Issue Date
March 18, 2008
Audit Report Number
2008-DE-1002
TO: Carol Ann Roman, Director, Denver Office of Public Housing, 8APH
//signed//
FROM: Ronald J. Hosking, Regional Inspector General for Audit, 8AGA
SUBJECT: The Housing Authority of the City of Brighton, Colorado, Did Not Maintain
Proper Inventory Records and Improperly Awarded Contracts
HIGHLIGHTS
What We Audited and Why
We audited the Housing Authority of the City of Brighton, Colorado (Authority)
in response to a complaint alleging that it did not have an inventory control
system and that it used poor procurement practices.
Our audit objectives were to determine whether the Authority had an adequate
inventory control system and whether it performed contracting activities in
accordance with federal procurement requirements.
What We Found
The Authority did not have complete and accurate inventory records of its fixed
assets. It also violated federal procurement requirements while awarding two
service contracts worth approximately $52,000.
What We Recommend
We recommend that the Denver Office of Public Housing require the Authority to
perform a complete physical inventory of its fixed assets, develop and implement
inventory control procedures, and properly train its procurement staff.
For each recommendation without a management decision, please respond and
provide status reports in accordance with HUD Handbook 2000.06, REV-3.
Please furnish us copies of any correspondence or directives issued because of the
audit.
Auditee’s Response
We provided the discussion draft of the audit report to the Authority on February
20, 2008, and requested its comments by March 10, 2008. The Authority did not
provide a written response but did verbally concur with the findings. Denver’s
Office of Public and Indian Housing provided us with its proposed management
decisions on March 14, 2008. We concurred with the proposed management
decisions.
2
TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: The Authority Did Not Maintain Complete and Accurate Inventory 5
Records of Its Fixed Assets
Finding 2: The Authority Improperly Awarded Two Service Contracts 7
Scope and Methodology 9
Internal Controls 10
3
BACKGROUND AND OBJECTIVES
The Housing Authority of the City of Brighton, Colorado (Authority) was organized under the
Housing Authorities Law of the State of Colorado on September 17, 1968, to provide low rent
housing for qualified individuals. To accomplish this purpose, the Authority has entered into
annual contributions contracts with the U.S. Department of Housing and Urban Development
(HUD) since May 22, 1970 to be the administrator of its public housing program. In addition,
the Authority initiated its HUD certificate program on February 1, 1982, which was superseded
by its HUD housing choice voucher program on September 1, 1999. The mission of the
Authority is to provide Brighton, Colorado with quality affordable housing that is decent, well
maintained, and free from drugs and violent crime. The Authority is located at 22 South 4th
Avenue, Brighton, Colorado.
As of October 1, 2007, the Authority administered 44 public housing units and 212 Section 8
units. According to its 2004, 2005, and 2006 audited financial statements, HUD awarded the
Authority more than $93,000, $77,000, and $78,000 respectively for its public housing program.
In addition, HUD awarded more than $1.5 million, $1.4 million, and $1.4 million respectively
during those years for its Section 8 Housing Choice Voucher program.
The objectives of our audit were to determine whether the Authority had an adequate inventory
control system and whether it performed contracting activities in accordance with federal
procurement requirements.
4
RESULTS OF AUDIT
Finding 1: The Authority Did Not Maintain Complete and Accurate
Inventory Records of Its Fixed Assets
The Authority did not have complete and accurate inventory records of its fixed assets. This
condition occurred because there were no inventory control procedures in place directing the
Authority to conduct a periodic physical inventory of its fixed assets. As a result, it had limited
assurance that it needed the fixed assets on hand and used them only for official housing
authority activities.
Regulations and Guidance
Require the Authority to
Account for Its Fixed Assets
The Authority’s inventory records of its fixed assets were incomplete and
inaccurate. The only records it maintained were files with original receipts,
warranty documentation, and depreciation schedules. In addition, the Authority
did not complete a physical inventory of its fixed assets between 1999 and 2007
in violation of 24 CFR [Code of Federal Regulations] Part 85 which requires that
effective control and accountability be maintained over cash, real and personal
property, and all other assets. In addition, guidance issued by the Office of
Management and Budget requires the Authority to be responsible for the efficient
and effective administration of federal grant funds through the application of
sound management practices.
The Authority Had No
Inventory Control Policy or
Procedures
The Authority did not have an inventory control policy that included procedures
for accounting for, controlling, and safeguarding its fixed assets. There were no
inventory control procedures in place directing the Authority to conduct a
periodic physical inventory of its fixed assets. These factors contributed to the
Authority not having completed a physical inventory of its fixed assets in more
than eight years.
5
The Authority Had No
Assurance That It Needed the
Fixed Assets on Hand
The Authority had no assurance that it needed the fixed assets on hand and used
them only for official housing authority activities. The physical inventory records
did not provide sufficient information for management to make informed fixed
asset acquisition decisions.
Recommendations
We recommend that the Denver Office of Public Housing Director require the
Authority to
1A. Perform a complete physical inventory of its fixed assets.
1B. Develop and implement inventory control procedures to ensure that
it conducts regular physical inventories of its fixed assets, maintains
complete inventory records, and responsibly manages its fixed
assets.
We recommend that the Denver Office of Public Housing Director
1C. Perform a post monitoring review of the Authority’s inventory
control procedures to ensure that management took actions necessary
to account for its fixed assets.
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Finding 2: The Authority Improperly Awarded Two Service Contracts
The Housing Authority of the City of Brighton, Colorado (Authority) violated federal
procurement requirements while awarding two service contracts worth approximately $52,000.
This violation occurred because housing staff did not receive adequate procurement training. As
a result, the Authority had no assurance that it received the best price for the legal and fee
accounting services provided.
The Authority Violated Federal
Procurement Requirements
During our audit period, September 1, 2004 through August 31, 2007, the
Authority incurred about $52,000 in legal and fee accounting costs. It violated 24
CFR [Code of Federal Regulations] Part 85 when it awarded the fee accounting
services contracts and paid for legal services.
The Authority paid more than $44,000 from its public housing operating account
for legal services without completing an independent cost estimate before
receiving quotes for those services. It did not perform a cost analysis after
receiving quotes for the legal services. The Authority also paid more than $7,000
from its public housing operating account for fee accounting services without
completing an independent cost estimate, receiving quotes, or performing a cost
analysis. In addition, the Authority did not justify in writing why it was
appropriate to award the fee accounting services contracts noncompetitively after
it issued the first contract.
Housing Staff Did Not Receive
Adequate Procurement
Training
The executive director performed the majority of the procurement activities. He
had not received any procurement training in 10 years. In addition, the
procurement training he did receive related to the financing of land acquisition
and building construction rather than HUD procurement requirements. As a
result, he did not know he was suppose to follow HUD requirements for the
independent cost estimates, the cost analysis requirement, or the written
justification requirement for all contracts awarded noncompetitively.
7
The Authority Had No Assurance
That It Received the Best Price for
the Services Provided
The Authority had no assurance that it received the best price for the legal and fee
accounting services provided. The independent cost estimates give the Authority
a fair market value basis for evaluating incoming proposals. The cost analysis
ensures that the proposed price is reasonable for the services provided. In these
cases, the Authority had no way of identifying the fair price concerning labor,
indirect costs, and profits proposed.
Recommendations
We recommend that the Denver Office of Public Housing Director
2A. Require the Authority to train its contracting staff in HUD
procurement procedures.
2B. Perform a post monitoring review of the Authority’s procurement
function to ensure that management took actions necessary to train
its contracting staff and that the Authority complies with federal
procurement requirements.
8
SCOPE AND METHODOLOGY
Our review period covered September 1, 2004, through August 31, 2007. We performed our on-site
review at the Authority from September through December 2007.
In July 2007, we received a complaint with five allegations and two issues of concern. The five
allegations were
1. Nepotism in hiring the nephew of the executive director and the son of the occupancy director
2. Financial irregularities in awarding a loan to an employee
3. Conflict of interest in awarding a fencing contract to an Authority Board of Commissioners
member
4. No legal services contract and
5. Poor procurement practices resulting in the loss of a Community Development Block Grant
(CDBG).
The two issues of concern were
1. No inventory control system and
2. Lack of inventory records.
We found the issue of concern related to no inventory control system to be valid as discussed in
finding 1. We also found the allegation related to no legal services contract to be valid as
discussed in finding 2. Concerning the allegation of nepotism, we found that the Authority
became aware of and was resolving the situation prior to us starting our audit. We found no
evidence to substantiate the remaining three allegations and the second issue of concern.
To accomplish our objectives, we obtained and reviewed applicable procurement requirements,
regulations, and sections of the annual contributions contract between HUD and the Authority. We
reviewed vendor files, contract files, general ledgers, employee files, and audited financial
statements maintained by the Authority. We conducted interviews with the Authority’s acting
executive director, director of operations, and director of occupancy. In addition, we interviewed
the public trust specialist assigned to Adams County, Colorado (County) in the HUD Office of
Community Planning and Development (CPD) related to the CDBG allegation. We also reviewed
documentation in CPD’s project files for the County.
We performed our review in accordance with generally accepted government auditing standards.
9
INTERNAL CONTROLS
Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:
• Effectiveness and efficiency of operations,
• Reliability of financial reporting, and
• Compliance with applicable laws and regulations.
Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined the following internal controls were relevant to our audit objectives:
• The Authority’s policies and procedures for inventory activities.
• The Authority’s policies and procedures for procurement activities.
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 Authority had no written procedures for conducting physical
inventories of its fixed assets (finding 1).
• Management lacked controls to ensure that it implemented its written
contract award procedures properly (finding 2).
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The Housing Authority of the City of Brighton, Colorado, Did Not Maintain Proper Inventory Records and Improperly Awarded Contracts
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-03-18.
Below is a raw (and likely hideous) rendition of the original report. (PDF)