Issue Date
April 24, 2008
Audit Report Number
2008-AT-0002
TO: Deborah Hernandez, Deputy Assistant Secretary for Field Operations, PQ
FROM:
James D. McKay, Regional Inspector General for Audit, 4AGA
SUBJECT: The Miami Dade Housing Agency, Miami, Florida, Did Not Maintain Adequate
Controls over Its Capital Fund Program
HIGHLIGHTS
What We Audited and Why
We audited the Miami Dade Housing Agency (Agency) capital fund program in
response to a request from the Deputy Secretary of Housing and Urban
Development. Our objective was to determine whether the Agency had adequate
controls to ensure that contracts were awarded in accordance with regulations and
U.S. Department of Housing and Urban Development (HUD) requirements.
What We Found
The Agency did not have adequate controls to ensure that contracts were awarded
in accordance with regulations and HUD requirements. It did not maintain
documentation supporting that contracts were awarded with full and open
competition. This condition occurred because the Agency did not have effective
internal controls for documenting the procurement process and disregarded
federal procurement requirements. As a result, it could not ensure that more than
$12.1 million for contract payments was awarded through full and open
competition and that the costs were reasonable.
The Agency did not properly support multiple drawdowns of capital funds. It
drew down capital funds from HUD to reimburse itself for expenses associated
with 2003 and 2004 capital fund program grants. It then transferred these
expenses to close out a 2002 capital fund program grant and drew down
additional capital funds from HUD using these same expenses as justification. It
could not provide documentation to support that HUD was reimbursed for the
excess funds used to close out the grant. This condition occurred because the
Agency did not have effective controls in place to track excess funds that needed
to be returned to HUD. As a result, we have no assurance that excess funds of
more than $1.8 million were repaid to HUD.
What We Recommend
We recommend that HUD require the Agency to (1) provide supporting
documentation to justify the eligibility and reasonableness of more than $12.1
million disbursed for five contracts and to Miami Dade County (County) for
seven transactions or reimburse the capital fund program more than $2.2 million
and the HOPE VI program almost $9.9 million from nonfederal funds, (2) ensure
that federal procurement requirements for maintaining supporting documentation
are implemented and enforced, and (3) ensure that any services obtained through
the County are purchased in compliance with federal procurement requirements.
In addition, HUD should require the Agency to (1) provide documentation to
support that the excess drawdown of more than $1.8 million was returned to HUD
or reimburse the capital fund program from nonfederal funds; (2) develop a
system to track excess drawdowns and reimbursement of capital funds to HUD
and maintain supporting documentation for both; (3) hire an independent
accounting firm to reconcile capital fund program grants between HUD’s Line of
Credit Control System and the Agency financial system; and (4) incorporate the
tracking system, maintenance of supporting documentation, and the reconciliation
of capital fund program grants into existing procedures.
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 Response
We discussed the findings with your representative during the audit. We also
provided your office a draft report on March 7, 2008, and discussed the report
with you and your representative at the exit conference on March 20, 2008. You
provided written comments to our draft report on March 24, 2008. In your
response, you generally agreed with the findings.
2
Your response and our evaluation of the response are included in appendix B of
this report.
3
TABLE OF CONTENTS
Background and Objectives 5
Results of Audit
Finding 1: The Agency Did Not Maintain Adequate Supporting Documentation 6
for Contracts
Finding 2: The Agency’s Internal Controls over Capital Fund Drawdowns 11
from HUD Were Inadequate
Scope and Methodology 14
Internal Controls 16
Appendixes
A. Schedule of Questioned Costs 17
B. Auditee Comments and OIG’s Evaluation 18
4
BACKGROUND AND OBJECTIVES
The Miami Dade Housing Agency (Agency) is the Miami Dade County (County) departmental
unit that owns, operates, or controls almost 10,000 units of public and other assisted housing
within Miami Dade County, Florida. The Agency’s objective is to provide low- and moderate-
income residents with quality, affordable housing opportunities. The Agency is managed by an
executive director and reports directly to the county manager, who reports to the mayor and a 13-
member board of County commissioners.
The U.S. Department of Housing and Urban Development (HUD) awarded the Agency 14
capital fund program grants valued at $87 million for fiscal years 2002 through 2006. These
funds were to enable the Agency to improve the physical condition and to upgrade the
management and operations of existing public housing developments to assure their continued
availability for low-income families. HUD also awarded the Agency a $4,697,750 HOPE VI
program grant in 1998 to develop Ward Towers and a $35 million HOPE VI program grant in
1999 to revitalize the Scott/Carver Homes public housing developments.
The Agency has come under increased scrutiny since 2005 when various newspaper articles and
reviews highlighted Agency problems. The Miami Herald published a series of articles alleging
that the Agency had insider deals, pet projects, and wasteful spending. The Miami Dade County
Office of the Inspector General reported problems with contracting and management reporting
accuracy. HUD also requested an independent external forensic audit of the Agency that
disclosed problems with business practices, financial management, and development funds.
The Deputy Secretary of Housing and Urban Development requested that we conduct an audit of
the Agency. We reviewed the capital fund program to determine whether the Agency had
adequate controls to ensure that contracts were awarded in accordance with regulations and HUD
requirements.
The issues identified in our report deal with internal control activities that we feel are necessary
to bring to HUD’s attention now. Other matters regarding contractors may remain of interest to
our office as well as other authorities. Release of this report does not immunize any individual
or entity from future civil, criminal, or administrative liability or claim resulting from future
action by HUD and or other authorities.
5
RESULTS OF AUDIT
Finding 1: The Agency Did Not Maintain Adequate Supporting
Documentation for Contracts
The Agency did not maintain documentation to support that five contracts were awarded with
full and open competition and did not ensure that a cost analysis was obtained before receiving
County services. This condition occurred because the Agency did not have effective internal
controls for documenting the procurement process and disregarded federal procurement
requirements. As a result, it could not ensure that it paid more than $12.1 million for contracts
that were awarded through full and open competition and that the costs were reasonable.
Federal Procurement
Requirements Not Followed
Regulations at 24 CFR [Code of Federal Regulations] 85.36 require the Agency
to maintain records detailing the significant history of a procurement transaction,
including that it conducted the procurement using full and open competition and
that it determined that the cost was reasonable. The regulations also encourage
the Agency to enter into local intergovernmental agreements to foster greater
economy and efficiency. HUD Procurement Handbook 7460.8, which sets forth
procedural requirements of 24 CFR 85.36, states that the Agency can
noncompetitively enter into these intergovernmental agreements after comparing
the cost to the open market.
The Agency paid $32 million in capital funds between October 1, 2002, and April
30, 2007, to 291 contractors and County departments. We selected 12 contractors
and 10 County payments totaling more than $1.9 million to review. We also
reviewed an $833,200 capital fund loan and HOPE VI payments and a HOPE VI
loan totaling more than $9.8 million to three of the 12 contractors.
The Agency did not maintain documentation to support contract payments to five
contractors and seven County capital fund payments. Specifically, the Agency
did not maintain documentation to support that five contracts were awarded with
full and open competition and did not ensure that a cost analysis was obtained
before receiving County services.
• The Agency was unable to provide sufficient documentation to
support its selection of the MDHA Development Corporation to
develop Ward Towers. Because Ward Towers was a mixed-finance
project, it was subject to federal procurement regulations at 24 CFR
6
941.602, which require the Agency to select a developer based on
competitive bidding or qualifications or a HUD-approved alternative
noncompetitive method. We requested several times that the Agency
provide documentation to support its selection of the MDHA
Development Corporation, but it was never provided to us. As a
result, since this project involved multiple HUD funding sources, we
considered $343,054 paid in 2005 with capital funds and $455,376
paid in 2006 with HOPE VI funds by the Agency to MDHA
Development Corporation to be unsupported costs. We also
considered two loans in 2003 of $833,200 in capital funds and more
than $4.2 million in HOPE VI funds from the Agency to the MDHA
Development Corporation to be unsupported costs.
• The Agency was unable to provide sufficient documentation to
support that a cable installation and security equipment County-wide
contract was competitively awarded. The County provided the
Agency with a list of prequalified contractors, and the Agency then
evaluated contract proposals. The Agency maintained some historical
documentation but could not locate its proposal evaluations to support
that fair and open competition occurred. As a result, we considered
$30,182 paid in 2004 and 2005 with capital funds by the Agency to the
contractor to be unsupported costs.
• The Agency was unable to provide sufficient documentation to
support a temporary employee County-wide contract. The Agency
stated that the documentation was sent to the County’s central records
retention office. We did not find any documentation supporting the
administration of this contract. Because there was no documentation
to support this contract, we considered the $9,062 paid in 2002 and
2003 with capital funds by the Agency to the contractor to be
unsupported costs.
• The Agency was unable to provide sufficient documentation to
support that a program management and relocation service contract for
Scott/Carver Homes was awarded through fair and open competition.
A contractor provided a technical proposal to the Agency for the
program management contract that included another contractor who
was awarded the relocation service contract for this project. Despite
the County attorney indicating that this relationship would be a
conflict of interest, the Agency did not disqualify this technical
proposal. As a result, since this project involved multiple HUD
funding sources, we considered $129,933 paid in 2006 with capital
funds and more than $2.8 million paid from 2002 - 2006 in HOPE VI
funds by the Agency to the contractor for the program management
contract to be unsupported costs. We also considered $183,094 paid
in 2006 – 2007 with capital funds and more than $2.3 million paid
7
from 2001 – 2005 in HOPE VI funds by the Agency to the contractor
for the relocation service contract to be unsupported costs.
The Agency was also unable to provide sufficient documentation to support that
costs for County services were reasonable. It did not ensure that a cost analysis
was obtained before receiving County services. We reviewed 10 capital fund
payments from the Agency to the County for these services. The Agency was not
required to obtain a cost analysis for three payments because the services could
not be provided by commercial sources. It was required to obtain a cost analysis
before receiving services and making the other seven payments to the County but
was unable to provide sufficient documentation to support that the costs were
reasonable. As a result, the Agency could not ensure that seven capital fund
payments totaling $739,264 to the County were reasonable.
Security alarm system and security guards – The Agency paid the County for
security guard services and alarm systems. The County did not have
documentation available for most security guard services because the services
involved outdated contracts, and some supporting documentation provided to us
was incomplete. The County did not provide us with the bid evaluation for
security alarms because it did not involve a county contract. As a result, we
considered $273,684 paid in 2005 with capital funds by the Agency to the County
to be unsupported costs.
Capital working fund services – The County provides various services to its
departments including the Agency. The Agency provided us with the analysis of
the distribution of this cost among County departments. The County’s
distribution of this cost is based on the number of projects administered by each
department. However, the Agency did not provide us with an analysis that would
enable us to compare the cost charged by the County against commercial sources
to determine its reasonableness. As a result, we considered two capital fund
payments in 2006 totaling $360,000 from the Agency to the County to be
unsupported costs.
Capital supporting function – The County provides various services to its
departments including the Agency. Despite repeated attempts, the County and the
Agency did not provide us with (1) an analysis that would enable us to compare
the cost charged by the County against commercial sources to determine its
reasonableness and (2) the distribution of this cost among County departments.
As a result, we considered $41,000 paid in 2004 with capital funds by the Agency
to the County to be unsupported costs.
Standard fee for architectural and engineering services – The Agency directed
us to the County department responsible for providing these services. This
department informed us that it was unaware that the County had ever contracted
for these services with an outside vendor. The County was unable to provide us
with a cost analysis, and as a result, we considered $30,000 paid in 2004 with
capital funds by the Agency to the County to be unsupported costs.
8
Advertisement - The County informed us that the Agency was allowed to
advertise in select newspapers determined by the County. The County was unable
to provide us with an explanation of how the newspapers were selected or the bid
evaluation. As a result, we considered $18,250 paid in 2003 with capital funds by
the Agency to the County to be unsupported costs.
Fleet management – Because of the volume of transactions and the variety of
services we reviewed, it was not possible for the County to provide us with a cost
analysis. The County did provide us with a sample cost analysis of the various
services but did not provide us with a comparison against commercial services to
determine its reasonableness. As a result, we considered $16,330 paid in 2004
with capital funds by the Agency to the County to be unsupported costs.
These deficiencies occurred because the Agency did not have effective internal
controls for documenting the procurement process and disregarded federal
procurement requirements. Agency procurement procedures required the
departments that requested the procurement to maintain supporting documentation
for service contracts and provide backup copies to the procurement office. For
the cable installation and security equipment County-wide contract, neither the
requesting department nor the procurement office was able to find the supporting
documentation. For the temporary employee County-wide contract, the Agency
initially informed us that supporting documentation was sent to the County for
destruction, but later the Agency informed us that the documentation had not been
destroyed and was at the County’s central records retention office. As indicated
above, we reviewed the records maintained at the County’s central records
retention office and found no documentation supporting the administration of this
contract. For the contract with the MDHA Development Corporation to develop
Ward Towers, the only supporting documentation provided by the Agency was
the development and loan agreements and a budget. However, the Agency later
informed us that about 150 boxes of files on this project were stored in a
warehouse. For the program management and relocation service contracts for
Scott/Carver Homes, the Agency disregarded federal requirements that contracts
be awarded based on full and open competition. For the County services, the
Agency believed that it was the County’s responsibility to maintain supporting
documentation because it provided these services. As indicated above, the
County departments that provided these services did not maintain documentation
supporting that a cost analysis was prepared.
Conclusion
Federal procurement requirements stipulate that contracts be awarded with full
and open competition and that the cost of the contract be reasonable. The Agency
failed to maintain supporting documentation to comply with these requirements
because of ineffective internal controls over documenting the history of a
9
procurement. As a result, we considered more than $12.1 million to be
unsupported costs because the Agency could not show that quality goods and
services were obtained equitably and at the most advantageous terms.
Recommendations
We recommend that HUD require the Agency to
1A. Provide supporting documentation to justify the eligibility and
reasonableness of $12,110,698 disbursed for five contracts and to the
County for seven transactions. If sufficient documentation can not be
provided, determine whether nonfederal funds are available for the agency
to reimburse the capital fund program $2,267,789 and the HOPE VI
program $9,842,909. Based upon that determination, require the agency to
reimburse the appropriate program account or consider forgiving the
recovery of any remaining unsupported amounts.
1B. Ensure that federal procurement requirements for maintaining supporting
documentation are implemented and enforced.
1C. Ensure that any services obtained through the County are purchased in
compliance with federal procurement requirements.
10
Finding 2: The Agency’s Internal Controls over Capital Fund
Drawdowns from HUD Were Inadequate
The Agency did not properly support multiple drawdowns of capital funds. It drew down capital
funds from HUD to reimburse itself for expenses associated with 2003 and 2004 capital fund
program grants. It then transferred these expenses to close out a 2002 capital fund program grant
and drew down additional capital funds from HUD using these same expenses as justification.
The Agency did not know the balance of excess fund drawdowns and could not provide
documentation to support that HUD was reimbursed for the excess funds used to close out the
grant. This condition occurred because the Agency did not have effective controls in place to
track excess funds that needed to be returned to HUD. As a result, we have no assurance that
more than $1.8 million in excess funds was repaid to HUD.
No Support for Multiple
Capital Fund Drawdowns
Regulations at 24 CFR 85.20 require that fiscal control and accounting procedures
be sufficient to permit the tracing of funds to a level of expenditures adequate to
establish that such funds have not been used in violation of the restrictions and
prohibitions of applicable statutes. Regulations at 24 CFR 85.50(d) require the
Agency to immediately refund to HUD any unobligated funds that are not
authorized to be retained for use on other grants.
In an attempt to reconcile capital fund disbursements between HUD’s Line of
Credit Control System (LOCCS) and the Agency check database for a 2002
capital fund program grant, we noticed that the final Agency drawdown from
LOCCS was $1,801,426. We reviewed the supporting accounting records for this
drawdown, which showed that the Agency transferred $1,801,426 in expenses
from the 2003 and 2004 grants to close the 2002 grant. We then tested whether
the Agency had already drawn down $1,801,426 from LOCCS to reimburse itself
for expenses associated with the 2003 and 2004 capital fund program grants. Due
to difficulty in obtaining supporting documentation from the Agency, we limited
our testing to reviewing 19 checks amounting to $374,467. We compared these
checks for the 2004 capital fund program grant against checks used to support
drawdowns to close out the 2002 grant. We found that the Agency overdrew
HUD funds by using the same checks as support for more than one drawdown.
The former grant accountant told us that the Agency regularly transferred
expenses between grants and would again draw down capital funds for those same
expenses from LOCCS. To reimburse HUD for the excess drawdowns, he would
prepare accounting journal entries to reduce future drawdowns. In addition,
Agency officials informed us that they would transfer expenses between grants to
close a grant to (1) disburse all funds before disbursement eligibility expired, (2)
11
contain the number of grants that needed to be managed, or (3) obtain a more
favorable HUD financial assessment score.
The Agency did not have effective controls in place to track excess capital fund
drawdowns that needed to be returned to HUD. The former grant accountant said
that he maintained a spreadsheet on his Agency computer, but he could not recall
the amounts. Current Agency officials were unable to locate this spreadsheet and
said that they were unaware of any remaining balance to be returned to HUD. We
asked Agency officials for any other documentation to support any capital fund
reimbursements to HUD, but none was provided.
Conclusion
The Agency is permitted to draw down capital funds from HUD to reimburse
itself for expenses. The problem arises when the Agency draws down additional
capital funds to close a grant using previously reimbursed expenses as
justification. This practice of multiple drawdowns becomes even more confusing
when the Agency attempts to reimburse HUD by preparing accounting entries to
reduce future drawdowns. Because of ineffective financial controls, the Agency
was unaware of any amounts owed to HUD. The Agency employee responsible
for grant accounting has since retired, leaving no formal accounting records to
support whether there was a remaining balance of excess funds and whether HUD
was reimbursed for the excess funds used to close out the 2002 capital fund
program grant. As a result, we have no assurance that more than $1.8 million in
excess funds was repaid to HUD.
At HUD’s request, we will perform an additional audit of capital fund expenses.
Recommendations
We recommend that HUD require the Agency to
2A. Provide documentation to support that the excess drawdown of $1,801,426
was returned to HUD. If sufficient documentation can not be provided,
determine whether nonfederal funds are available for the agency to
reimburse the capital fund program. Based upon that determination, require
the agency to reimburse the capital fund program account or consider
forgiving the recovery of any remaining unsupported amounts.
2B. Develop a system to track excess drawdowns and reimbursement of capital
funds to HUD and maintain supporting documentation for both.
12
2C. Hire an independent accounting firm to reconcile capital fund program
grants between LOCCS and the Agency financial system.
2D. Incorporate the tracking system, maintenance of supporting documentation,
and the reconciliation of capital fund program grants into existing
procedures.
13
SCOPE AND METHODOLOGY
Our audit objective was to determine whether the Agency had adequate controls to ensure that
contracts were awarded in accordance with regulations and HUD requirements. To accomplish
our objective, we
• Reviewed relevant HUD regulations and handbooks;
• Interviewed HUD, Agency, and County officials;
• Reviewed relevant Agency and County policies and procedures; and
• Reviewed Agency and County files and records including contracts, memorandums of
understanding, reimbursement packages, and other financial data.
The Agency paid $31 million in capital funds between October 2002 and April 2007 to 291
contractors. We limited our testing to 12 contractors who were paid $1.1 million. We selected
the contractors based on the amount of capital fund payments and other factors. In addition, the
Agency paid $1 million in capital funds between October 2002 and April 2007 to County
departments. We selected for review the 10 largest capital fund payments totaling $850,000 to
County departments. In total, we reviewed more than $1.9 million in capital fund contract
payments to determine whether they were in accordance with regulations and HUD
requirements. We also reviewed HOPE VI funds provided to three contractors.
HUD provided us with a listing of capital fund program grants totaling more than $59 million
allocated to the Agency between October 2002 and April 2007. In our attempt to reconcile
Agency and HUD capital fund disbursements, we learned that the Agency transferred expenses
between grants, which could account for some of the $26.7 million difference. To determine
why the Agency transferred expenses between grants, we expanded our audit scope and
randomly selected the 2002 capital fund program grant to review. HUD allocated more than
$15.3 million to the Agency for this grant, while the Agency reported disbursements totaling
more than $8.6 million.
To review capital fund procurements and expense transfers, we examined purchase and work
orders, contracts, financial statements, general ledgers, requests for LOCCS drawdowns,
accounting journal entries, minutes from board of County commissioners meetings, check
vouchers, invoices, and independent public accountant reports.
To achieve our audit objective, we reviewed computer-processed data from the Agency’s
financial system. We performed limited testing of capital fund expenditure information to
include only the Agency capital fund check database. By itself, we consider this database to be
unreliable because it does not accurately reflect total capital fund payments for each grant.
The audit generally covered the period October 1, 2002, through April 30, 2007, and we
extended the period as needed to accomplish our objective. We conducted our fieldwork from
14
July 2007 through January 2008 at the Agency office located at 1401 NW 7th Street, Miami,
Florida.
We performed our review in accordance with generally accepted government auditing standards.
15
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 objective:
• Controls over the validity and reliability of data.
• Controls over compliance with laws and regulations.
• Controls over the safeguarding of resources as they relate to the disbursement
of capital funds.
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.
Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• The Agency did not maintain documentation to support that five contracts
were awarded with full and open competition and did not ensure that a cost
analysis was obtained before receiving County services (see finding 1).
• The Agency’s internal controls over capital fund drawdowns from HUD were
inadequate (see finding 2).
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APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation
number Unsupported /1
1A $12,110,698
2A $1,801,426
Total $13,912,124
1/ 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.
17
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Comment 1
18
19
OIG Evaluation of Auditee Comments
Comment 1 HUD did not agree with recommendation 1A and 2A relating to reimbursement of
funds to the program from non federal sources. HUD acknowledged that the
ultimate sanction they invoked by their takeover of the Agency resulted from
serious and significant management and financial concerns. HUD stated that they
have an opportunity to correct current and future practices of the Agency, but
indicated that they will never be able to correct all past mistakes and requested
that we not hold them to that standard. HUD also stated that they will continue to
have a major presence in oversight and monitoring of the Agency after the
agreement with the County has expired to ensure that the Agency does not revert
to past practices.
We considered HUD’s comments but concluded that it would be premature to
drop recommendations 1A and 2A. The Agency did not provide us with
supporting documentation to justify the eligibility and reasonableness of five
contracts and seven County transactions, or that an excess capital fund drawdown
was returned to HUD. If nonfederal funds are available, we believe HUD has an
obligation to hold the Agency accountable for its past practices. However, at this
time, HUD is unable to determine whether nonfederal funds are available to
reimburse the various program accounts. This inability is the result of the
deficiencies that led HUD to take over possession of the Agency. As HUD notes
in its response, it has hired an accounting firm to assist in a number of areas
including the reconciliation of its financial records and transactions. We
recognize the Agency is under HUD receivership and the difficulty addressing
current Agency problems. However, we maintain that the costs need to be
properly supported or reimbursed with nonfederal funds if available.
20
The Miami Dade Housing Agency, Miami, Florida, Did Not Maintain Adequate Controls over Its Capital Fund Program
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-04-24.
Below is a raw (and likely hideous) rendition of the original report. (PDF)