oversight

The Highland Park Housing Commission, Highland Park, Michigan, Did Not Effectively Administer Its Public Housing and Capital Fund Programs

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-02-15.

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

                                                                  Issue Date
                                                                           February 15, 2008
                                                                  Audit Report Number
                                                                           2008-CH-1003




TO:        Robert E. Nelson, Director of Public Housing Hub, 5FPH


FROM:      Heath Wolfe, Regional Inspector General for Audit, 5AGA

SUBJECT: The Highland Park Housing Commission, Highland Park, Michigan, Did Not
           Effectively Administer Its Public Housing and Capital Fund Programs

                                    HIGHLIGHTS

 What We Audited and Why

             We audited the Highland Park Housing Commission’s (Commission) Public
             Housing and Public Housing Capital Fund programs (programs). The audit was
             part of the activities in our annual audit plan. We selected the Commission based
             upon its fiscal year 2005 independent auditor’s report that identified it as having
             high-risk programs. Our objectives were to determine whether the Commission
             effectively administered its programs and followed the U.S. Department of
             Housing and Urban Development’s (HUD) requirements. This is the first of two
             audit reports on the Commission.

 What We Found

             The Commission’s programs administration regarding admission and occupancy,
             and procurement was inadequate. It did not comply with HUD’s requirements
             and its policies in administering its admission and occupancy process. It was
             unable to support more than $153,000 in Public Housing operating subsidies
             received, did not receive total household payments of nearly $29,000, received
             excess total household payments of more than $13,000, and received nearly
             $8,000 in Public Housing operating subsidies to which it was not entitiled.

             The Commission’s procurement activities were not conducted according to its and
             HUD’s requirements. It did not follow HUD’s requirements for full and open
           competition regarding the procurement of professional, housing maintenance, and
           general cleaning services totaling nearly $83,000 and lacked supporting
           documentation for more than $61,000 in work under the Commission’s Public
           Housing Capital Fund program.

           We informed the Commission’s acting executive director and the Director of
           HUD’s Detroit Office of Public Housing Hub of minor deficiencies through a
           memorandum, dated February 15, 2008.

What We Recommend

           We recommend that the Director of HUD’s Detroit Office of Public Housing
           require the Commission to provide support or reimburse its applicable program
           from nonfederal funds for the unsupported payments, reimburse its applicable
           program from nonfederal funds for the improper use of funds, and implement
           adequate procedures and controls to help ensure that nearly $70,000 in Public
           Housing funds will be put to better use regarding its administration and
           occupancy processes.

           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 issued because of the audit.


Auditee’s Response

           We provided our file review results and supporting schedules to the Director of
           HUD’s Detroit Office of Public Housing and the Commission’s acting executive
           director during the audit. We also provided our discussion draft audit report to the
           Commission’s acting executive director, its board president, and HUD’s staff during
           the audit. We held an exit conference with the Commission’s acting executive
           director on January 15, 2008.

           We asked the Commission’s acting executive director to provide comments on our
           discussion draft audit report by February 7, 2008. The acting executive director
           provided written comments dated, February 7, 2008. The complete text of the
           Commission’s written comments, along with our evaluation of those comments, can
           be found in appendix B of this report.




                                             2
                             TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
        Finding 1: Controls over the Program’s Admission and Occupancy Processes
                   Were Inadequate                                                 5

        Finding 2: The Commission’s Procurement Activities Were Not Conducted
                   According to Its and HUD’s Requirements                         10

Scope and Methodology                                                              14

Internal Controls                                                                  16

Appendixes
   A.   Schedule of Questioned Costs and Funds to Be Put to Better Use             18
   B.   Auditee Comments and OIG’s Evaluation                                      19
   C.   Federal Requirements and Commission’s Policies                             25
   D.   Household File Reviews – Missing or Incomplete Occupancy Documentation
        Material to Eligibility and/or Continued Occupancy                         30




                                             3
                       BACKGROUND AND OBJECTIVES

The Highland Park Housing Commission (Commission) is a public housing agency established by
the City of Highland Park, Michigan (City), on June 16, 1970. The Commission is a division of the
City’s Community Development Department and is governed by a five-member board of
commissioners (board) appointed by the City’s mayor to five-year staggered terms. The board’s
responsibilities include overseeing the Commission’s operations, as well as the review and approval
of its policies. The board appoints the Commission’s executive director, who serves as the board’s
secretary. The executive director is responsible for fulfilling the goals and objectives established by
the board.

The Commission administers a Public Housing program funded by the U.S. Department of Housing
and Urban Development (HUD) through program operating subsidies. The Commission provides
assistance to low-income individuals seeking decent, safe, and sanitary housing. It currently
manages 184 federally assisted program units in one complex and scattered sites. It received more
than $900,000 in program operating subsidies from October 2005 through March 2007.

The Public Housing Capital Fund program is administered by HUD’s Office of Public and Indian
Housing’s Office of Capital Improvements. Capital funds are for the development, financing,
and modernization of public housing developments and for management improvements. The
Public Housing Reform Act of 1998 converted HUD’s Comprehensive Grant and
Comprehensive Improvement Assistance programs to the Public Housing Capital Fund program.

HUD awarded the Commission more than $1 million in Capital Fund program grants for fiscal
years 2004 through 2007. As of November 2007, the Commission had drawn down nearly
$278,000 in fiscal year 2004 Capita Fund program funds. The Commission had not drawn down
any of its fiscal year 2005, 2006, or 2007 Capital Fund program funds as of November 2007.

HUD issued the results of its Public Housing Assessment System management operations
certifications on September 10, 2007, scoring the Commission’s Public Housing program as
substandard at less than 60. On November 16, 2007, HUD issued the results of its initial
assessment review. The assessment was to determine the conditions of the Commission’s
operations for fiscal year 2006 and serve as a basis for developing a memorandum of agreement.
As a result, HUD executed a memorandum of agreement with the Commission effective October
1, 2007, requiring the Commission to improve its program performance.

Our objectives were to determine whether the Commission effectively administered its Public
Housing and Public Housing Capital Fund programs (programs) and followed HUD’s
requirements. This is the first of two audit reports on the Commission.




                                                   4
                                RESULTS OF AUDIT

Finding 1: Controls over the Program’s Admission and Occupancy
                      Processes Were Inadequate
The Commission did not comply with HUD’s requirements and its program admission and
continued occupancy policies (policies) regarding its Public Housing program households. It did
not comply with HUD’s requirements and its policies in administering its admission and
occupancy process. It was unable to support more than $153,000 in Public Housing operating
subsidies received, did not receive total household payments of nearly $29,000, received excess
total household payments of more than $13,000, and received nearly $8,000 in Public Housing
operating subsidies to which it was not entitiled. The problems occurred because the
Commission lacked adequate procedures and controls to ensure that HUD’s requirements and its
program policies were appropriately followed. As a result, HUD’s Public Housing program
funds were not used efficiently and effectively. Based upon our statistical sample, we estimate
that over the next year, the Commission will overpay nearly $70,000 in payments.



 The Commission Lacked
 Documentation Supporting
 Household Eligibility

              From the Commission’s 187 active Public Housing program households as of
              March 2007, we statistically selected 29 households’ files by using the U.S. Army
              Audit Agency’s Statistical Sampling System software. In addition, we selected
              all seven households’ files the Commission leased to between January and March
              2007. The 36 households’ files were reviewed to determine whether the
              Commission accurately verified and calculated the income information received
              from the households for their housing assistance and utility allowance payments.
              Our review was limited to the information maintained by the Commission in its
              households’ files.

              The Commission lacked documentation to support that more than $22,000 in
              program operating subsidies received for the period January 1 through March 31,
              2007, were for eligible households. Of the 36 households’ files selected for review:

                  •   Seven were missing proof of sex-offender activity screenings,
                  •   Seven were missing proof of family behavior and suitability for tenancy,
                  •   Seven were missing community service exempt certifications,
                  •   Six were missing proof of past performance in meeting financial obligations,
                  •   Three were missing signed declaration of U.S. citizenship certifications, and
                  •   Two were missing HUD Form 9886, Authorization for the Release of
                      Information and Privacy Act Notice.



                                                5
           According to the community service advisor, over the past two years, the
           Commission had admitted applicants without verifying or reviewing the
           information in households’ admission packets. The community service advisor
           also said that as a result of our audit, all required documentation would be
           reviewed and verified. We did not determine whether the Commission
           implemented this procedure to ensure compliance with HUD’s requirements and
           its policies.

The Commission Lacked
Documentation Supporting
Households’ Continued
Occupancy

           The Commission lacked documentation to support that more than $131,000 in
           Public Housing program operating subsidies received for the period October 1,
           2005, though March 31, 2007, were for eligible households’ continued occupancy.
           Of the 36 households’ files selected for review:

              •   29 were missing community service exempt certifications,
              •   23 were missing verifications of family behavior and suitability for tenancy,
              •   22 were missing proof of sex-offender activity screenings,
              •   20 were missing HUD Form 9886, Authorization for the Release of
                  Information and Privacy Act Notice,
              •   19 were missing signed declaration of U.S. citizenship certifications,
              •   19 were missing proof of past performance in meeting financial obligations,
              •   11 were missing proof of criminal activity screenings,
              •   Six were missing proof of legal identity,
              •   Five were missing HUD consent forms for household members 18 years of
                  age and older,
              •   Five were missing proof of Social Security numbers,
              •   Three were missing proof of income,
              •   Three were missing community service compliance certifications, and
              •   Two were missing proof of family definition.

           The Commission’s files did not include 299 material documents as required by
           HUD’s regulations. Appendix D of this report includes the results of our
           household file reviews.

           According to the Commission’s community service advisor, recertifications were
           completed, even if the required documentation was missing, to complete the
           households’ certification in a timely manner. The community service advisor also
           said that as a result of our audit, all required documentation would be reviewed and
           verified. We did not determine whether the Commission implemented this
           procedure to ensure compliance with HUD’s requirements.




                                             6
The Commission Incorrectly
Calculated Total Household
Payments and Utility
Allowances

           The Commission incorrectly calculated households’ total household payments and
           utility allowances, resulting in lost total household payments of $28,663 and excess
           total household payments of $13,070 from October 1, 2005, through November 30,
           2007. It incorrectly calculated total household payments and/or utility allowances
           for 30 (83 percent) of the 36 households selected for review for one or more
           certifications. The 30 household files contained 30 annual income calculation errors
           (23 files contained understated household income and seven files contained
           overstated household income), 17 incorrect utility allowance payments, three
           overstated medical expenses, and one incorrect family composition certification.

           According to the Commission’s community service advisor, calculation errors were
           a mix of human error, oversight, and not having accurate information. HUD’s on-
           site initial assessment review, conducted from June 25 through July 3, 2007, and
           issued to the Commission on November 16, 2007, disclosed that the Commission
           was in violation of HUD’s regulations regarding the establishment of utility
           allowances. As of November 2007, the Commission’s policies did not address how
           households would be reimbursed regarding the underpayment of housing assistance
           and utility allowances.

The Commission Received
Excess Subsidies


           The Commission overstated the number of units eligible for subsidies for the period
           October 1, 2005, through December 31, 2006. It included two properties that were
           no longer part of its Public Housing program inventory. For the period October 1
           through December 31, 2005, the Commission was authorized to receive $246 per
           month per unit and $269 per month from January 1 through December 31, 2006.
           The Commission inappropriately received nearly $8,000 in excess subsidies for the
           period October 1, 2005, to December 31, 2006. The following table shows the
           excess subsidies received for the two properties sold by the City.

                                                                             Actual
               Period of operating                   Units      Monthly     available     Excess
                     subsidy            Months      claimed     subsidy       units       subsidy
            Oct. 1- Dec. 31, 2005           3          200       $246          198      $1,476
            Jan. 1-Dec. 31, 2006           12          200       $269          198       6,456
                                       Total excess subsidies                           $7,932


           According to the financial manager, when the subsidy request was prepared, the
           Commission was not aware that the City had sold two of the Commission’s Public
           Housing properties. The financial manger also said that in a discussion with a

                                              7
             revitalization specialist with HUD’s Detroit Office of Public Housing, the
             Commission was told that the City had no right to sell the properties; therefore, it
             should continue claiming the two units, HUD would deal with the City directly, and
             any adjustments would be handled at a later date. According to HUD’s
             revitalization specialist, he said that he never advised the Commission to continue
             claiming subsidies for the two units sold by the City. There had been no resolution
             as of November 30, 2007, and the two properties were not part of the Commission’s
             inventory. The Commission adjusted its 2008 calendar year budget for available
             units from 200 to 198.

Households Were Not Selected
from the Waiting List Properly


             The Commission did not ensure that households were properly selected from its
             waiting list. Of the 36 household files selected for review, the Commission lacked
             documentation to support that 20 households were properly selected from the
             waiting list. On May 1, 2004, the Commission purged 20 household files. HUD’s
             regulations require the Commission to maintain a clear audit trail for all households
             admitted to its Public Housing program after May 24, 2001. For the remaining 16
             households reviewed, we were able to determine that 14 were not selected from the
             waiting list properly. The household files indicated that applicants with earlier
             application dates had the same priority factor. The files also noted that applicants
             contacted the Commission, stating that they were still interested in housing. In
             addition, the Commission did not maintain a clear audit trail for seven applicants
             admitted to its Public Housing program after May 24, 2001.

Conclusion

             The Commission did not properly use its Public Housing program funds when it
             failed to comply with HUD’s requirements and its policies. As previously
             mentioned, the Commission was unable to support more than $153,000 in Public
             Housing operating subsidies received, did not receive total household payments of
             nearly $29,000, received excess total household payments of more than $13,000, and
             received nearly $8,000 in Public Housing operating subsidies to which it was not
             entitiled. As a result, HUD’s Public Housing program funds were not used
             efficiently and effectively.

             If the Commission implements adequate procedures and controls over its housing
             asistance and utility allowance payments to ensure compliance with HUD’s
             regulations and its policies, we estimate that more than $70,000 in payments will be
             accurately spent over the next year based on the error rate found in our sample. Our
             methodology for this estimate is explained in the Scope and Methodology section of
             this audit report.




                                               8
Recommendations

          We recommend that the Director of HUD’s Detroit Office of Public Housing
          require the Commission to

          1A.     Provide supporting documentation or reimburse its Public Housing
                  program $153,223 ($22,092 for household eligibility and $131,131 for
                  continued occupancy) from nonfederal funds for the unsupported
                  operating subsidies related to the 36 household files cited in this finding.

          1B.     Reimburse its Public Housing program $28,663 ($16,262 plus $12,401)
                  from nonfederal funds for the lost total household payments for 23
                  households cited in this finding.

          1C.     Reimburse the appropriate households $13,070 for the underpayment of
                  housing assistance and utility allowance payments cited in this finding.

          1D.     Implement adequate procedures and controls over its admission and
                  continued occupancy processes to ensure that it meets HUD’s
                  requirements and its policies. These procedures and controls should
                  include but not be limited to ensuring that all required documentation is
                  obtained and maintained in the Commission’s current household files to
                  support that households’ eligibility and total household payment and
                  utility allowance calculations are correct. By implementing adequate
                  procedures and controls, the Commission should help ensure that it receives
                  $70,437 in additional household payments over the next year.

          1E.     Revise its policies to address how households will be reimbursed when
                  they overpay total household payments.

          1F.     Reimburse its Public Housing program $7,932 in operating subsidies from
                  nonfederal funds for the two properties sold by the City.

          1G.     Implement adequate procedures and controls to ensure that Public
                  Housing operating subsidies are received only for eligible households.

          We also recommend that the Director of HUD’s Detroit Office of Public Housing

          1H.     Revise the October 2007 memorandum of agreement with the
                  Commission to ensure that it encompasses the recommendations cited in
                  this finding.




                                            9
Finding 2: The Commission’s Procurement Activities Were Not
         Conducted According to Its and HUD’s Requirements
The Commission failed to follow its and HUD’s procurement requirements. It did not (1)
maintain sufficient records detailing significant procurement histories, (2) document the method
used in the procurement for professional and contracting services, and (3) perform a cost or price
analysis for every procurement transaction including contract modifications or independent cost
estimates. These problems existed because the Commission lacked adequate procedures and
controls over its procurement process. As a result, HUD cannot be assured that the Commission
obtained the best possible price when purchasing services and merchandise or used Public
Housing and Public Housing Capital Fund programs funds effectively and efficiently.


 Contracting Files Were Missing
 Supporting Documentation for
 Payments Made to Contractors


               The Commission failed to maintain documentation supporting the procurement
               method used and required when making partial payments to a contractor
               performing work under its Public Housing Capital Fund program. Specifically,
               the names, addresses, telephone numbers, persons contacted, and date and amount
               of each quotation submitted by all contractors bidding for the projects were
               missing. In addition, bid proposals submitted by the contractors were missing and
               the reason for the Commission not accepting the lowest bid for one of the six
               work items was not justified in writing. Moreover, the Commission did not
               maintain the required supporting documentation for five payments of more than
               $61,000 in capital funds for work completed under the program. The following
               table shows the unsupported funds from the capital fund program.

                                                                            Payments not    Total paid per
                Payment date     Project number   Original contract price    supported         project
               June 24, 2004            2                $70,000               $7,875       $68,380
               June 24, 2004            3                 66,000               29,700        66,000
               Sept. 23, 2004           4                                      10,818
               Sept. 23, 2004           4                68,000                 3,759        53,327
               Sept. 15, 2005           5                45,500                 9,050        41,000
               A            Totals                     $249,500               $61,202      $228,707
               c
               According to the Commission’s second former acting executive director,
               solicitations for bids were conducted for projects to be funded by its Public
               Housing Capital Fund program, and the contractors would receive payment when
               the job was completed. However, the Commission lacked documentation in its
               files the receipt of bids from all solicitors. Also, it did not perform a cost or price
               analysis before entering into a contract with the contractors. In addition, after the
               procurement of the contractors for the Public Housing Capital Fund program, the
               Commission would contact the contractors directly to perform other jobs.




                                                     10
            Without performing the required independent cost estimates and cost analysis, the
            Commission lacked assurance that it received the best price for the services
            provided. The independent cost estimate gives the Commission a fair market
            value basis on which to evaluate incoming proposals. The cost analysis ensures
            that the proposed price is reasonable for the services provided under the contract.
            A cost analysis on bids or proposals received is required to verify the proposed
            cost data and to evaluate specific elements of the costs. In this case, the
            Commission could not determine whether it paid for questionable or unallowable
            costs or inflated items.

The Commission Failed to
Properly Maintain Sufficient
Procurement Records


            The Commission purchased merchandise through nine vendors without providing
            full and open competition to obtain the best possible price for the services. The
            nine vendors provided ongoing services to the Commission from as early as 1975
            through 2006. The Commission failed to properly maintain and record the
            procurement process in the selection of the vendors, did not always record the
            dates and cost of the items purchased, and used Public Housing program
            operating funds to pay for the merchandise, showing a pattern of using the same
            vendor without obtaining bids from other suppliers. Due to the Commission’s
            incomplete records and missing documentation, we were unable to determine the
            exact amount the Commission paid to all vendors for the items purchased.

Housing Maintenance and
Cleaning Services Were Not
Properly Procured

            Contrary to HUD’s and its procurement requirements, the Commission disbursed
            nearly $58,000 in Public Housing program operating funds for housing
            maintenance and cleaning services without procuring the services through full and
            open competition.

            The Commission hired one family member of an employee and two independent
            contractors to perform housing maintenance services. It also hired two family
            members of an employee for cleaning services. It paid nearly $58,000 in Public
            Housing program operating funds for services completed from August 2002
            through March 2007 that exceeded its own $600 procurement threshold.

            Specifically, the Commission paid $40,713 to one family member and two
            independent contractors ($17,295 and $23,418, respectively, from August 15,
            2002, through March 7, 2007) for housing maintenance services and another two
            family members $9,991 for cleaning services that exceeded $600. The family
            member hired for housing maintenance services was related to the Commission’s



                                            11
             housing inspector, who was responsible for the oversight of the contractors,
             thereby, creating a conflict of interest.

             The Commission lacked supporting documentation that other suppliers were
             contacted orally, by telephone, or in writing to obtain quotes. According to the
             Commission’s second former acting executive director, contractors for housing
             maintenance services were selected based on past performance and their ability to
             do the job. Also, according to the second former acting executive director, the
             Commission’s employees had no knowledge of HUD’s or its own requirements
             regarding the hiring of family members. As a result of our audit, the Commission
             started placing ads in the newspaper, soliciting contractors to perform housing
             maintenance services. In addition, the Commission plans to contact at least three
             companies for oral bids on small jobs not to exceed the $2,000 micro purchase
             threshold.

Professional Services Were Not
Properly Procured

             The Commission did not consistently procure architectural services. Its first
             former acting executive director entered into a contract with CLM Architects,
             LLC (CLM Architects) on January 15, 2004, to provide services for its fiscal year
             2004 Public Housing Capital Fund program projects. Although the Commission
             did not execute an extension to its contract, dated January 15, 2004, it continued
             to procure the services of CLM Architects. The Commission’s payee ledger,
             dated June 6, 2006, showed that more than $22,000 in capital funds was paid for
             architectural services related to fiscal year 2004 projects. The Commission did
             not obtain HUD approval for its continued use of CLM Architects for a term
             greater than two years.

             The second former acting executive director stated that the Commission used the
             qualifications-based procurement method. However, the Commission’s files did
             not contain documentation to support that the qualifications-based selection
             method used to procure CLM Architects was justified.

             The Commission paid nearly $10,000 between January 12 and December 28,
             2006, for legal services from Harold Dunne, Attorney at Law, without properly
             procuring these services. It lacked supporting documentation that it procured or
             entered into a contract for legal services. As of August 26, 2007, the Commission
             had started the soliciting process for legal services.

Conclusion


             The Commission’s procurement activities were not conducted according to its and
             HUD’s requirements. It did not (1) maintain sufficient records detailing
             significant procurement histories, (2) document the method used in the
             procurement of professional and contracting services, and (3) perform a cost or

                                             12
          price analysis for every procurement transaction, including contract modifications
          or independent cost estimates.

          Additionally, the Commission’s procurement policies had not been updated since
          1996. Further, the Commission’s board and top management did not exercise
          their responsibilities to implement effective procedures and controls over the
          Commission’s procurement process. The Commission failed to maintain
          sufficient records detailing significant procurement histories; written selection
          procedures for procurement transactions; proper documentation for the
          procurement of architectural, housing maintenance, and cleaning services; and
          evidence of a cost or price analysis for procurement transactions.

          As a result, HUD lacks assurance that the Commission’s procurement awards
          were conducted through full and open competition. In addition, HUD cannot be
          assured that Public Housing and Public Housing Capital Fund programs funds
          were used effectively and efficiently for the Commission’s procurement activities
          or that costs charged for the procured services were reasonable.

Recommendations

          We recommend that the Director of HUD’s Detroit Office of Public Housing
          require the Commission to

          2A.     Provide supporting documentation for the use of $61,202 for work
                  performed under its Public Housing Capital Fund program or reimburse its
                  program from nonfederal funds for the applicable amount.

          2B.     Provide support that the use of $82,774 ($27,286 to three family members,
                  $23,418 to two independent contractors, $22,150 to CLM Architects, and
                  $9,920 to Harold Dunne, Attorney at Law) in Public Housing program
                  funds for housing maintenance, cleaning, and professional services were
                  reasonable or reimburse its program from nonfederal funds for the
                  applicable amount.

          2C.     Implement adequate procedures and controls to ensure that it follows its
                  procurement policy and HUD’s requirements regarding all procurement
                  transactions, including maintaining adequate documentation and a contract
                  register.

          We also recommend that the Director of HUD’s Detroit Office of Public Housing

          2D.     Revise the October 2007 memorandum of agreement with the
                  Commission to ensure that it encompasses the recommendations cited in
                  this finding.




                                          13
                         SCOPE AND METHODOLOGY

To accomplish our objectives, we reviewed

            •   Applicable laws; HUD’s regulations at 24 CFR [Code of Federal Regulations] 5,
                84, 85, 960, and 965; HUD’s Public Housing Occupancy Guidebook; HUD’s
                Handbook 7460.8, REV-2; section 125 of the Michigan Complied Laws; City
                Ordinance 939; Office of Management and Budget Circular A-87, attachments A
                and B; and the November 1990 Program Integrity Bulletin.

            •   The Commission’s accounting records, annual audited financial statements for
                2005 and 2006, bank statements and canceled checks, data from HUD’s Line of
                Credit Control system, Public Housing program household files, computerized
                databases, by-laws, policies and procedures, board meeting minutes from October
                2005 through March 2007, organization chart, job descriptions, annual
                contributions contract, and statement of policies, section II and III.

            •   HUD’s files for the Commission.

We also interviewed the Commission’s current employees, HUD staff, program households, and
employees of the City and State.

Finding 1

We statistically selected 29 of the Commission’s program household files, using Excel and the
U.S. Army Audit Agency’s Statistical Sampling System, from the 187 households residing in the
Commission’s program units as of March 2007. Our sampling criteria used a 90 percent
confidence level, 12 percent estimated error rate, and precision of plus or minus 10 percent. In
addition, we selected all seven households’ files the Commission leased to between January and
March 2007. The 36 households were selected to determine whether the Commission had
supporting documentation for and correctly calculated total household and utility allowance
payments from October 2005 through March 2007.

Of the 29 program households statistically selected for review, our sampling results determined
that the Commission incorrectly calculated total household payments and/or utility allowances or
made inaccurate utility allowance payments for 26 (90 percent) of the 29 households. The
Commission did not receive total household payments and utility allowance payments netting
$16,399 ($11,637 in unreceived total household payments plus $16,052 in underpayments of
utility allowance payments minus $11,290 in excess total household payments received) for the
26 households. The average amount lost by the Commission was $565 per household. We
estimate the Commission will receive additional total household payments totaling $70,437 (187
units times the average of $565 lost per household divided by the 18 months reviewed times 12
months for the next year) over the next year. This estimate is presented to demonstrate the
annual amount of additional total household payments and Public Housing program operating
subsidy that could be put to better use for the Commission’s program if it implement our



                                               14
recommendation. While these benefits would recur indefinitely, we were conservative in our
approach and only included the initial year in our estimate.

Finding 2

We statistically selected 20 of the Commission’s disbursements using Excel and the U.S. Army
Audit Agency’s Statistical Sampling System, from 63 check amounts that equaled to or were
greater than $600 as of March 2007. Of the 1,700 checks listed in the Commission’s general
fund account, 192 were written during our audit period, and for 63 checks written, the amount
was equal to or greater than $600. Our sampling criteria used a 90 percent confidence, 12
percent expected error rate, and precision of plus or minus 10 percent.

We chose two contractors and the architect associated with the Commission’s Public Housing
Capital Fund program. The two contractors were involved with bidding on the fiscal year 2004
Public Housing Capital Fund program grant work items; therefore, we did not obtain a sample
and chose to review the two contractors and the architect.

We selected nine vendors identified for our audit period, eight from the list of vendors and one
from the Commission’s inventory listing, to review. Six of the names were identified on both
lists. We also selected family members of the Commission’s employees. We did not obtain a
sample and chose nine vendors and five family members to review.

Our results determined the Commission’s procurement activities were not conducted according
to HUD’s and its requirements. Records were not maintained detailing significant procurement
histories; methods used in the procurement for architectural and contracting services were not
evident; a cost or price analysis for every procurement transaction, including contract
modifications or independent cost estimates, was not performed; and information related to the
purchase of merchandise was not properly recorded.

We performed our on-site audit work from April through November 2007 at the Commission’s
central offices located at 13725 John R, Highland Park, Michigan. The audit covered the period
October 2005 through March 2007 and was expanded as determined necessary.

We performed our audit 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,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding resources.

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 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.


 Significant Weakness

              Based on our review, we believe the following item is a significant weakness:


                                               16
•   The Commission lacked adequate procedures and controls to ensure
    compliance with HUD’s regulations and the Commission’s policies regarding
    household files, contracting practices, and conflicts of interest (see findings 1
    and 2).




                                 17
                                   APPENDIXES

Appendix A

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

                  Recommendation                                           Funds to be put
                      number            Ineligible 1/     Unsupported 2/   to better use 3/
                         1A                                    $153,223
                         1B                  $28,663
                         1C                   13,070
                         1D                                                        $70,437
                         1F                       7,932
                         2A                                      61,202
                         2B                                      82,774
                        Totals               $49,665           $297,199           $70,437


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/   Recommendations that funds 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 reduction 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
     that are specifically identified. In this instance, if the Commission implements our
     recommendation it will receive additional total household payments. Once the
     Commission successfully improves its procedures and controls, this will be a recurring
     benefit. Our estimate reflects only the initial year of this benefit.




                                             18
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation   Auditee Comments




Comment 1




                         19
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         20
Ref to OIG Evaluation   Auditee Comments




Comment 3




                         21
Ref to OIG Evaluation   Auditee Comments




                         22
Ref to OIG Evaluation   Auditee Comments




                         23
                       OIG’s Evaluation of Auditee Comments

Comments 1   The Commission did not provide any documentation with its written comments
             for the unsupported operating subsidies to show the appropriate verifications
             were conducted to determine household eligibility. Therefore, we did not
             remove the recommendation from this report. The Commission notes that it is
             currently in the process of locating the documentation. The Commission will
             have further opportunity to provide comments and supporting documentation to
             HUD’s staff, who will work with the Commission and our Office to resolve the
             recommendation.

Comments 2   The Commission did not provide any documentation with its written comments
             to show that criminal activity screenings and HUD Form 9886, Authorization
             for the Release of Information and Privacy Act Notice, were administered by
             the Commission to determine the household continued occupancy. Therefore,
             we did not remove the recommendation from this report. The Commission
             notes that it is currently in the process of locating the documentation. The
             Commission will have further opportunity to provide comments and supporting
             documentation to HUD’s staff, who will work with the Commission and our
             Office to resolve the recommendation.

Comments 3   The Commission did not provide any documentation with its written comments
             to support payments to contractors under its Public Housing Capital Fund
             program. Therefore, we did not remove the recommendation from this report.
             The Commission notes that it is currently in the process of locating the
             documentation. The Commission will have further opportunity to provide
             comments and supporting documentation to HUD’s staff, who will work with
             the Commission and our Office to resolve the recommendation.




                                          24
Appendix C

 FEDERAL REQUIREMENTS AND COMMISSION’S POLICIES

Finding 1
Federal regulations at 24 CFR [Code of Federal Regulations] 5.216 require that each assistance
applicant submit the following information to the processing entity when the assistance
applicant’s eligibility under the program involved is being determined: a complete and accurate
Social Security number assigned to the assistance applicant and to each member of the assistance
applicant’s household who is at least six years of age or if the assistance applicant or any
member of the assistance applicant’s household who is at least six years of age has not been
assigned a Social Security number, a certification executed by the individual involved.

Federal regulations at 24 CFR 5.240(c) state that an authority must verify the accuracy of the
income information received from a household and change the amount of the total household
payment or rent or terminate assistance, as appropriate, based on such information.

Federal regulations at 24 CFR 5.609 state that annual income includes the full amount, before
any payroll deductions, wages and salaries, overtime pay, commissions, fees, tips and bonuses,
and other compensation for personal services; the net income from the operation of a business or
profession; interest, dividends, and other net income of any kind from real or personal property;
the full amount of periodic amounts received from Social Security, annuities, insurance policy,
retirement funds, pensions, disability or death benefits, and other similar types of periodic
receipts; payments in lieu of earnings, such as unemployment and disability compensation,
worker’s compensation, and severance pay; welfare assistance payments; periodic and
determinable allowance, such as alimony and child support payments, and regular contributions
or gifts received from organizations or from persons not residing in the dwelling; and all regular
pay, special pay, and allowances of a member in the Armed Forces.

Federal regulations at 24 CFR 960.253(c)(3) state that an income-based tenant rent must not
exceed the total household payment for the household minus any applicable utility allowance for
utilities paid by the household. If the utility allowance exceeds the total tenant payment, the
authority should pay the excess amount to the family or directly to the supplier.

Federal regulations at 24 CFR 960.253(e) state that in order for the family to make an informed
choice about its rent options, the authority must provide sufficient information for an informed
choice. Such information must include at least the following written information: (1) the
authority’s policies on switching type of rent in circumstances of financial hardship and (2) the
dollar amount of tenant rent for the family under each option. If the family chose a flat rent for
the previous year. The authority is required to provide the amount of income-based rent for the
following year only the year for which the authority conducts an income reexamination or if the
family specifically requests it and submits updated income information. For a family that
chooses the flat rent option, the authority must conduct a reexamination of family income at least
once every three years.



                                                25
Federal regulations at 24 CFR 960.257(a)(1) state that for families who pay an income-based
rent, an authority must conduct a reexamination of family income and consultation with the
family upon verification of the information.

Federal regulations at 24 CFR 965.502 state that housing authorities shall establish allowances
for authority-furnished utilities for all check-metered utilities and allowances for resident-
purchased utilities for all utilities purchased directly by residents from the utilities suppliers and
require the housing authority to maintain a record that documents the basis on which allowances
and scheduled surcharges, and revisions thereof, are established and revised. Such record shall
be available for inspection by residents.

Federal regulations at 24 CFR 965.503 require an authority to establish separate allowances for
each utility and for each category of dwelling units determined by the authority to be reasonably
comparable to facts affecting the utility use.

HUD’s Public Housing Occupancy Guidebook, chapter 7.11, states that each household file must
contain verification of the following information: names, relationship to the head of household,
and Social Security numbers of all household members and screening information, such as
verification of criminal history. Criminal records must not be filed in household files. Instead,
the files should document that a criminal background check was conducted, the result of the
check, and the source of the information.

Finding 2
Federal regulations at 24 CFR 84.34(f) state that the recipient’s property management standards
for equipment acquired with federal funds and federally owned equipment shall include all of the
following. (1) Equipment records shall be maintained accurately and shall include the following
information, (i) description of the equipment, and (ii) manufacturer’s serial number, model
number, federal stock number, national stock number, or other identification number. (2)
Equipment owned by the federal government shall be identified to indicate federal ownership.
(3) A physical inventory of equipment shall be taken and the results reconciled with the
equipment records at least once every two years. Any differences between quantities determined
by the physical inspection and those shown in the accounting records shall be investigated to
determine the causes of the difference. The recipient shall, in connection with the inventory,
verify the existence, current use, and continued need for the equipment. (4) A control system
shall be in effect to ensure adequate safeguards to prevent loss, damage, or theft of the
equipment. Any loss, damage, or theft of equipment shall be investigated and fully documented;
if the equipment was owned by the federal government, the recipient shall promptly notify HUD.

Federal regulations at 24 CFR 85.20 require the Commission’s financial management systems to
meet standards concerning financial reporting, accounting records, internal control, budget
control, allowable cost, source documentation, and cash management. The Commission is
required to maintain adequate records identifying the source and application of funds provided
for financially assisted activities.

Federal regulations at 24 CFR 85.20(b)(2) state that the financial management systems of other
grantees and subgrantees must meet the following standards regarding accounting records.
Grantees and subgrantees must maintain records, which adequately identify the source and

                                                  26
application of funds provided for financially assisted activities. These records must contain
information pertaining to grant or subgrant awards and authorizations, obligations, unobligated
balances, assets, liabilities, outlays or expenditures, and income.

Federal regulations at 24 CFR 85.20(b)(6) state that account records must be supported by such
source documentation as cancelled checks, paid bills, payrolls, time and attendance records,
contract and subgrant award documents, etc.

Federal regulations at 24 CFR 85.36(b)(3) state that grantees and subgrantees will maintain a
written code of standards of conduct governing the performance of their employees engaged in
the award and administration of contracts. No employee, officer, or agent of the grantee or
subgrantee shall participate in selection or in the award or administration of a contract supported
by federal funds if a conflict of interest, real or apparent, would be involved. Such a conflict
would arise when (i) the employee, officer, or agent; (ii) any member of his immediate family;
(iii) his or her partner; or (iv) an organization which employs or is about to employ any of the
above has a financial or other interest in the firm selected for award. The grantee’s or
subgrantee’s officers, employees, or agents will neither solicit nor accept gratuities, favors, or
anything of monetary value from contractors, potential contractors, or parties to subagreements.

Federal regulations at 24 CFR 85.36(b)(9) state that grantees and subgrantees will maintain
records sufficient to detail the significant history of a procurement. These records will include
but are not necessarily limited to the following: rationale for the method of procurement,
selection of contract type, contractor selection or rejection, and the basis for the contract price.

Federal regulations at 24 CFR 85.36(f)(1) require grantees and subgrantees to perform a cost or
price analysis in connection with every procurement action including contract modifications.
Additionally, a grantee is required to make independent estimates, as a starting point, before
receiving bids or proposals.

Office of Management and Budget Circular A-87, attachment A, subpart C, states that costs must
be reasonable and adequately documented.

Office of Management and Budget Circular A-87, attachment B, states that fines, penalties,
damages, and other settlements, resulting from violations (or alleged violations) of, or failure of
the governmental unit to comply with, federal, state, local, or Indian tribal laws and regulations
are unallowable except when incurred as a result of compliance with specific provisions of the
federal award or written instructions by the awarding agency authorizing in advance such
payments.

The Commission’s annual contributions contract, section 123, states that each construction or
equipment contract may provide for partial payments by the Commission to the contractor. In
such event, the construction or equipment contract shall provide that the contractor shall supply
to the Commission in a form satisfactory to the government, a detailed estimate showing a
complete breakdown of the contract price. Partial payment shall be made in accordance with
periodic estimates based upon said detailed breakdown and with appropriate supporting data.
The periodic estimates shall cover work performed (including materials delivered to and properly
stored on the site with the approval of the Commission) during the preceding period and shall be
duly certified and approved by persons designated by the Commission.

                                                  27
The Commission’s annual contributions contract, section 306.states the Commission must
comply with all applicable state and local laws when purchasing equipment, materials, and
supplies and in the award of contracts for services or for repairs, maintenance, and replacements.
The Commission has to make such purchases and award such contracts only to the lowest
responsible bidder after advertising a sufficient time previously for proposals with exceptions.

The Commission’s annual contributions contract, section 309, states the Commission must
maintain complete and accurate books of account and records to identify the source and
application of funds in such a manner as to allow HUD to determine that all funds have been
expended in accordance with each specific program regulation and requirement, and property
records must include an annual inventory of all equipment.

HUD Handbook 7460.8, REV-2, chapter 10.8, states that if a housing authority is still operating
under the “old” annual contributions contract, the term of a contract is limited to two years.
Section D of the handbook provides the option for the authority to extend the contract as long as
the authority documented in the contract file the following: fund availability; statement that the
option was included in and evaluated as part of the basic contract; a brief review of market prices
to justify price reasonableness, indicating whether the option is still economical for the authority;
and any other factors that support the authority’s decision to exercise the option.

The Commission’s inventory policies and procedures, section II-A, states that for nonexpendable
purchases, the items must be properly safeguarded against loss, damage, and improper use.
Whether the purchase is for nonexpendable or expendable items, the Commission shall take the
necessary steps to ensure that all items are properly identified, recorded, and assigned for proper
distribution to their final locale. Each nonexpendable item shall be logged into a separate record
called an “individual unit inventory sheet.” The inventory sheet shall show the assigned project
number, project type, address assigned, make and/or model of item, date of purchase, serial
number, vendor name, cost of item, and check number from the Commission’s accounting
records.

The Commission’s statement of procurement policy III, paragraph B(3), states that for purchases
greater than $5,000, the contracting officer shall solicit bids orally, by telephone, or in writing
from at least three suppliers if there are that number available in the locality. A file shall be kept
showing the tabulations of the solicitations made and the quotations received. Award shall be
made to the offeror providing the lowest acceptable quotation, unless justified in writing based
on price and other specified factors, such as for architect-engineering contracts. If nonprice
factors are used, they shall be disclosed to all those solicited. The names, addresses, and/or
telephone numbers of the offeror and persons contacted and the date and amount of each
quotation shall be recorded and maintained as a public record.

The Commission’s statement of procurement policy III, paragraph D(5), states that architectural-
engineering services may be obtained by either the competitive proposal or qualifications-based
selection procedures. Sealed bidding shall not be used to obtain architectural-engineering
services. Under qualifications-based selection procedures, competitors’ qualifications are
evaluated, and the most qualified competitor is selected, subject to the negations of fair and
reasonable compensation. This procedure shall not be used to purchase other types of services
even though architect-engineering firms are potential sources.



                                                  28
The Commission’s statement of procurement policy III, paragraphs E(2) and (3), state that each
procurement based on noncompetitive proposals shall be supported by a written justification for
using such procedures. The justification shall be approved in writing by the contracting officer,
and the reasonableness of the price for all procurements based on noncompetitive proposals shall
be determined by performing a cost price analysis.

The Commission’s statement of procurement policy III, paragraphs F(1)-(3), state that (1) cost or
price analysis shall be performed for all procurement actions, including contract modifications;
(2) if procurement is based on noncompetitive proposals, when only one offer is received, or for
other procurements as deemed necessary (e.g., when contracting for professional, consulting, or
architect-engineer services), the offeror shall be required to submit a cost breakdown showing
projected costs and profit, commercial pricing, and sales information to enable the commission
to verify the reasonableness of the product, and documentation showing that the offered price is
set by law or regulation; and (3) cost analysis shall be performed if an offeror/contractor is
required to submit a cost breakdown as part of its proposal.




                                               29
Appendix D

 HOUSEHOLD FILE REVIEWS – MISSING OR INCOMPLETE
 DOCUMENTATION MATERIAL TO ELIGIBILITY AND/OR
             CONTINUED OCCUPANCY

                Proof of                                           Meets
                income                                           financial
               eligibility                                          and
               and legal                                         behavior
                identity                Proof of                    and
               and meets     Proof of    Social    Criminal     suitability             Community   Program
   Household     family      citizen-   Security   activities       for       Consent     service   operating
    number     definition      ship     number     screening      tenancy      forms      related    subsidy
   02404 05         0            2          0           1             2           1          1         $3,156
   02728 02         0            0          0           1             2           0          1          3,156
   03214 07         0            0          0           1             1           0          1          3,156
   03219 02         0            0          0           1             2           0          1          3,156
   03402 09         0            0          0           1             2           0          1          3,156
   03404 02         0            0          0           1             2           0          1          3,156
   03508 04         0            1          0           1             2           1          1          3,156
   01106 04         4            0          4           1             2           1          6          4,755
   01108 01         7            5          0           0             0           9          8          4,755
   01112 03         2            4          1           2             2           1          6          4,509
   01113 04         0            0          0           1             2           0          2          4,755
   02706 03         3            4          4           1             2           3          3          4,755
   02708 05         0            0          0           2             2           0          3          4,755
   02709 03         0            0          0           1             2           2          2          4,755
   02711 02         0            3          0           1             2           3          4          4,755
   02717 02         0            0          0           0             2           1          3          4,755
   02720 04         0            1          0           2             2           2          3          4,755
   02729 02         5            2          6           6             0           8          9          4,755
   02730 04         0            6          0           2             2           4          4          4,755
   02731 04         0            0          0           1             2           3          3          4,755
   02739 03         1            0          0           1             2           3          3          4,755
   03108 06         0            0          0           1             0           1          3          4,755
   03201 03         0            1          0           1             0           0          2          4,755
   03204 02         0            1          0           1             1           0          2          4,509
   03215 03         0            0          0           1             2           0          1          1,865
   03224 02         0            0          0           1             1           0          1          1,865
   03307 04         0            1          0           1             2           1          3          4,755
   03310 04         0            1          1           1             2           1          2          4,755
   03317 04         0            1          0           1             2           1          2          4,755
   03321 01         2            1          0           1             0           1          2          4,755
   03405 02         0            1          0           1             1           0          2          4,263
   03419 03         0            1          0           1             1           0          4          4,755
   03420 02         0            1          0           1             2           2          2          4,755
   03421 06         0            1          0           1             2           0          3          4,755
   03504 01         0            1          0           1             2           0          2          4,755
   04204 03         1            1          0           1             0           1          2          4,755
    Totals         25           40         16          46            55          50         99      $153,223


Note: An “X” identifies the missing or incomplete documentation in the household’s file.




                                                        30