Issue Date
July 1, 2008
Audit Report Number
2008-LA-1012
TO: K.J. Brockington Director, Office of Public Housing, 9DPH
FROM: Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA
SUBJECT: The Housing Authority of the City of Calexico, Calexico, California, Did Not
Comply with Public Housing Program Rules and Regulations
HIGHLIGHTS
What We Audited and Why
We audited the Housing Authority of the City of Calexico (Authority) in response to a
request from the Office of Inspector General’s (OIG) Office of Investigation and the
Federal Bureau of Investigation (FBI). Our objective was to determine whether the
Authority complied with the U.S. Department of Housing and Urban Development’s
(HUD) rules and regulations with respect to its public housing program. Specifically, we
wanted to determine whether allegations brought forward from the Office of
Investigation and the FBI regarding the Authority’s improprieties with the 2003 purchase
of the 1230 and 1250 Second Street Apartments had merit. We wanted to determine
whether the Authority (1) used its public housing and Section 5(h) program funds to pay
for unauthorized activities or in a manner consistent with HUD rules, regulations, and
Authority policies and procedures; (2) provided replacement housing for the Section 5(h)
units it sold; (3) followed proper procurement procedures; (4) made eligible and
appropriately supported expenditures; (5) had an effective accounting system; and (6)
followed proper procedures with regard to tenant application processing.
What We Found
The Authority improperly used Section 5(h) program funds for the acquisition and
operation of the Second Street Apartments. In addition, it (1) did not provide
replacement housing for the 37 Section 5(h) units it sold, (2) incorrectly reported three of
the six grants reviewed as fully obligated in HUD’s electronic Line of Credit Control
System, (3) undertook force account activity without HUD’s written approval, and (4)
undertook five inappropriate procurement actions. The expenses we reviewed were
eligible and appropriately supported, no public housing funds were used to pay
unauthorized activities, the accounting system was effective, and the Authority followed
proper procedures with regard to tenant application processing.
What We Recommend
We recommend that HUD require the Authority to repay Section 5(h) program $174,044
from nonfederal sources for the inappropriate acquisition and operation of the Second
Street Apartments. Additionally, we recommend that HUD require the Authority to
create and implement a new timeline for replacement of the Section 5(h) units and if the
Authority does not follow this new timeline, recapture the $1.2 million available in its
program bank account as of January 2008. We also recommend that HUD's Los Angeles
Office of Public Housing require the Authority to recapture $247,101 in grant funds that
the Authority did not fully obligate by the required deadline for grant years 2001, 2003,
and 2005; require the Authority to provide supporting documentation for $827,756 in
unsupported procurement actions or repay HUD from nonfederal sources; and require the
Authority to repay HUD $184,588 from nonfederal sources for ineligible force account
labor costs.
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 Authority a draft report on May 20, 2008, and held an exit conference
with the Authority’s officials on May 30, 2008. The Authority provided written
comments on June 13, 2008. It partially agreed with our comments in the audit report but
had some explanatory comments.
The complete text of the auditee’s response, along with our evaluation of that response,
can be found in appendix B of this report. The exhibits are too voluminous to include in
this report. However, the documents are available upon request.
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TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding 1: The Authority Inappropriately Used $174,044 in Section 5(h) Program 6
Funds for the Acquisition of the Second Street Apartments
Finding 2: The Authority Did Not Provide Replacement Units for Units Sold 8
Finding 3: The Authority Incorrectly Reported Its Grants in the Electronic Line of 10
Credit Control System as Fully Obligated
Finding 4: The Authority Undertook a Force Account Activity without HUD’s 14
Written Approval
Finding 5: The Authority Did Not Follow Federal Requirements for Procurement 16
and Spent $1,012,344 on Unsupported and Ineligible Costs
Scope and Methodology 20
Internal Controls 21
Appendixes
A. Schedule of Questioned Costs and Funds to Be Put to Better Use 23
B. Auditee Comments and OIG’s Evaluation 24
C. Criteria 37
3
BACKGROUND AND OBJECTIVES
The Housing Authority of the City of Calexico (Authority) was established in 1945 under the
Housing Authority Law of the State of California. The Authority entered into its most recent
annual contributions contract with the U.S. Department of Housing and Urban Development
(HUD) on October 11, 2001. The Authority is governed by a board of commissioners (board)
made up of seven individuals who must be appointed. Currently the Authority does not have a
permanent executive director. Its last executive director’s employment was terminated in August
2007, and the Authority currently has its second interim executive director since the start of this
audit.
The Authority currently operates the following programs:
1. Public housing – 265 units; a combination of single-family homes, multiplexes, and a 98-
unit apartment building.
2. Housing Choice Voucher program – 244 vouchers.
3. Multifamily – Calexico Gardens; a two-story apartment building with 39 units.
We reviewed the Authority’s public housing program; however, our emphasis was on the capital
fund program. Specifically, we reviewed the program grants received between 2001 and 2005.
The table below shows the grants reviewed.
Capital fund program grants reviewed
Count Grant number Grant year Grant amount
1 CA16P03950101 2001 $739,301
2 CA16P03950102 2002 $554,657
3 CA16P03950103 2003 $544,936
4 CA16P03950203 2003 $115,097
5 CA16P03950104 2004 $668,822
6 CA16P03950105 2005 $578,189
Total $3,201,002
Section 5(h) Program
The Quality Housing and Work Responsibility Act permits public housing agencies, through
Section 32 of the United States Housing Act of 1937, to make public housing dwelling units
available for purchase by low-income families as their principal residences. Under Section 32, a
public housing agency may sell all or a portion of a public housing development to eligible low-
income applicants. These applicants may or may not be public housing residents. The Authority
participated in this program by selling single-family homes from its Casas del Sol development.
As of March 2008, the Authority had sold 37 of the 50 single-family homes in the Casas del Sol
development.
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Second Street Apartments
The Authority purchased the Second Street Apartments with the intention that they would be the
replacement housing for its Section 5(h) program Casas del Sol units that it sold to low-income
families. The Second Street Apartments are preexisting buildings located at 1230 Second Street
and 1250 Second Street. Each apartment building has two stories. The building at 1230 Second
Street contains 17 units, and the building at 1250 Second Street contains 14 units.
The Authority operated the property for eight months before the purchase as though it was an
approved public housing project and paid $168,257 in rents assigned to the former owner during
that time. The Authority’s board signed a resolution on September 9, 2004, stating that it
intended to borrow nearly $1.7 million from Federal Home Loans at 12.5 percent interest over
120 months with interest-only payments in the amount of $17,680 per month. The total purchase
price was $2.2 million. During the time the Authority operated these apartments, it paid at least
$380,080 for mortgage and other expenses. The property was sold in 2006 when the Authority
did not receive the anticipated tax credits or funding commitment. The sales price of the
property was $2.5 million.
Force Account Labor
Force account labor is defined as “labor employed directly by the PHA [public housing
authority] on either a permanent or a temporary basis” by 24 CFR [Code of Federal Regulations]
968.105. In this case, the Authority either used maintenance personnel already on the
Authority’s payroll to perform force account labor or employed individuals from a temporary
staffing agency.
Audit Objectives
Our objective was to determine whether the Authority complied with HUD’s rules and
regulations with respect to its public housing program. More specifically, we wanted to
determine whether allegations brought forward from the Office of Inspector General’s (OIG)
Office of Investigation and the Federal Bureau of Investigation (FBI) regarding the Authority’s
improprieties with the 2004 purchase of the 1230 and 1250 Second Street Apartments had merit.
We wanted to determine whether the Authority (1) used its public housing and Section 5(h)
program funds to pay for unauthorized activities or in a manner consistent with HUD rules,
regulations, and Authority policies and procedures; (2) provided replacement housing for the
Section 5(h) units it sold; (3) followed proper procurement procedures; (4) made eligible and
appropriately supported expenditures; (5) had an effective accounting system; and (6) followed
proper procedures with regard to tenant application processing.
5
RESULTS OF AUDIT
Finding 1: The Authority Inappropriately Used $174,044 in Section 5(h)
Program Funds for the Acquisition of the Second Street Apartments
The Authority inappropriately used $174,044 in Section 5(h) program funds from the sale of the
Casas del Sol homes for its purchase of the Second Street Apartments. This condition occurred
because its board did not ensure that the Authority obtained the required funding commitment
before its purchase and found that it could not afford to operate the project without this funding
commitment. Consequently, this inappropriate use diverted funds, which should have been used
to provide more affordable housing to the area’s low-income population.
The Authority Entered into a
Section 5(h) Implementing
Agreement
In May 2001, HUD and the Authority entered into a Section 5(h) implementing
agreement to participate in the Section 5(h) homeownership program for public housing,
which involved selling its Casas del Sol development. The objective of this program was
to allow public housing authorities to sell some housing inventory to residents and/or
other eligible low-income buyers. A stipulation of this agreement was that the
Authority’s board would be responsible for implementing the plan and for all phases of
any program developed under the plan.
Federal regulations at 24 CFR [Code of Federal Regulations] 906.16 state, “as a
condition for transfer of ownership under a HUD-approved homeownership plan, the
PHA [public housing authority] must obtain a funding commitment, from HUD or
another source, for the replacement of each of the dwellings to be sold under the plan.”
The Authority attempted to replace the units it sold with the purchase of the Second
Street Apartments. However, it did not receive approval from HUD for the purchase of
these two apartment buildings and did not receive the required funding commitment from
HUD or from any other source.
6
The Authority Used Ineligible
Section 5(h) Program Funds
Our review of the purchase of the Second Street Apartments found that the Authority
used $913,035 in Section 5(h) funds from the sales of the Casas del Sol homes for (1)
appraisals, (2) part of the downpayment, (3) operating and various other expenses, and
(4) repayment to its public housing program, all related to the Second Street Apartments.
To pay the operating expenses of the Second Street Apartments, the Authority obtained
funds from the project’s operating revenue as well as from Section 5(h) program funds.
Soon after the purchase, the Authority began defaulting on its $17,680 monthly mortgage
payments and eventually sold the property. This condition occurred because the
Authority’s board did not ensure that the Authority obtained the required funding
commitment before purchasing the property.
The Authority reimbursed the Section 5(h) account $543,550 with proceeds received
from the sale of the Second Street Apartments; $64,500 with funds remaining in the
Second Street Apartments’ bank account once the property had been sold; $69,906, a
reimbursement from its public housing program for an overpayment received; and
$61,035, a reimbursement to its public housing program for Section 5(h) Program
consulting expenses. Nonetheless, the purchase and operation of the Second Street
Apartments resulted in net ineligible costs to the Authority’s Section 5(h) program of
$174,044 ($913,035 - $738,991).
Recommendations
We recommend that HUD's Los Angeles Office of Public Housing require the Authority
to
1A. Repay its Section 5(h) program $174,044 from nonfederal sources for ineligible
expenses.
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Finding 2: The Authority Did Not Provide Replacement Units for Units
Sold
Between March 2004 and September 2006, the Authority sold 37 units from its Casas del Sol
public housing stock and did not provide the required replacement units. We attribute this
deficiency to a lack of leadership from the Authority’s board, which was responsible for
implementing the Authority’s Section 5(h) homeownership plan and for all phases of any
program developed under the plan. As a result, $1.2 million is available but restricted in an
Authority bank account, while more than 1,000 individuals or families remained on the
Authority’s waiting lists for housing.
The Authority Planned for
Replacement Units
The Authority planned for its purchase of the Second Street Apartments to satisfy its
requirement for replacement housing for the Casas del Sol units it sold through its
Section 5(h) homeownership program. However, the purchase was not approved by
HUD, and when the Authority began defaulting on its loan as the result of not being able
to obtain the required funding commitment, it sold the project.
The Authority next planned to build a senior housing complex near the river on an empty
lot that it already owned. This land was part of the original Casas del Sol project that the
Authority had not developed with single-family units because it thought the property
would be a good place for a one-bedroom apartment complex. The Authority had already
paid the $2,500 application fee to have the land rezoned. This process started in 2006
and was completed in July 2007. At its November 8, 2007, board meeting, the Authority
discussed building a senior housing project and determined that “the cost to build this
development is approximately $2.5 to $3 million.” It planned to ask HUD to approve the
project as replacement housing for units sold under the Casas del Sol development.
In October 2007, the financial director told us that the Authority realized that it had been
three years since the first sale in 2004. However, HUD had not given it a timeframe for
completing the process. In its draft to HUD of the Section 5(h) homeownership plan, the
Authority stated that it should take 10 years to complete, and HUD officials had the
Authority take the time limit out of the plan. The financial director also told us that the
Authority understood that there was no timeframe for replacement housing completion.
The implementing agreement entered into by HUD and the Authority states that the
Authority must obtain HUD approval to modify any of the provisions of the Casas del
Sol Section 5(h) plan, and the plan states that sales proceeds shall be obligated in a timely
fashion. In addition, in an attachment to its year 2000 plan, the Authority included a
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timeline for the entire process. This timeline was approved as part of the plan. The
Authority expected the sales process to take six months, ending with the lender approval.
However, this process took much longer than expected, with the Authority selling its first
house in March 2004 and its 37th house in September 2006, two and one-half years later.
In addition, as of March 2008, all the original 50 homes had not been sold.
Although the Authority submitted a revised plan to HUD that was approved in November
2005, the plan no longer had any information regarding the timing of the replacement
housing. A timetable is required by 24 [Code of Federal Regulations] 906.39(m). The
Authority also submitted a letter to HUD on November 8, 2007, stating that it was
submitting its proposal application for mixed finance operating subsidy on replacement
housing for the Section 5(h) units it had sold. However, it did not attach the proposal as
the letter stated and as of April 2008, had not submitted the proposal. Contrary to the
requirements of the implementing agreement entered into between the Authority and
HUD, the Authority did not obligate the sale proceeds from the Section 5(h) program in a
timely manner.
As a result, the Authority’s public housing waiting list for one-bedroom units as of
January 2007 had 283 names on it. However, since the Authority did not have many one-
bedroom units, many of these tenants were put into two-bedroom or three-bedroom units
that were available at the time. In addition, there are more than 1,000 individuals or
families on the Authority’s waiting lists. The Authority’s board should have worked with
HUD to modify the plan’s timeline to adjust for the delays. Therefore, HUD should
require the Authority to create and implement a new timeline for the completion of
replacement housing. If the Authority fails to meet this timeline, HUD should recapture
the sales proceeds collected thus far in accordance with the provisions of the Section 5(h)
implementing agreement. This would put funds totaling more than $1.2 million to better
use by either providing replacement housing or having HUD recapture the sales proceeds
and reprogram the funds rather than allowing the funds to sit idle in a bank account.
Recommendation
We recommend that HUD's Los Angeles Office of Public Housing
2A. Require the Authority to create and implement a new timeline for completing
replacement housing and if the Authority does not meet this timeline, with
exceptions for delays beyond the control of the Authority, recapture the
$1,210,852 available but restricted in the Section 5(h) program bank account as of
January 2008 and put these funds to better use.
9
Finding 3: The Authority Incorrectly Reported Its Grants in the
Electronic Line of Credit Control System as Fully Obligated
The Authority incorrectly reported in HUD’s electronic Line of Credit Control System three of
the six grants we reviewed as having been fully obligated by the obligation deadline. The
deficiency occurred because the Authority did not have policies and procedures in place for
processing electronic Line of Credit Control System obligations. We also attribute the
deficiency to the late start of the Authority’s procurement process. As a result, the Authority
received $247,101 for funding that was not obligated in a timely manner.
Obligations Must Be Made
within 24 Months of Receiving
Funds
The Quality Housing and Work Responsibility Act of 1998 (Act) states that a public
housing agency shall obligate any assistance received under this section not later than 24
months after the date on which the funds become available to the agency for
modernization purposes or the date on which the agency accumulates adequate funds to
undertake modernization, substantial rehabilitation, or new construction of units. In
addition, federal regulations at 24 CFR [Code of Federal Regulations] 905.120(b)(3)
state that this is material if more than 10 percent remains unobligated after the end of the
period (applicable only to fiscal year 2004 and later). Funds are obligated under a grant
when a contract is signed or in the case of force account activity, when the first penny is
spent on force account labor.
The Act also states that HUD has the right to recapture any obligation entered into by a
housing authority for a violation by the housing authority of the requirements of the Act.
This would include any failure of the housing authority to obligate funds in a timely
manner. Further, HUD’s Notice: Public and Indian Housing 2003-19 (Public Housing
Authorities) states, “any amounts made available under the public housing Capital Fund
for fiscal years 1999, 2000, 2001, 2002, or 2003 that remains unobligated in violation of
paragraphs (1) of such section 9(j)… the Secretary shall recapture any such amounts...”
This notice also states, “…the Appropriations Act [of 2003] requires HUD to recapture
any amounts not obligated or expended by the deadline. Since this change is statutory,
the Department has no authority to waive the implementation of this provision.”
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Funds Not Obligated
We reviewed a total of six capital fund program grants received by the Authority to
determine whether the funds were properly obligated in a timely manner. We determined
that grants received in 2001, 2003, and 2005 were not obligated within the required 24-
month timeframe as noted in the table below.
Obligation year Obligation
Grant number Grant amount Grant year (two years) requirements met
CA16P03950101 $739,301 2001 2003 No
CA16P03950102 $554,657 2002 2004 Yes
CA16P03950103 $544,936 2003 2005 No
CA16P03950203 $115,097 2003 2005 Yes
CA16P03950104 $668,822 2004 2006 Yes
CA16P03950105 $578,189 2005 2007 No
2001
In July 2001, the Authority received grant CA16P03950101. It had two contracts for
major work planned that were appropriately signed and dated by the obligation deadline
of June 30, 2003, using these grant funds. However, for other contracts paid with
funding from this grant, the contract date and/or the first force account labor activity
expense was dated more than six months after the obligation deadline. Supporting
documents showed that at least $69,310 of this grant was entered into HUD’s electronic
Line of Credit Control System as fully obligated when it was not.
2003
In September 2003, the Authority received grant CA16P03950103. It had purchase
orders and supporting invoices for three of its major work projects that were obligated by
the deadline of September 16, 2005. Two of these projects were obligated in August
2005, and the third one was obligated on September 15, 2005, one day before the
obligation deadline.
The Authority ultimately spent less than it had budgeted so it started another project from
its five-year plan. This is allowable by 24 CFR [Code of Federal Regulations] Part 968,
subpart C. However, this project used force account labor, and the first expense for the
project was dated September 2006, while the obligation deadline was September 2005.
Clearly, this project started one year after the obligation deadline; thus, the funds were
not truly obligated as the Authority claimed in HUD’s electronic Line of Credit Control
System. As a result, at least $134,660 was identified in HUD’s system as having been
fully obligated when it was not.
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2005
In August 2005, the Authority received grant CA16P03950105. As part of the
obligations for this grant, the Authority signed a contract for $329,960 in September
2007, after the obligation deadline. However, it incorrectly reported this grant as having
been fully obligated as of August 2007. HUD relies on the accuracy of the information
entered by public housing authorities to determine whether funds were obligated on time.
The Authority did not run its first advertisement for this contract until June 29, 2007, 22
months after receiving access to the grant funds, giving the Authority less than two
months to complete the procurement process. This contract totaled 57 percent of the
Authority’s total grant funds; therefore, the grant was not 90 percent obligated by the
Authority’s obligation deadline of August 17, 2007.
Unlike in earlier years, for fiscal year 2005, HUD’s Appropriations Act did not require
HUD to recapture capital funds that did not meet the obligation deadline. HUD identified
an alternative sanction in its Notice: Public and Indian Housing 2005-22 (Public Housing
Authorities) which states, “The Act and the regulation provide sanctions for PHAs
[public housing authorities] that do not obligate in a timely manner. Specifically, HUD is
to withhold a PHA’s next Capital Fund grant(s) until the PHA obligates 90 percent of its
past due grant. If the PHA cures its failure to comply with the obligation requirement
during the year, HUD will release the new Capital Fund grant(s). The penalty for
noncompliance will be to reduce the new Capital Fund grant(s) by 1/12 for every month
the PHA was in noncompliance.” As a result, if HUD had known that the Authority did
not obligate at least 90 percent of its grant by the deadline, HUD would have reduced the
Authority’s next grant funds received in 2007 and authorized a reduction of the $517,578
by 1/12th, or $43,131, for the one month that exceeded the 90 percent obligation
requirement.
Recommendations
We recommend that HUD's Los Angeles Office of Public Housing
3A. Recapture $247,101 in grant funds from the Authority for funding that was not
fully obligated by the required obligation deadline for grant years 2001, 2003, and
2005.
3B. Require the Authority to create and implement policies and procedures to ensure
that entries into HUD’s electronic Line of Credit Control System are correct
entries, and obligations are not entered before the funds are actually obligated.
3C. Require the Authority to provide copies of executed contracts, regardless of the
amount, to the Los Angeles field office as support for all future funds that the
Authority obligates.
12
3D. Require the Authority to begin its procurement process in a more timely manner,
allowing it more time to complete its procurement process and, thus, more
consistently meet its obligation deadlines.
13
Finding 4: The Authority Undertook a Force Account Activity without
HUD’s Written Approval
The Authority undertook a force account labor activity without receiving written permission
from HUD, as required. It did not obtain HUD’s permission because it incorrectly believed it
was a high performer and as such, was not required to obtain HUD’s permission. As a result, the
Authority inappropriately spent at least $12,830 on force account labor for the installation of air
conditioners.
Air Conditioner Installation
24 CFR [Code of Federal Regulations] 968.120 states, “a Public Housing Authority may
undertake the activities using force account labor, only where specifically approved by
HUD in the CIAP [comprehensive improvement assistance program] budget or CGP
[comprehensive grant program] Annual Statement, except no prior HUD approval is
required where the PHA [public housing agency] is designated as both an overall high
performer and Modernization high performer under the PHMAP [public housing
management assessment program].” In September 1998, this assessment system was
replaced with the public housing assessment system. The new assessment system was
effective for all public housing authorities with fiscal years ending on September 30,
1999, and after. One rule of the new assessment system was a requirement that a public
housing authority put force account labor (FA) by projects in its annual plan to indicate
that the project would be performed with force account labor. This would notify HUD of
the housing authority’s intentions. However, our review of the Authority’s 2001 and
2005 five-year plans covering years 1997-2005 determined that it never made this
indication.
The Authority undertook the installation of air conditioners at development 39-9 using
force account labor without approval from HUD or being designated as a high performer.
The air conditioners cost $47,472. They were properly procured and purchased in 2005,
while the labor was performed in 2006. However, the Authority was not designated as a
high performer in 2005 or 2006. Further, although the Authority stated that it asked for
the Los Angeles field office’s approval to do a force account project and was told that it
was a high performer and did not need HUD’s permission, it could not document this
discussion, which may have occurred during fiscal year 2003 or 2004 when the Authority
was designated a high performer. As a result, the Authority spent at least $64,386 on this
project, $12,830 of which was for force account labor, which HUD cannot be assured
was reasonable.
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Recommendations
We recommend that HUD's Los Angeles Office of Public Housing require the Authority
to
4A. Provide supporting documentation to show that $12,830 was reasonable for force
account work or repay HUD for undertaking an unapproved force account labor
activity.
4B. Obtain written approval from HUD for all future force account projects.
15
Finding 5: The Authority Did Not Follow Federal Requirements for
Procurement and Spent $1,012,344 on Unsupported and Ineligible Costs
The Authority did not comply with HUD’s rules and regulations for procurement. It undertook
five separate procurement activities without first preparing the required cost or price analysis.
This condition occurred because the Authority either ignored or did not understand federal law
and standards identified in 24 CFR [Code of Federal Regulations] 85.36 and ignored its own
policies for procurement. In addition, the executive director overrode procurement regulations
and policies. As a result, the Authority spent $1,012,344 in capital fund program funding on
unsupported or ineligible costs.
Lack of Cost/Price Estimates
Federal regulations at 24 CFR [Code of Federal Regulations] 85.36(f)(1) state, “grantees
and subgrantees must perform a cost or price analysis in connection with every
procurement action,” and the Authority’s procurement policy states, “a cost or price
analysis shall be performed for all procurement actions, including contract
modifications.” The Authority undertook at least 15 projects that involved either the
procurement of materials only or a combination of both materials and labor. Of these 15
projects, five (33-percent) lacked cost or price analyses. The modernization director said
that cost or price analyses were always prepared before bids were advertised; however, he
was unable to locate the missing cost or price analyses. As of April 2008, he had not
provided the missing documentation.
Unsupported Costs
Contract Activities
The Authority procured three major contracts for air conditioning replacement and
roofing work. Our review of Authority files showed the first contract was to replace the
air conditioning at developments 39-1 and 39-2. There was no cost or price analysis. As
a result, the Authority budgeted only $82,087 but the contract was awarded for $170,000.
The second contract was to replace the air conditioning and roofing at development 39-9.
Again, there was no cost or price analysis. As a result, the Authority budgeted only
$167,132, but the contract was awarded for $360,991. The third contract was to replace
the roofing at development 39-2. Again, there was no cost or price analysis. As a result,
the Authority budgeted only $95,000, but the contract was awarded for $217,000. With
all three contracts, the Authority underbudgeted the projects by more than 200 percent.
Cost estimates are important because without the price or cost analysis, it is difficult for
16
the Authority to reasonably budget for projects, and HUD cannot be assured that the
Authority received a fair or reasonable price for the materials and labor procured.
Force Account Labor Activities
The Authority undertook two activities in which it used force account labor and did not
first prepare cost or price analyses. The first activity was for painting. The Authority
advertised bids for painting services and only received one bid, which the Authority felt
was too high. It did not know whether this was a fair price since it did not have a cost or
price analysis. There were quotes in the file from various vendors for one can of paint
but no estimates regarding how many cans of paint, what additional materials, or how
much time and labor would be needed. Ultimately, the Authority spent at least $47,290
on this activity. However, because it did not keep complete records of force account
activities, we were unable to determine whether the force account activity included all
aspects included in the requests for proposal for painting services or whether the force
account services were more cost effective than services provided by a contractor.
The second activity was the replacement of 100 water heaters. The Authority spent
$32,475 on the purchase of the water heaters but did not have any rate quotations.
Further, the budget it prepared assumed that the water heaters would cost as much as
$90,000. As shown, rate quotations are important because without them it is difficult to
determine whether the Authority paid a fair and reasonable price for the materials it
procured or whether it was cost effective for these jobs to be undertaken with force
account labor. In addition, in instances in which the Authority did have a cost or price
analysis, only one included a date. Thus, HUD had no way to determine whether the
estimates were prepared before the procurement as required.
Procurement Procedures Not
Used
The Authority undertook a force account labor activity for concrete/exterior work at
development 39-3. A review of two folders labeled 39-3/Concrete and 39-3/Concrete
July ’04 revealed no evidence of bid advertisements or bids received for concrete or
exterior work for development 39-3. While this activity was included in the Authority’s
annual statement/performance and evaluation report, it did not have the force account
designation in parenthesis next to it as required. The Authority’s procurement policies
state “sealed bidding is the preferred method for construction procurement. For
procurements under the Capital Fund Program (CFP)/Comprehensive Grant Program
(CGP), sealed bidding shall be used for all construction and equipment contracts
exceeding the small purchase limitation.” However, the executive director abandoned
this policy and instructed the modernization director to move forward and undertake the
project as a force account labor activity. Overall, this development consisted of 50 units,
and the activity cost the Authority at least $184,588 ($80,039 for materials and $104,549
for labor), which is more than 200 percent more than the budgeted amount of $79,157.
17
Further, the Authority’s cost estimate was only for three of the fifty units and totaled
$9,068 (materials and labor) plus $1,200 for an eight-month portable restroom rental. As
a result, the executive director not only violated federal laws for procurement but also
ignored the Authority’s own procurement policies and procedures. The Authority also
believed the regulations stated that if it was in the best interest of the Authority, it could
move forward with a force account labor project. As a result, HUD cannot be assured
that the cost of this project was reasonable.
Cost/price analysis table
Cost/price
Grant Project Force analysis
Count number name account performed
1 CA16P03950101 Air conditioning work No No
projects 39-1 and 39-2
2 CA16P03950101 Roofing & air conditioning work No No
project 39-9
3 CA16P03950101 Dwelling improvements - paint Yes No*
project 39-7
4 CA16P03950101 Concrete mowstrips Yes No
project 39-9
5 CA16P03950102 Site dwelling improvements - roofing No No
project 39-2
6 CA16P03950102 Water heaters Yes No
project 39-3
7 CA16P03950102 Concrete/exterior work Yes Partial
project 39-3
8 CA16P03950103 Stove & refrigerators Yes Yes**
projects 39-1, 39-5 & 39-9
9 CA16P03950103 Air conditioning replacement Yes Yes**
project 39-9
10 CA16P03950104 Sewer lines Yes Yes**
project 39-2
11 CA16P03950104 Shut-off valves Yes Yes**
project 39-7
12 CA16P03950104 Restroom accessibility Yes Yes**
project 39-9
13 CA16P03950104 Water heater doors Yes Yes**
project 39-1
14 CA16P03950104 Kitchen cabinets Yes Yes**
project 39-3
15 CA16P03950105 Site improvements No Yes
project 39-2
* There are quotes for a one-gallon can of oil-based paint from three vendors but no estimates for
how many cans of paint needed, additional materials, or labor.
** Analysis does not have a date.
18
Conclusion
The Authority violated federal procurement requirements and its own procurement
policies for five procurement activities that required cost or price analysis and did not
follow other procurement procedures. This condition occurred because the executive
director ignored HUD rules and regulations and its procurement policies and procedures.
As a result, the Authority spent at least $827,756 without knowing whether the price was
reasonable. It also spent at least $184,588 on an activity for which it did not use the
required sealed-bid method of procurement for construction contracts.
Recommendations
We recommend that HUD's Los Angeles of Public Housing require the Authority to
5A. Provide supporting documentation for $827,756 or repay HUD from nonfederal
funds for unsupported procurement activities.
5B. Repay HUD $184,588 from nonfederal funds because the Authority did not use
the required sealed-bid method for a construction contract over the simplified
acquisition threshold.
5C. Follow HUD’s and its own procurement requirements by preparing cost or price
analyses before the Authority starts the procurement process for all future
projects.
5D. Follow HUD’s and its own procurement requirements by obtaining price or rate
quotes from an adequate number of qualified sources or bid advertisements for all
projects under the simplified acquisition threshold.
5E. Prepare justifications when force account labor is used for Authority projects and
include more detailed documentation in its records showing that this method of
providing the services is cost effective.
5F. Obtain written approval from HUD for all future force account projects.
19
SCOPE AND METHODOLOGY
We performed the audit between September 2007 and April 2008. The audit generally covered
the period January 2001 through June 2007. To accomplish our objectives, we reviewed the
effectiveness and efficiency of the Authority’s operations, determined the reliability of its
financial reporting, and reviewed its compliance with applicable laws and HUD regulations. Our
primary methodologies included
¾ Reviewing the Quality Housing and Work Responsibility Act of 1998; applicable HUD
regulations at 24 CFR [Code of Federal Regulations] Parts 85, 903, 906, 941, and 968;
and HUD Guidebook 7485.3 G.
¾ Interviewing appropriate HUD personnel and relevant grant files to obtain an
understanding of the public housing program requirements and identify HUD’s concerns
with the grantee’s operations.
¾ Reviewing the Authority’s policies, procedures, and practices in addition to interviewing
the Authority’s key personnel.
¾ Reviewing past OIG reports, independent public accountants’ reports, and prior HUD
monitoring reports.
¾ Reviewing bank statements, deposits, payment vouchers, and payroll.
¾ Reviewing tenant files, procurement files, general ledgers, and escrow documents.
Each of our tests conducted consisted of 100 percent of the universe since it was small.
Specifically, we reviewed all of the funding used for the acquisition and operation of the Second
Street Apartments. We also reviewed all the capital fund program grants received between 2001
and 2005. This review included all procurement contracts and force account labor activities.
Lastly, we reviewed all of the tenant files for tenants currently participating in the Authority’s
public housing or Section 8 programs who once lived in the Second Street Apartments.
We conducted our audit in accordance with generally accepted government auditing standards
and included tests of management controls that we considered necessary under the
circumstances.
20
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:
• Authority policies and procedures put in place to ensure that the Authority
follows Section 5(h) program requirements.
• Authority policies and procedures put in place to ensure that the Authority
follows public housing program regulations.
• Authority policies and procedures put in place to ensure that the Authority
complies with federal procurement requirements.
• Authority policies and procedures put in place to ensure that reliable data are
entered into HUD’s electronic Line of Credit Control System.
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.
21
Significant Weaknesses
Based on our review, we believe the following items are significant weaknesses:
• The Authority’s controls were not adequate to ensure that it complied with its
policies and procedures and Section 5(h) program policies for the use of
program funds (see findings 1 and 2).
• The Authority’s controls were not adequate to ensure that it complied with its
policies and procedures and public housing program regulations as established
by HUD (see findings 3 and 5).
• The Authority did not have policies and procedures in place to ensure that it
entered reliable data into HUD’s electronic Line of Credit Control System
(see finding 3).
• The Authority’s controls were not adequate to ensure that it complied with its
policies and procedures and federal and state regulations for procurement (see
findings 4 and 5).
22
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported Funds to be put
number 2/ to better use 3/
1A $174,044
2A $1,210,852
3A $247,101
4A $12,830
5A $827,756
5B $184,588
Total $605,733 $840,586 $1,210,852
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 to be put to better use are estimates of amounts that could
be used more efficiently if an OIG recommendation is implemented. The $1.2 million
comes from the money the Authority collected from 37 low-income families who
purchased a single-family home within the Casas del Sol development. The
implementation of our recommendation would put these funds to better use by either
providing replacement housing or having HUD recapture the sales proceeds and
reprogram the funds rather than allowing the funds to sit idle in a bank account.
23
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
24
Comment 1
Comment 2
Comment 3
Comment 4
Comment 8
Comment 4
Comment 5
Comment 6
Comment 7
Comment 8
25
Comment 5
Comment 6
Comment 9
Comment 10
26
Comment 10
Comment 11
Comment 12
27
Comment 13
28
Comment 14
Comment 15
Comment 16
29
30
OIG Evaluation of Auditee Comments
Comment 1 We agree that these costs were eligible 5(h) program expenses since these costs
were for consulting fees related to the Authority’s Section 5(h) implementing
agreement. We also agree that the $61,035.48 was paid out in 2001, thus it was
not related to the acquisition of the Second Street Apartments. Therefore, we
removed these questioned costs from the audit report.
Comment 2 We disagree. The Authority’s 5(h) Implementing Agreement and
Homeownership Plan was approved in May 2001. The 24 [Code of Federal
Regulations] 906.16 in effect at the time of the Authority’s approval, with a
revision date of April 1, 2001 states, “(a) Replacement requirement. As a
condition for transfer of ownership under a HUD-approved homeownership plan,
the PHA must obtain a funding commitment, from HUD or another source, for the
replacement of each of the dwellings to be sold under the plan. Replacement
housing may be provided by one or any combination of the following methods:
(1) Development by the PHA of additional public housing under 24 CFR
part 941 (by new construction or acquisition).
(2) rehabilitation of vacant public housing owned by the PHA.
(3) Use of five-year, tenant-based certificate or voucher assistance under
Section 8 of the Act.
(4) If the homeownership plan is submitted by the PHA for sale to
residents through an RMC, resident organization or cooperative
association which is otherwise eligible to participate under this part,
acquisition of nonpublicly-owned housing units, which the RMC, resident
organization or cooperative association will operate as rental housing,
comparable to public housing as to term of assistance, housing standards,
eligibility, and contribution to rent.
(5) Any other Federal, State, or local housing program that is comparable,
as to housing standards, eligibility and contribution to rent, to the
programs referred to in paragraphs (a) (1) through (a) (3) of this section,
and provides a term of assistance of not less than five years.”
By the Authority’s own admission, assistance was provided “for a period of
approximately 24 months”. Based on the information in bold up above, the
$300/unit that was subsidized by the Authority does not qualify.
Comment 3 We disagree. In addition to the criteria in Comment 2 above, the Implementation
Agreement states under definitions, “low-income families – This term has the
meaning ascribed to it in section 3 of the Act”. Also, the Implementation
Agreement states in Section 3.1, “The HA [housing authority] agrees that sale
proceeds shall be used only in accordance with the Plan, and the requirements and
provisions of this Agreement, and certifies that the Plan complies with 24 CFR
[Code of Federal Regulation] 906.15, governing the use of sales proceeds”. The
24 [Code of Federal Regulation] 906.15 states, “(a) General authority for use.
31
Sale proceeds may, after provision for sale and administrative costs that are
necessary and reasonable for carrying out the homeownership plan, be retained by
the PHA and used for housing assistance to low-income families (as such families
are defined under the Act”. The Quality Housing and Work Responsibility Act
states in Section 3 (5)(C)(b)(2) “When used in this Act: The term “low-income
families” means those families whose income does not exceed 80 per centum of
the median income for the area, as determined by the Secretary with adjustments
for smaller and larger families, except that that Secretary may establish income
ceilings higher or lower than 80 per centum of the median for the area on the basis
of the Secretary’s findings that such variations are necessary because of
prevailing levels of construction costs or unusually high or low family
incomes…”
Also, Section 3 (a)(1) of the Quality Housing and Work Responsibility Act states,
“Dwelling units assisted under this act shall be rented only to families who are
low-income at the time of their initial occupancy of such units. Reviews of
family income shall be made at least annually. Except as provided in paragraph
(2) and subject to the requirement under paragraph (3), a family shall pay as rent
for a dwelling unit assisted under this Act (other than a family under section 8(o)
or (y) or paying rent under section 8(c)(3)(B) the highest of the following
amounts, rounded to the nearest dollar….”
Comment 4 In addition to comment 3 above, the Authority did not provide us with files on all
of the tenants whose rents were subsidized $300 per month and we had no
evidence that reviews of family income was done at least annually. Additionally,
the Second Street Apartments were not units assisted under this Act. Finally,
many of the families who moved into the Second Street Apartments ultimately
had to move because of their inability to afford the $400 flat rate that they were
charged.
Comment 5 We disagree. The 24 [Code of Federal Regulations] 906.15 in effect at the time
of the Authority’s 5(h) Plan approval, with a revision date of April 1, 2001 states,
“(a) General authority for use. Sale proceeds may, after provision for sale and
administrative costs that are necessary and reasonable for carrying out the
homeownership plan, be retained by the PHA and used for housing assistance to
low-income families (as such families are defined under the Act)…” (b)
Permissible uses. Sale proceeds may be used for any one or more of the
following forms of housing assistance for low-income families, at the discretion
of the PHA and as stated in the HUD-approved homeownership plan: (3) In
connection with a State or local homeownership program for low-income
families, as described in the homeownership plan, for assistance to purchasers and
for reasonable planning and implementation costs. Under such programs, sales
proceeds may be used to construct or acquire additional dwellings for sale to low-
income families, or to assist such families in purchasing other dwellings from
public or private owners. (4) In connection with the PHA’s [Public Housing
Authority] other public housing that remains under ACC, for any purposes
32
authorized for the use of operating funds under the ACC and applicable
provisions of the Act and Federal regulations, as included in the HUD-approved
operating budgets. Examples include maintenance and modernization,
augmentation of operating reserves, protective services, and resident services.
Such use shall not result in the reduction of the operating subsidy otherwise
payable to the PHA under 24 CFR part 990”. (5) In connection with any other
type of Federal, State, or local housing program for low-income families, as
described in the homeownership plan.
The $174,043.52 that was absorbed by the 5(h) sales proceeds account, was not an
eligible activity based on both the 24 [Code of Federal Regulation] 906.15 and
the HUD-approved homeownership plan.
Comment 6 We disagree. The Authority stated in section 5.0 of its approved 5(h) Plan “…
The Authority will use these funds for two primary purposes, including (1) new
development replacement housing; and (2) Casas del Sol homebuyers’
assistance…” Section 5.1 states, “After using proceeds of sale to cover
homebuyer assistance needs and any necessary repairs to bring all units to
required standards, the Authority will use the balance of funds to facilitate the
development of replacement units, combining these funds with proceeds from the
sale of tax credits derived from the new development…”
The portion of the $174,043.52 that was absorbed by the 5(h) sales proceeds for
supplementing rents for tenants was not covered by the 5(h) Plan.
Comment 7 The Second Street Apartments does not qualify under the Quality Housing and
Work Responsibility Act, which states the following in Section 3, (5)(C)(b)(1)
“When used in this Act: The term “low-income housing” means decent, safe, and
sanitary housing, and all necessary appurtenances thereto, assisted under this Act
other than under Section 8. The term “public housing” includes dwelling units in
a mixed finance project that are assisted by a public housing agency with capital
or operating assistance”. Therefore, it was not an eligible activity.
Comment 8 We disagree. Section 3 (2)(B)(i) of the Quality Housing and Work Responsibility
Act states the following in regards to Flat Rents, “Allowable Rent Structures. –
Flat Rents. – Except as otherwise provided under this clause, each public housing
agency shall establish, for each dwelling unit in public housing owned or operated
by the agency, a flat rental amount for the dwelling unit, which shall (I) be based
on the rental value of the unit, as determined by the public housing agency; and
(II) be designed in accordance with subparagraph (D) so that the rent structures do
not create a disincentive for continued residency in public housing by families
who are attempting to become economically self-sufficient through employment
or who have attained a level of self-sufficiency though their own efforts.
The rental amount for a dwelling unit shall be considered to comply with the
requirements of this clause if such amount does not exceed the actual monthly
33
costs to the public housing agency attributable to providing and operating the
dwelling unit. The preceding sentence may not be construed to require
establishment of rental amounts equal to or based on operating costs or to prevent
public housing agencies from developing flat rents required under this clause in
any other matter that may comply with this clause”.
In this case, the rent structure did create a disincentive for continued residency at
the Second Street Apartments because the OIG determined many of the tenants
moved out due to their inability to afford the flat rate charged.
Comment 9 We disagree. While the Authority may have been told by the Special
Applications Center in Chicago “proceeds from the sale can be used for
replacement units at the PHA’s discretion”, the 5(h) Implementing Agreement
signed by the Authority states in Section 3.3, “ The HA shall obligate sales
proceeds in a timely fashion, in accordance with the project implementation
schedule set forth in the Plan”. Therefore, the Authority should have provided the
required replacement units. Also see Comments 5 and 6.
Comment 10 We disagree with the Authority and contend that the funds should be recaptured.
Notice: PIH [Public and Indian Housing] 2003-19 (PHA) [Public Housing
Authority] (9)(A) states, “The HUD FY 2003 Appropriations Act was signed on
February 20, 2003. The Appropriations Act provides new requirements with
regard to funds not obligated by the deadline. Specifically, the Appropriations
Act provides that:
Notice: PIH [Public and Indian Housing] 2003-19 (PHA) [Public Housing
Authority] (9)(A) also states, “any amounts made available under the public
housing Capital Fund for fiscal years 1999, 2000, 2001, 2002, or 2003 that remain
unobligated in violation of paragraphs (1) of such section 9(j) or unexpended in
violation of paragraph (5)(A) of such section 9(j), the Secretary shall recapture
any such amounts…” This Notice specifically says any amounts that remain
unobligated will be recaptured.
In addition, the auditee was still in the process of establishing and implementing
its new procedures; thus, we were unable to review them and determine their
adequacy during our audit fieldwork.
Comment 11 In this case, the Authority did not inform the Field Office (FO) and therefore, a
revised obligation end date was not entered into the Line of Credit Control
System. Additionally, no post-review by the field office was conducted in order
to determine if Authority had the continuing capacity to carry out its
Comprehensive Plan in a timely manner. Furthermore, HUD had the right to take
other appropriate actions.
The HUD handbook 7485.3G Chapter 6-10 Part III Implementation Schedule
states, “No Prior HUD Approval. The HA may extend the target dates for fund
34
obligation or expenditure in the approved Annual Statement without prior HUD
approval whenever any delay outside of the HA's control occurs. Where the HA
revises its implementation schedule, the HA shall inform the FO so that the FO
may enter a revised Obligation End Date in LOCCS. Such revision is subject to
post-review by the FO in determining whether the HA has a continuing capacity
to carry out its Comprehensive Plan in a timely manner (see paragraph 12-8). In
addition, HUD may take other appropriate action as set forth in paragraph 12-9.
Examples of delay outside of the HA's control include:
a. Need to use unobligated funds which are left over after
completion of all planned work under an Annual
Statement for additional work included in the Five-Year
Action Plan;
b. Unforeseen delays in contracting or contract
administration, such as the need to rebid due to no bids
received or bids received over budget, hidden conditions,
etc;
c. Litigation, where approved by HUD; and
d. HUD or other institutional delay, excluding delay by the HA itself (i.e.,
HA staff, Executive Director or Board of Commissioners)”.
Also, see Comment 10.
Comment 12 As discussed at the exit conference, we view the date the contract was executed as
the obligation date, not the date the Board of Commissioners agreed to the
contract. Additionally, while the Board of Commissioners may have met and
discussed this contract on August 16, 2007 the minutes state, the attorney
“announced that at the time of the bid submission the lowest bidder failed to
submit certificates required. He has reviewed the information and he is satisfied
to award the contract to the lowest bidder, 3D Construction with the condition that
he submits the required documents by no later than 1:00 PM, if not able to comply
to proceed and award contract to the second lowest bidder whish is Trademark
Construction after the deductive.” Clearly, by the close of this Board meeting, the
Authority had neither a contractor nor a signed contract.
Comment 13 We acknowledge that the Authority submitted a cost estimate based on the
HomeTech Remodeling and Renovation Cost Estimator/California/2005.
However, this estimate was not prepared until after the fact, in June 2008.
Additionally, according to 24 [Code of Federal Regulations] 85.36(f)(1),
independent estimates are supposed to be made before the bids or proposals are
received. Therefore, if the Authority cannot show it performed these estimates
before the bids were received, the costs would become questioned. Any estimate
performed in 2008, or after-the-fact is not acceptable.
35
Comment 14 The OIG reviewed the contracts submitted in exhibits “F” through “J” during the
audit, therefore, the OIG’s comments were about the lack of price or cost
estimates. We acknowledge that the Authority submitted cost estimates based on
the HomeTech Remodeling and Renovation Cost Estimator/California/2005.
However, these estimates were not prepared until after the fact, in June 2008.
Also, see Comment 13.
Comment 15 We agree that based on the Authority’s prepared cost estimates that were done
after the fact, in June 2008, the actual expenses appear to be less than the cost
estimates. However, 2005 costs were used to estimate the cost of work contracted
in 2002, 2003, and 2004. In addition, as stated in Comment 13, independent
estimates are supposed to be made before the bids or proposals are received.
Therefore, if the Authority cannot show it performed these estimates before the
bids were received, the costs would become questioned. Any estimate performed
in 2008, or after-the-fact is not acceptable. Also, see Comment 10.
Comment 16 After reviewing the newly prepared cost estimates, we disagree that the estimated
amount is more than 80 percent of the $184,588 that the Authority spent.
Actually, this cost estimate of $224,550 is only about 18 percent (($224,550 -
$184,588)/$224,550) more than what the Authority actually spent. In addition,
the auditee was still in the process of establishing and implementing its new
procedures; thus, we were unable to review them and determine their adequacy
during our audit fieldwork. Also, see Comment 10.
36
Appendix C
CRITERIA
1. Quality Housing and Work Responsibility Act of 1998, Section 32(a) (42 United
States Code 1437g(j)(1)), states, “a public housing agency may carry out a
homeownership program in accordance with this section and the public housing agency
plan of the agency to make public housing projects available for purchase by low-income
families for use only as principal residences for such families. An agency may transfer a
unit pursuant to a homeownership program only if the program is authorized under this
section and approved by the Secretary.”
2. Quality Housing and Work Responsibility Act of 1998, Section 32(b) (42 United
States Code 1437g(j)(1)), states, “a program under this section may cover any existing
public housing dwelling units or projects, and may include other dwelling units and
housing owned, assisted, or operated by the public housing agency.”
3. Quality Housing and Work Responsibility Act of 1998, Section 32(c) (42 United
States Code 1437g(j)(1)), states, “only low-income families assisted by a public housing
agency, other low-income families, and entities formed to facilitate such sales by
purchasing housing under a homeownership program under this section.”
4. 24 CFR [Code of Federal Regulations] 968.105 states, “Force account labor. Labor
employed directly by the PHA [public housing authority] on either a permanent or a
temporary basis.”
5. Section 5(h) Implementing Agreement, section (3.1), states, “the HA [housing
authority] agrees that sale proceeds shall be used only in accordance with the Plan, and
the requirements and provisions of this Agreement, and certifies that the Plan complies
with 24 CFR 906.15, governing the use of sale proceeds.”
6. Quality Housing and Work Responsibility Act of 1998, Section 32(j) (42 United
States Code 1437z-4(a)), states, “the net proceeds of any sales under a homeownership
program under this section remaining after payment of all costs of the sale shall be used
for purposes relating to low-income housing and in accordance with the public housing
agency plan of the agency carrying out the program.”
7. Section 5(h) Implementing Agreement, section (3.5), states, “the HA’s Board of
Commissioners shall be responsible for implementing the Plan and ensuring that sale
proceeds are used in accordance with the requirements of this Agreement. The Board of
Commissioners also shall be responsible for all phases of any program developed under
the Plan.”
8. 24 CFR [Code of Federal Regulations] 906.16(a) states, “Replacement requirement. As
a condition for transfer of ownership under a HUD-approved homeownership plan, the
PHA must obtain a funding commitment, from HUD or another source, for the
37
replacement of each of the dwellings to be sold under the plan. Replacement housing
may be provided by one or any combination of the following methods…”
9. Annual Contributions Contract, section (9)(C), states, “the HA shall maintain records
that identify the source and application of funds in such a manner as to allow HUD to
determine that all funds are and have been expended in accordance with each specific
program regulation and requirement. The HA may withdraw funds from the General
Fund only for: (1) the payment of the costs of development and operation of the projects
under the ACC [annual contributions contract] with HUD; (2) the purchase of investment
securities as approved by HUD; and (3) such other purposes as maybe specifically
approved by HUD. Program funds are not fungible; withdrawals shall not be made for a
specific program in excess of the funds available on deposit for that program.”
10. Annual Contributions Contract, section (10)(C), states, “the HA shall not withdraw
from any of the funds or accounts authorized under this section amounts for the projects
under ACC, or for the other projects or enterprises, in excess of the amount then on
deposit in respect thereto.”
11. 24 CFR [Code of Federal Regulations] 906.19 states, “Upon HUD notification to the
PHA that the homeownership plan is approvable (in final form that satisfies all applicable
requirements of this part), the PHA and HUD will execute a written implementing
agreement, in a form prescribed by HUD, to evidence HUD approval and authorization
for implementation. The plan itself, as approved by HUD, shall be incorporated in the
implementing agreement. Any of the items of supporting documentation may also be
incorporated, if agreeable to the PHA and HUD. The PHA shall be obligated to carry out
the approved homeownership plan and other provisions of the implementing agreement
without modification, except with written approval by HUD.”
12. 24 CFR [Code of Federal Regulations] 906.20 states, “The homeownership plan must
address the following matters, as applicable to the particular factual situation:
(n) An estimated timetable for the major steps required to carry out the plan.”
13. Quality Housing and Work Responsibility Act of 1998 (42 United States Code
1437g(j)(1)) states, “Except as provided in paragraph (4) and subject to paragraph (2), a
public housing agency shall obligate any assistance received under this section not later
than 24 months after, as applicable—
(A) The date on which the funds become available to the agency for obligation in the
case of modernization; or
(B) The date on which the agency accumulates adequate funds to undertake
modernization, substantial rehabilitation, or new construction of units.”
14. Quality Housing and Work Responsibility Act of 1998 (42 United States Code
1437g(j)(6)) states, “Right of Recapture. Any obligation entered into by a public housing
38
agency shall be subject to the right of the Secretary to recapture the obligated amounts for
violation by the public housing agency of the requirements of this subsection.”
15. 24 CFR [Code of Federal Regulations] 905.120(b)(3) states, “Disregard of minimal
unobligated amounts. HUD will disregard the requirements of paragraph (a) of this
section with respect to any unobligated amounts made available to a PHA, to the extent
that the total of such amounts does not exceed 10 percent of the original amount made
available to the PHA.”
16. Notice: PIH [Public and Indian Housing] 2003-19 (PHA) [Public Housing
Authority] (9)(A) states, “any amounts made available under the public housing Capital
Fund for fiscal years 1999, 2000, 2001, 2002, or 2003 that remain unobligated in
violation of paragraphs (1) of such section 9(j) or unexpended in violation of paragraph
(5)(A) of such section 9(j), the Secretary shall recapture any such amounts…”
17. Notice: PIH [Public and Indian Housing] 2005-22(11) states, “the Act and the
regulation provide sanctions for PHAs that do not obligate in a timely manner.
Specifically, HUD is to withhold a PHA’s next Capital Fund grant(s) until the PHA
obligates 90 percent of its past due grant. If the PHA cures its failure to comply with the
obligation requirement during the year, HUD will release the new Capital Fund grant(s).
The penalty for noncompliance will be to reduce the new Capital Fund grant(s) by 1/12
for every month the PHA was in noncompliance.”
18. 24 CFR [Code of Federal Regulations] 968.305 states, “fungibility is a concept which
permits a PHA to substitute any work item from the latest approved Five-Year Action
Plan to any previously approved CIAP [comprehensive improvement assistance program]
budget or CGP [comprehensive grant program] Annual Statement and to move work
items among approved budgets without prior HUD approval.”
19. 24 CFR [Code of Federal Regulations] 968.120(a) states, “for both CIAP and CGP, a
PHA may undertake the activities using force account labor, only where specifically
approved by HUD in the CIAP budget or CGP Annual Statement, except no prior HUD
approval is required where the PHA is designated as both an overall high performer and
Modernization high performer under the PHMAP [public housing management
assessment program].”
20. 24 CFR [Code of Federal Regulations] 902.67(a)(1) states, “a PHA that achieves a
score of at least 60 percent of the points available under each of the four PHAS [public
housing assessment system] Indicators (addressed in subparts B through E of this part)
and achieves an overall PHAS score of 90 percent or greater of the total available points
under PHAS shall be designated a high performer.”
21. 24 CFR [Code of Federal Regulations] 902.67(a)(2) states, “a PHA shall not be
designated a high performer if it scores below the threshold established for any
indicator.”
39
22. 24 CFR [Code of Federal Regulations] 85.36(b)(1) states, “grantees and subgrantees
will use their own procurement procedures which reflect applicable State and local laws
and regulations, provided that the procurements conform to applicable Federal law and
the standards identified in this section.”
23. 24 CFR [Code of Federal Regulations] 85.36(b)(9) states, “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.”
24. 24 CFR [Code of Federal Regulations] 85.36(c)(1) states, “all procurement transactions
will be conducted in a manner providing full and open competition consistent with the
standards of Sec. 85.36.”
25. 24 CFR [Code of Federal Regulations] 85.36(d)(1) states, “procurement by small
purchase procedures. Small purchase procedures are those relatively simple and informal
procurement methods for securing services, supplies, or other property that do not cost
more than the simplified acquisition threshold fixed at 41 U.S.C. 403(11) (currently set at
$100,000). If small purchase procedures are used, price or rate quotations shall be
obtained from an adequate number of qualified sources.”
26. 24 CFR [Code of Federal Regulations] 85.36(f)(1), states, “grantees and subgrantees
must perform a cost or price analysis in connection with every procurement action
including contract modifications. The method and degree of analysis is dependent on the
facts surrounding the particular procurement situation, but as a starting point, grantees
must make independent estimates before receiving bids or proposals. A cost analysis
must be performed when the offeror is required to submit the elements of his estimated
cost, e.g., under professional, consulting, and architectural engineering services contracts.
A cost analysis will be necessary when adequate price competition is lacking, and for
sole source procurements, including contract modifications or change orders, unless price
reasonableness can be established on the basis of a catalog or market price of a
commercial product sold in substantial quantities to the general public or based on prices
set by law or regulation. A price analysis will be used in all other instances to determine
the reasonableness of the proposed contract price.”
40
The Housing Authority of the City of Calexico, Calexico, California, Did Not Comply with Public Housing Program Rules and Regulations
Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-07-01.
Below is a raw (and likely hideous) rendition of the original report. (PDF)