oversight

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)

                                                                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.




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                           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




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                     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.




                                              6
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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