk Valley,
Inc., located at 524 Elizabeth Street, Utica, New York. The review was conducted in accordance
with generally accepted government auditing standards.




                                               27
                             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.

                  •   Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                  •   Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                  •   Safeguarding of resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.




                                               28
Significant Weaknesses


           Based on our review, we believe the following items are significant weaknesses:

               •   The Authority did not establish controls and procedures to ensure that
                   administration of the HOPE VI grant program was conducted in a manner
                   that would achieve program objectives (see finding 1).

               •   Controls and procedures were not established to ensure the validity and
                   reliability of HOPE VI data. The Authority was not sufficiently tracking
                   the HOPE VI program partner activities, and cost allocations were charged
                   to the grant without the benefit of an adequate cost allocation plan (see
                   findings 1, 3, and 4).

               •   The Authority did not have an adequate system to ensure compliance with
                   laws and regulations relating to the payment of certain HOPE VI
                   contracting and administrative costs charged to the grant (see findings 2,
                   3, and 4).

               •   The Authority did not have an adequate system to ensure that resources
                   were properly safeguarded when it charged questionable contracting and
                   administrative costs to the grant (see findings 2 and 3).




                                           29
                           FOLLOW-UP ON PRIOR AUDITS


Report No. 2006-NY-1005
Utica Municipal Housing
Authority, Utica, New York
February 21, 2006


           We issued the above audit report pertaining to the general operations of the
           Authority. The report contained three findings with recommendations for corrective
           action.

           Finding 1 involved the Authority providing unauthorized medical insurance benefits
           totaling $511,480 for retiree medical costs. The recommendations are still open as
           the Authority contends it does not have any nonfederal funds available to reimburse
           the low-rent housing program, and HUD has requested a legal opinion from the
           Office of General Counsel regarding the definition of nonfederal funds, which may
           qualify for the repayment of disallowed costs to the low-rent housing program.

           Regarding finding 2, HUD has also requested a legal opinion from the Office of
           General Counsel pertaining to the questioned $140,116 that resulted from the
           Authority’s deficient system for procuring and awarding contracts.




                                           30
                                   APPENDIXES

Appendix A

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

 Recommendation          Ineligible 1/    Unsupported      Funds to be put
     number                                        2/       to better use 3/
              1C                                               $7,466,678
              2B                             $242,664
              2C                                                    74,099
              3B              $1,935
              3C                                  73,934

           Total              $1,935         $316,598          $7,540,777


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/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of audit. Unsupported costs
     require a decision by HUD program officials. This decision, in addition to obtaining
     supporting documentation, might involve a legal interpretation or clarification of
     departmental policies and procedures.

3/   “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 costs 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 this instance if the Authority implements our recommendations
     by amending its revitalization plan and ceasing to spend funds on improperly modified
     contracts, it will ensure that the remaining balance of HOPE VI funds will be more
     efficiently used and HUD could be assured that vital program objectives will be achieved
     in a timely manner. Thus, the efficient use of the funds will be a benefit to the program.




                                             31
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         32
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 2




                         33
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 2




                         34
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 3



Comment 4




                         35
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 3




                         36
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 7




Comment 8




Comment 9




                         37
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 9




                         38
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 10

Comment 9




                         39
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 9




Comment 9




Comment 11



Comment 12




                         40
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 12




Comment 12


Comment 13




                         41
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 13




Comment 14




                         42
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 14




Comment 15




                         43
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 15




Comment 16




                         44
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 16




Comment 1




Comment 6




                         45
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 17




                         46
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 17




                         47
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 17




                         48
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 17




                         49
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 17




Comment 18




                         50
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 18




                         51
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 18




Comment 19



Comment 20




                         52
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 20




Comment 6




Comment 21



Comment 22




                         53
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 22



Comment 23



Comment 23



Comment 24




Comment 6




                         54
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 25




Comment 26




Comment 26




Comment 23




                         55
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 21




Comment 27



Comment 21




Comment 6




                         56
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 6




Comment 28




Comment 6




                         57
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 6




                         58
                         OIG Evaluation of Auditee Comments

Comment 1   Officials for the Authority state the primary recommendation of the report is that
            HUD should reassess whether the Authority is able to meet its primary objective
            of revitalizing the project neighborhood and consider the reallocation of the
            remaining $7.47 million to another organization. Authority officials believe that
            much remains to be accomplished with the HOPE VI initiative, and they strongly
            concur with our audit report that the HOPE VI initiative must be more than just a
            housing program in order to effectuate the revitalization of the project
            neighborhood. We have reviewed and taken into consideration alternative
            recommendations provided by Authority officials in their comments. Based on
            this review, we revised our recommendations pertaining to finding one. We
            changed our recommendation to finding one to have HUD require the Authority
            to reevaluate the scope of its revitalization plan and amend the plan accordingly,
            so that HUD can reassess whether the Authority is able to meet its primary
            objective of revitalizing the project neighborhood. Based on this assessment, we
            recommend that HUD determine whether the new plan is effective enough, to
            ensure that the remaining funds will be put to better use, or if the Authority can
            only achieve certain objectives, HUD should consider reducing the remaining
            amount of grant funds proportionately.

Comment 2   The Authority cites many events that have occurred since we left the audit site,
            however, these actions and recent accomplishments are responsive to our audit.
            The conclusions presented in our report are based on facts in place at the time of
            our review. However, regarding the June 2006 evaluation of the Hope VI grant
            conducted by the local College, which provides that the project met major goals.
            This study focused on the geographical and demographic mix of the community
            that resulted from relocating tenants of the distressed and now demolished
            Washington Court project; as such, the major goals of this study does not relate to
            the objectives of our audit. The study mentions that the goal of relocating tenants
            was accomplished. However, it does not mention that the tenants were not
            relocated according to the planned application of the Hope VI grant, which was to
            relocate the tenants to the Cornhill section of Utica and for them to become home
            owners. Nevertheless, the Authority needs to continue collaborating with its
            partners and document the cost of its successes to ensure that the total HOPEVI
            project is achieved.

Comment 3   Officials for the Authority contend that contrary to the match figures presented in
            our draft report, they have leveraged over $36, million in grant funds, match
            tracking forms are now in place, and the amount of leverage generated for the
            HOPE VI project is now reported to HUD on a quarterly basis. However, as
            noted during the review and with the additional documents provided at the exit
            conference, the Authority was unable to assure the accuracy of the expenditures
            reported. For example, the Authority’s additional documents include a letter from
            a collateral partner dated August 31, 2006 that asserts that the partner has

                                            59
            expended $3.7 million towards the Hope VI program. However, the Authority
            provides no evidence that they verified these figures by examining supporting
            documents. OIG calculated $801,936 in collateral investment expenditures from
            the information provided to us during the audit and at no time did the Authority
            provide documentation to support any other amounts in collateral investments.
            Regarding the quarterly reports submitted to HUD, Authority officials admit that
            this form does not include figures for collateral investments, as such; their system
            does not appear to be complete and is insufficient to support some statements
            made in their response.

Comment 4   Officials for the Authority state that the United States Department of Housing and
            Urban Development (HUD) released a draft audit report on the Authority’s HOPE
            VI Revitalization Program. This statement is not correct. The HUD Office of
            Inspector General (OIG) Office of Audit released a draft audit report on
            Authority’s HOPE VI Revitalization Program. While organizationally located
            within the Department, the HUD-OIG provides independent oversight in initiating
            and carrying out audits and investigations.

Comment 5   Officials for the Authority contend that the conclusion presented in the finding is
            not supported by the facts and that they are complying with major program
            requirements as proposed in the application, plan and grant agreement. In
            addition, tracking forms are sent on a periodic basis to program partners to verify
            the matching funds. Furthermore, the officials contend that the match reports are
            submitted on a quarterly basis to HUD. OIG stands by the facts and conclusions
            presented in our report. The Authority’s tracking system was incomplete and
            unsupported, it did not track the $27 million of collateral activities and these
            activities were not included in the quarterly report to HUD. The Authority did not
            maintain adequate records on collateral investments; therefore, the accuracy of the
            financial data provided could not be determined. Further, the match reports that
            were provided to HUD on the activities other than collateral investments were not
            always supported with evidentiary matter. During the audit, OIG made numerous
            requests for basic financial information on all collateral activities and City match
            activities. Authority officials advised that they did not maintain the records in
            question and had to actually request documentation from various partners. Since
            the Authority did not adequately track all Hope VI funding and activities we
            maintain that they are not complying with all major program requirements.

Comment 6   This comment applies to auditee comments on pages 37, 45, 53, 54, 56, 57 and
            58. Throughout their response, Authority officials mention several corrective
            actions that they started or have planned to implement. Although we recognize
            these corrective actions, the majority of these actions are planned and were not
            implemented during our review, as such, they will be part of the audit resolution
            process to be reviewed when the actions have been completed. For the Authority
            actions that have commenced, the Authority’s response and appendices of
            information that was provided at the exit conference was not sufficient enough to
            encourage us to change our determinations.



                                             60
Comment 7   Officials for the Authority contend that HUD never provided them with a copy of
            a 2004 monitoring report, nor provided grantees a protocol to track program
            match other than the Bearing Point report. Authority officials also contend that a
            HUD Washington representative applauded their match tracking system.
            However, OIG obtained the HUD monitoring report from Authority officials, and
            also received a copy from the Buffalo field office along with the Authority’s
            response to the financial review section of this monitoring report; as such,
            Authority officials were aware of this report. As for the match tracking system as
            stated above, the Authority’s system is incomplete because it does not maintain
            adequate tracking of all activities and appropriate records. Regarding the HUD
            official applauding the tracking system during a training class, we were not
            present at this training and we did not see such approval in writing.

Comment 8   Officials for the Authority state that the OIG’s conclusion that there was lack of
            cooperation between the City of Utica and the Authority in connection with the
            HOPE VI program is inaccurate and false. Based on the Authority’s comments it
            appears that the relationship with the City has improved, however, during the
            audit, Authority officials informed us that the City was not always cooperative in
            providing data on HOPE VI program matters. In addition, during our audit
            Authority officials confirmed that the financial data from the City was not readily
            available until OIG provided a written request for the information, which
            prompted the Authority to consult with City officials to obtain the information.
            However, once the information was received from the City, the Authority could
            not reconcile substantial differences in the financial data related to the HOPE VI
            activities. Nevertheless, now that a Memorandum of Understanding has been
            finalized with the City, the Authority needs to continue to work with the City to
            document all amounts expended on the HOPE VI project to ensure its success.

Comment 9   Subsequent to our audit, Authority officials provided financial information
            pertaining to key activities of the City of Utica match. We have reviewed the
            additional documentation submitted and conclude that the new information only
            details the Authority’s assertion that more funds have been expended, matched
            and additional commitments have been made. However, the documentation to
            support these assertions was not attached to their response. Consequently, the
            Authority is merely highlighting issues that are not cited in the report as deficient.
            However, our review of the additional documentation submitted pertaining to
            Codes Enforcement revealed that the figures provided do not reconcile to the
            Authority’s claim that the City has contributed a total of $69,232 towards codes
            enforcement activity. Further, the Authority has not provided any documentation
            to support the $187,220 in Economic Development cost other than a detail list of
            businesses in the HOPE VI program, which have benefited from economic
            development incentives from the City. The Authority did not provide any
            evidence or loan documents that we could test or review. In addition, a printout
            of 19 businesses that have received matching grant funds for Façade Improvement
            does not sufficiently support the claim that the City has provided $91,261 in
            facade grants. Lastly, in regards to In-Kind Staff services, the Authority asserts
            that the City’s intent was never to meet the goal of $1 million in salary and

                                             61
              benefits, but rather to offer the services of City staff whenever necessary to fulfill
              the goals of the project. However, the Authority provided insufficient
              documentation to support the basis of the $1 million estimate (e.g. for support for
              demolition cost, the City provided a schedule that listed addresses, census track
              data, block information, population statistics and total cost; but no basis for how
              this cost was calculated).

Comment 10 Officials for the Authority contend that contrary to OIG’s claim that only
           $343,000 has been expended on infrastructure improvements; a total of $822,194
           has been contributed. Nevertheless, although the Authority provided pictures of
           infrastructure improvements, Authority officials do not state how much of the
           contributions received have been expended. Furthermore, during the audit the
           Authority was unable to assure the accuracy of program expenditures detailed in
           the limited documentation that was available. Our review of the documentation
           submitted subsequent to the audit pertaining to infrastructure improvements noted
           that the documentation does not reconcile to the $822,194 in contributions
           claimed. The schedule provided details street boundaries, census tracts, income
           ranges, population statistics, and total cost; however, there was no evidence of
           what street repairs were made or how the total cost was calculated. Accordingly,
           the Authority needs to maintain better support for the accuracy of the
           contributions and expenditures pertaining to infrastructure improvements.

Comment 11 Officials for the Authority disagree with our conclusion that in-kind expenditures
           from the City were not tracked. However, we reiterate that the Authority did not
           adequately track in-kind expenditures. The Authority’s tracking system is
           incomplete and unsupported because it does not maintain adequate tracking of all
           activities and appropriate records (see Comment 7). Nevertheless, Authority
           officials state that based on our recommendations, they will improve their
           tracking system and perform written assessments of the impact of collateral
           investments.

Comment 12 Officials for the Authority agree that progress on this activity has been limited,
           however, they take issue with the statement that no funds have been invested to
           date because a total of $468,270 has been expended on the development of the
           Cornhill Commons Project. They cite various activities and potential funding that
           the Authority has taken to effectuate the development of the Cornhill Commons
           and the Community School, which was done so as recent as June 2006. However,
           at no time during our audit or during our visual tour in April 2006 were we
           provided with any financial or programmatic records that we could verify
           indicating any activity pertaining to Cornhill Commons and the Community
           School. Our review of the additional documentation provided by the Authority
           subsequent to our audit has determined that the $468,270 in claimed expenditures
           is not fully supported. The City cites various activities and potential funds to be
           expended, however, the documentation that they provided does not reconcile
           which activities pertain to the $468,270. Accordingly, better support is needed.




                                                62
Comment 13 Officials for the Authority concur with OIG that housing goals set forth in the
           HOPE VI application will not be met. The officials contend that a revised
           revitalization plan was submitted to HUD on November 22, 2004, and HUD
           verbally approved a reduction in housing goals, however we were unable to
           ascertain this verbal approval with HUD field office officials. Such approvals
           should be documented in writing and not verbally granted. HUD field office
           officials have recently encouraged the Authority to submit a revised plan, and
           officials for the Authority intend to submit to HUD a revised plan within 60 days.
           We remind the Authority that their HOPE VI grant application was a competitive
           process and was approved based upon the assertions made by the Authority for
           housing goals as well as other promised HOPE VI activities. Although officials
           for the Authority cite various factors to explain why housing goals will not be
           met, it is OIG’s position that it is incumbent upon Authority management to
           adjust to changing conditions and to anticipate that there will be obstacles to
           overcome in such a large development project. Since the Authority acknowledges
           that housing goals will not be met, we changed our recommendation for finding
           one to have HUD require the Authority to reevaluate the scope of its revitalization
           plan and amend the plan accordingly, so that HUD can reassess whether the
           Authority is able to meet its primary objective of revitalizing the project
           neighborhood.

Comment 14 Officials for the Authority contend that our conclusion on the inadequacy of code
           enforcement does not accurately reflect the facts. Authority officials contend that
           a total of 3,094 housing units in the Cornhill area have been inspected and just as
           many citations have been issued. However, we found the documentation
           submitted to support this claim inadequate as it appears to be merely a
           compilation of Section 8 units inspected by the City. Officials state that the City
           has taken aggressive action against landlords to correct code violations and that a
           law mandating periodic inspections by the Fire Department was recently enacted.
           The officials continue on to state that a massive infusion of federal dollars is
           needed to properly address code violations. Although a law mandating
           inspections may have been recently enacted, our review noted that the Authority
           maintained records on the specific HOPE VI target area parcels that had code
           violations, but did not provide documentation to support resolution of the
           violations noted in their records. Further, OIG inspection of the target area
           documented that many of the violations remain. The conclusions reached during
           our review are correct as documented by Authority records, which indicate that
           only $20,000 of the budgeted $863,000 was expended on code enforcement and
           that many violations remain uncorrected. The Authority does not dispute that
           only $20,000 has been expended by the City and further acknowledges that much
           work remains to be addressed. Lastly, Authority officials request that their
           photos, which demonstrate the positive impact of the HOPE VI program be
           included in our report. However, including photographs in our report that
           Authority officials want us to would effect the independence of our review. As
           such, the photographs depicted in our report that supports inadequate code
           enforcement, are just two of several photographs taken by OIG of numerous code
           violations identified during our visual inspection of the HOPE VI target area.

                                             63
Comment 15 Officials for the Authority concur that the majority of Washington Court residents
           did not relocate to HOPE VI program housing. Conversely, the officials claim
           that the relocation of the residents to other housing has been a success. The
           Authority’s response does not address the primary relocation issue raised in the
           finding, which is that Washington Courts residents should be relocated to the
           Cornhill area and become homeowners. The fact that residents were simply
           relocated is not indicative of meeting the primary HOPE VI program objective for
           the residents. Authority officials assert that every displaced tenant has been
           contacted and offered an opportunity to reapply for housing in the HOPE VI
           project area. However, at no time during or subsequent to our audit were
           Authority officials able to provide documentation to support that such actions
           occurred. Further, Authority officials assert that 45 of the 60 relocated
           households were either disabled or elderly head of household and not employed.
           However, this information about resident circumstances should have been
           considered at the time the Authority declared the application goals of relocating
           such residents. Thus, the fact that only one resident to date has become a
           homeowner is evident that the Authority is not truly achieving the HOPE VI
           application goals. Authority officials cite an independent evaluation of the HOPE
           VI project, which concluded that the relocated Washington Courts residents were
           satisfied with the new residency. Based upon the living conditions of the
           Washington Courts project, as described in the HOPE VI application, the
           conclusion of the independent evaluation is not surprising. Residents of
           Washington Courts would have been satisfied with any new residency. Overall,
           officials for the Authority cite many obstacles to homeownership, including
           resident reluctance, and request that this finding be removed from the report. We
           remind the Authority that these issues should have been anticipated and methods
           for marketing and effectuating homeownership are the responsibility of the
           Authority management, as such, the finding stands as presented.

Comment 16 The comments provided by officials for the Authority do not address the issue
           raised in the finding. The comments provided by the Authority address general
           Section 3 hiring and do not dispute the fact that Washington Court residents have
           not benefited from job opportunities as detailed in our finding. In addition,
           Authority officials agree to the statement that the demolition of Washington
           Courts project has only recently begun, however they object to the
           characterization of the demolition. Authority officials contend the delays were
           beyond their control and partly the responsibility of HUD. OIG maintains that the
           Authority is responsible for the management of the HOPE VI program and
           overcoming obstacles inherent during large development projects. The fact that
           the application was prepared in 2002 and the demolition still remains incomplete
           in 2006 cannot be denied. As such, the finding stands as presented.

Comment 17 Officials for the Authority disagree with the fact that the contract for HOPE VI
           applications services was for a not-to-exceed value of $40,000. In summary, the
           officials contend that OIG failed to recognize that the contract had two parts 1)
           HOPE VI application services and 2) HOPE VI implementation phase. In

                                             64
              addition, there was a protracted pre-application phase that was initially expected
              to be only three months, but became nine months, which added to the application
              costs. The statement by Authority officials is inaccurate, whereas the OIG was
              fully aware that the contract contained two parts. The finding and related issues
              address only the portion of the contract relating to the application services.
              Contrary to assertions by Authority officials, their own records indicate that the
              contractor was indeed paid at least $181,762 for just the application services.
              This is despite the fact that the contract provided that all application services be
              provided for a not-to-exceed fee of $40,000. In addition, as noted in the finding,
              the contractor was competitively selected due primarily to the low price of
              $40,000. Officials for the Authority also cite the protracted time of application
              services as a cause of the contract application costs increasing from $40,000 to
              $181,762. Thus, the Authority appears to be making the argument that the
              application costs would have been within the $40,000 cap if only the application
              was filed in June 2002 rather than in December 2002. This argument does not
              have merit since the contractor had billed a total of $80,000 from April 2002
              through September 2002. This is already double the original agreed upon costs of
              $40,000. The contractor then billed an additional $101,762 for application
              services, even though the application was filed only three months later. Further,
              the billings submitted do not provide specifics as to the additional services
              provided for the $101,762.

Comment 18 Officials for the Authority contend that several factors extended the scope of work
           needed for the contract requiring the extension of the contract time period. Thus,
           the work beyond the original scope could not have been anticipated, and there was
           insufficient time to issue a new request for proposal. In addition, Authority
           officials contend that there was a cost analysis performed of the contract’s hourly
           rates and since the continued services were provided at the original hourly rates, it
           was not necessary to perform an additional cost analysis. We agree that the scope
           of this contract was significantly modified, thus emphasizing the need to comply
           with 24 CFR [Code of Federal Regulations] Part 85 requirements. Although this
           contract was modified on four occasions, including an initial change order
           authorization on the very same day the contract was awarded, the required cost
           analysis was not performed for any of the four modifications. The Authority
           chose to modify this contract on four occasions, increasing the original not-to-
           exceed contract limit of $85,000 to a modified contract limit of $190,000. It is
           clear that the Authority’s method of administering this contract were conducted in
           a manner that did not allow for full and open competition for the significant level
           of services to be provided.

Comment 19 Auditee officials believe that the costs expended for HOPE VI Application
           Services were justified. However, the contract in question was modified in
           violation of 24 CFR [Code of Federal Regulations] Part 85.36. Specifically, there
           was no cost analysis for the increased change order amounts and no open
           competition provided for the additional services beyond the scope of the original
           contract. Although officials for the Authority contend that the procurement of
           this contract and the change orders complied with relevant HUD regulations and

                                               65
              their own procurement policies, the Authority intends to cancel this contract
              within the next thirty days.

Comment 20 Officials for the Authority contend that this contract for financial services was
           modified to avoid the risk of HUD sanctions for falling behind project timetables.
           Authority officials state that a cost price analysis was conducted on March 28,
           2002, and that the contractor’s additional services were based on the hourly rate
           provided for in the original contract. Our review determined that the initial
           contract was not awarded until November 14, 2003 and the contract modification
           change order was not authorized until June 4, 2004, thus the cost analysis
           conducted on March 28, 2002 cannot be related to the June 4, 2004 contract
           modification. Thus, the Authority was unable to provide evidence that the
           required cost analysis had been conducted for the contract modification. The
           Authority intends to terminate this contract with the next thirty days.

Comment 21 Officials for the Authority contend that the HUD field office determined the cost
           allocation plan was in compliance and accepted the methodology on two
           occasions. Further, the costs were fully supported by the salary distributions
           reflected in the cost allocation plan and HOPE VI budget. In addition, Authority
           officials further contend that a time study would not have been useful since the
           percent of time charged were small and reasonable. However, the Authority was
           unable to provide any documentation that indicated that HUD approved their
           methodology for allocating cost, nor did they provide support for how the salary
           percentages for allocating the costs were determined; thus, a time study would be
           useful. Further, upon review of the draft report, HUD officials stated that the cost
           allocation plan should include support for its allocation percentages and that the
           plan should be updated annually. Nevertheless, Authority officials have stated
           that they will resubmit a more detailed cost allocation plan to HUD.

Comment 22 Officials for the Authority concur that adequate documentation might not have
           been provided in connection with identified expenditures. In addition, Authority
           officials contend that no request was made to the Authority staff for detailed
           explanations of these expenses while the audit was being conducted, and they
           took issue with the statement that there was no evidence of price quotes.
           However, during the audit we provided Authority staff with a list of the
           transactions we wished to review, and requested that they provide all available
           supporting documentation pertaining to the transactions. The Authority staff
           provided us the available supporting documentation requested and, for their own
           reference made copies of all the documentation that was provided to us. Thus, the
           staff of the Authority was aware of the transactions reviewed during the audit.
           However, the documentation provided to us generally was disorganized,
           incomplete and lacked sufficient details. Further, the additional documents
           provided in the Authority’s appendix to their comments pertaining to the
           questioned administrative costs still did not adequately address the deficiencies
           noted in the finding. For example, to support the inadequate number of price
           quotes deficiency, Authority officials provided a single price quote provided by
           the same vendor cited in the deficiency. This clearly does not support nor address

                                              66
              the deficiency cited. In addition, although Authority officials stated that the
              equipment was purchased using state contract pricing, they did not provide
              evidence of this.

Comment 23 We have reviewed the supporting documentation Authority officials attached to
           their response to support the questioned costs pertaining to copier supplies,
           maintenance and overage charges (check no. 1624), and determined that this
           documentation was inadequate. Although the contract and sales agreement detail
           such items as unit price and overage rates, the invoice provided by the Authority
           did not support or tally up to the amounts questioned. In addition, our review of
           the additional documentation pertaining to the reimbursements for various
           HOPES VI expenses (entitled check No. 1485 and GJ-106) found that these items
           were unexplained, disorganized, and could not be clearly traced to the amount
           questioned in the report. For example, the copies of travel itineraries submitted
           do not support the actual travel costs incurred. Further, the Authority submitted a
           stack of invoices, bills, contracts, etc. with no evidence on whether these items
           should have been charged to the HOPE VI project.

Comment 24 Officials for the Authority concur that documentation pertaining to credit card
           charges was not available at the time of the audit, and further acknowledges that
           finance charges and late fees are not eligible expenses. The Auditee believes the
           items labeled as marketing expenses, are allowable, however, since they pertain to
           candles, potpourri, greeting cards, etc., we disagree.

Comment 25 We have reviewed the additional documentation provided by the Authority and
           found the telephone conference calls costs to be unsupported. The documentation
           submitted is merely copies of the reservation confirmations for the calls and
           provides no support for the actual costs charged. Although officials for the
           Authority contend that the telephone conference call expenditures were justifiable
           in connection with the planning activities for the HOPE VI grant program start-
           up, the documents provided do not explain the purpose of the calls. Authority
           officials now state that they have discontinued this practice.

Comment 26 Authority officials contend that the food and beverage expenses cited were in
           regards to the HOPE VI program and that they consider these food costs as
           legitimate operating expenses. Authority officials concur that during the audit,
           the supporting documentation was not available, and therefore provided, as an
           attachment to their response, documentation to support the expenses. We
           reviewed the documentation and determined it to be insufficient and inadequate.
           For example, the purchase of food and beverages to be served at HOPE VI
           meetings is questionable as to necessity and reasonableness. Further, press
           releases and meeting agendas submitted as supporting documentation pertaining
           to the banquet do not provide support for the actual costs questioned.
           Accordingly, the food and beverage expenses are still questionable.

Comment 27 Officials for the Authority contend that they received from HUD verbal
           assurances that their cost allocation plan was in compliance with requirements.

                                               67
              However, during our review we were not provided any evidence to support this
              claim.

Comment 28 The Authority contends that the draft report neglected to include significant
           accomplishments of the program and did not take into consideration the
           complexity of the financial arrangements involved. Nor did it consider the
           complexity in managing a multifaceted community revitalization effort involving
           multiple partners, not to mention the lack of HUD training and unreasonable
           demands of the HUD Notice of Funding Availability (NOFA). However, we
           remind Authority officials that our goal is to recommend improvements to
           existing program controls to ensure that the program is completed efficiently and
           effectively. As for the complexity of the program and the demands of the NOFA,
           HUD technical assistance and training can be obtained by contacting HUD and
           requesting such assistance or guidance. Nevertheless, these issues will not change
           the facts presented in the report, as such, if our audit recommendations are
           implemented the Authority can make a difficult project become less complicated.




                                             68
Appendix C

  QUESTIONABLE ADMINISTRATIVE COSTS CHARGED TO
              THE HOPE VI PROGRAM
Date           Check /     Description                                       Ineligible     Unsupported
               reference                                                     amount           amount
               number
  Sept. 3,     1028        Assorted food items                                                     $37.86
   2003

  Jan. 23,     1247
   2004                    Luncheon for Hope VI program partners                                  $235.40
  Jan. 23,     1254
   2004                    Banquet                                                $304.00         $880.03
                           Total food and beverage                                $304.00       $1,153.29
  Oct. 17,     1095
    2003                   Computer software and file cabinet                                     $308.98
  Dec. 5,      1170
    2003                   Computer software                                                    $3,567.00
  Dec. 5,      1172
    2003                   Laptop computer                                                      $1,380.00
  Jan. 23,     1249
    2004                   Computer software                                                    $1,630.90
  Jan. 23,     1411
    2004                   Digital projector                                                    $1,139.45
  Mar. 5,      1445
    2004                   Computer software                                                    $1,825.00
  Mar. 24,     1624
    2004                   Savin copier and related supplies                                    $2,443.78
  Mar. 24,     1624
    2004                   Savin copier and related supplies                                    $3,987.22
 June 22,      1624
    2004                   Leased copier maintenance and copy overages                            $311.45
 June 22,      1624
    2004                   Leased copier maintenance and copy overages                            $787.15
July 1, 2004   1913        Computer and software                                                $1,677.00
  Oct. 22,     1792
    2004                   File cabinets and office supplies                                      $545.47
  Dec. 22,     1857
    2004                   Leased copier maintenance and copy overages                            $195.35
 Sept. 28,     2256
    2005                   Leased copier - copy overages                                          $350.16
                           Total office supplies, equipment, and computer
                           software                                                            $20,148.91
 June 30,      GJ-32
   2004                    Salary allocation fiscal year June 30, 2004                          $3,252.84
 June 30,      GJ-104
   2005                    Salary allocation fiscal year June 30, 2005                         $26,823.96
                           Total salary allocation                                             $30,076.80
 May 25,       1485
   2004                    Reimburse authority - various costs                                    $504.35
 May 25,       1485
   2004                    Reimburse authority - various costs                                  $1,231.33
 May 25,       1485
   2004                    Reimburse authority - various costs                                  $6,940.19
 June 30,      GJ-106      Reimburse authority - office equipment/supplies                      $2,952.98


                                                        69
 2005
                   Total reimbursement To municipal housing                         $11,628.85
May 5,      2016
 2005              Gas and electric use                                  $416.92
Oct. 5,     2227
 2005              Municipal water use                                  $1,089.15
Oct. 19,    2231
 2005              Municipal school taxes                                  $56.24
                   Total utilities and taxes                            $1,562.31
Apr. 26,    1483   Various charges including late fees and finance
 2004              charges                                                           $2,236.92
Apr. 27,    1483   Various charges including late fees and finance
 2004              charges                                                            $164.65
Apr. 27,    1483   Various charges including late fees and finance
 2004              charges                                                           $3,562.80
Nov. 26,    1791   Various charges including late fees and finance
 2004              charges                                                            $382.18
Nov. 26,    1791   Various charges including late fees and finance
 2004              charges                                                            $623.56
Nov. 9,     2254
 2005              Marketing expenses, late fees, and finance charges     $39.44      $134.20
Nov. 21,    2290
 2005              Late fees and annual membership fees                   $29.50         $0.00
                   Total various credit card charges                      $68.94     $7,104.31
Sept. 12,   1040
 2003              Flooring materials and installation                               $1,255.80
Oct. 28,    1110
 2003              Health insurance                                                      $0.00
Oct. 29,    1118
 2003              Telephone conference calls                                         $876.91
Aug. 24,    2161
 2005              Black and white copies and digital prints                         $1,689.00
                   Total miscellaneous charges                                       $3,821.71
                                          Subtotal                      $1,935.25   $73,933.87
                     Grand total of ineligible and unsupported costs                $75,869.12




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