oversight

HUD Could Not Demonstrate That Its Receivership Improved the Housing Authority of New Orleans' Performance

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-04-08.

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

                                                                Issue Date
                                                                         April 8, 2009
                                                                Audit Report Number
                                                                             2009-AO-0003




TO:        Deborah Hernandez, Deputy Assistant Secretary, Office of Field Operations, PQ


FROM:      Rose Capalungan, Regional Inspector General for Audit, New Orleans, Gulf
             Coast Region, GAH

SUBJECT: HUD Could Not Demonstrate That Its Receivership Improved the Housing
           Authority of New Orleans’ Performance


                                   HIGHLIGHTS

 What We Audited and Why

             At the request of two United States senators, we initiated an audit of the U.S.
             Department of Housing and Urban Development’s (HUD) administration of the
             Housing Authority of New Orleans (Authority) to determine the effect of HUD’s
             receivership on the Authority’s performance. Specifically, we wanted to
             determine whether HUD had taken action to improve the Authority’s post-
             Hurricane Katrina performance while under HUD receivership by determining
             whether HUD had an adequate recovery plan to return the Authority to local
             control and adequately monitored the Authority while under receivership. This
             report is the third and final of three reports to be issued regarding HUD’s
             management of the Authority.

 What We Found


             HUD could not demonstrate that its receivership improved the Authority’s
             performance following Hurricane Katrina because it did not establish a clear
             chain of command for the receivership or require periodic reporting after it took
             over the Authority in 2002. HUD did not properly monitor the Authority or, until

                                             1
           recently, ensure that the receivers had an adequate recovery plan. Further, it was
           unclear how HUD intended to guide the Authority while under receivership after
           the last formal memorandum of agreement expired in 2003.

What We Recommend


           We recommend that the Deputy Assistant Secretary, Office of Field Operations,
           establish an organizational structure for receivership that outlines responsible
           officials and their duties and appoint a monitoring team, independent of the
           receiver, to ensure that the Authority progresses toward local control. In addition,
           the Deputy Assistant Secretary should have the monitoring team consistently
           review and verify documentation pertaining to the Authority’s progress and
           ensure that the Authority meets the target dates in the strategic improvement plan
           that it implemented in July 2008.

           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 a copy of the draft report to the Deputy Assistant Secretary, Office
           of Field Operations on February 20, 2009 for official comments and discussed the
           report with her at an exit conference held on February 26, 2009. She provided a
           written response on March 25, 2009.

           The Deputy Assistant Secretary generally agreed with the findings and provided
           documentation to support that the current receivership has implemented some of
           the recommendations. We reviewed the documentation and made changes to the
           report as appropriate.

           With the exception of the supporting documentation, the complete text of the
           auditee’s response, along with our evaluation of that response, can be found in
           appendix A of this report.




                                            2
                           TABLE OF CONTENTS

Background and Objective                                                        4

Results of Audit
      Finding 1: HUD Could Not Demonstrate That Its Receivership Improved the   6
                 Authority’s Post-Hurricane Katrina Performance


Scope and Methodology                                                           14

Internal Controls                                                               15

Follow-up on Prior Audits                                                       16

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                     18
   B. List of Agreements between HUD and the Authority                          25




                                           3
                                 BACKGROUND AND OBJECTIVE

The Housing Authority of New Orleans (Authority) is a state-created public agency governed by
a board of commissioners. The Authority’s mission is to provide safe, sanitary, and affordable
housing for low-income residents in the New Orleans, Louisiana, area. Although its primary
goal is to provide housing, the Authority also provides programs to empower residents to
become self-sufficient by providing social services, education, job training, and employment
opportunities.

Since its establishment, the Authority has had a history of management problems. The U.S.
Department of Housing and Urban Development (HUD) declared the Authority in substantial
default of its annual contributions contract on February 8, 1996 and entered into a cooperative
endeavor agreement with the City of New Orleans (City) to correct the problems. Under this
prior agreement, HUD required the City to dissolve the Authority’s board of commissioners and
chose a HUD representative as executive monitor to oversee the Authority’s progress in
implementing improvements.

In 2001, HUD Office of Inspector General (OIG) audits reported that the Authority continued to
have problems in its management operations, despite the cooperative endeavor agreement. In
addition, the audits showed that the Authority did not properly procure services and expend its
funds. In 2002, after the Authority had made little progress, HUD terminated the cooperative
endeavor agreement and placed a team of HUD officials, an appointed board of commissioners
and an administrative receiver (receiver), in complete control of the Authority’s management and
operations.1 The receiver replaced the Authority’s executive director to control the day-to-day
operations of the Authority, and HUD’s one-member board of commissioners replaced the
Authority’s board of commissioners for reviewing and approving policies, procedures, and
contracts. Since 2002, there have been four board appointees and eight receivers.

In 2007, HUD’s Office of Receivership Oversight organized the receivership process into five
phases to restore public housing agencies in administrative receivership or in substantial default
of their annual contributions contract to successful and sustainable operation. The five phases
are explained in detail below.

     •     Phase 1 - situation assessment. HUD determines the extent of the public housing
           agency’s problems and continuously performs situation assessments throughout the
           receivership to monitor the progress of the public housing agency’s recovery.

     •     Phase 2 - stabilization. HUD focuses on addressing critical issues that might impede a
           complete recovery while maintaining current operations and program delivery.

     •     Phase 3 - recovery plan development. HUD develops a detailed plan to cure the
           deficiencies that led to the receivership and reposition the public housing agency for

1
 According to HUD’s February 21,2002 notice to the mayor of New Orleans, the receivership would “…continue until HUD is satisfied that all
defaults with respect to the projects have been cured, and that the projects will…be operated in accordance with (the Authority’s agreement with
HUD and with federal regulations)...”




                                                                       4
          rapid recovery and sustainable improvement. The recovery plan should address deep-
          seated problems investigated during the situation assessment phase.

     •    Phase 4 - recovery plan implementation. HUD implements the recovery plan by

                o Improving the operational structure and financial condition of the agency;
                o Allocating and integrating human, physical, systems, financial, and managerial
                  resources to expedite recovery;
                o Recruiting experienced managers to fill key vacancies; and
                o Providing specialized assistance or training to the agency and its staff.

     •    Phase 5 - transition to local control/sustainability. HUD transitions the agency out of
          administrative receivership and back to local control. HUD will have trained and
          appointed a nonvoting advisory board which would convert to a fully governing board of
          commissioners for the public housing agency upon termination of the receivership.
          Before HUD grants local control, the public housing agency’s management and its
          advisory board must exhibit evidence of normal and professional operations.

The Authority continued to suffer from poor performance before Hurricane Katrina and after
HUD took control through the receivers. The Authority’s poor performance was based upon
scores from the Public Housing Assessment System (PHAS)2 and independent auditor reports.
In 2005, its last PHAS reporting period, and while under HUD control, the Authority received an
overall performance rating of “troubled,” the lowest rating available. Further, our recent audits
found that the Authority had significant problems in its housing, contracting, and financial
operations.3

Our audit objective was to determine whether HUD had taken action to improve the Authority’s
post-Hurricane Katrina performance while under HUD receivership by determining whether
HUD had an adequate recovery plan to return the Authority to local control and whether HUD
adequately monitored the Authority while under receivership.




2
  PHAS is a HUD management tool conducted by the Real Estate Assessment Center to measure the performance of a public housing agency in
four areas: physical condition of its properties, its financial conditions, its management operations, and resident service and satisfaction
feedback.
3
  See 2009-AO-0001 and 2009-AO-0002 in the Follow-up on Prior Audits section of this report.




                                                                      5
                                                  RESULTS OF AUDIT

Finding 1: HUD Could Not Demonstrate That Its Receivership
           Improved the Authority’s Post-Hurricane Katrina
           Performance

HUD managers could not show that the receivership improved the Authority’s performance both
before and after Hurricane Katrina because HUD did not structure or monitor the receivership
properly and did not maintain adequate documentation. HUD managers could not provide evidence
of an initial assessment of the Authority to determine exactly what problems needed to be corrected
or any critical issues that might impede a successful recovery. HUD did not perform continuous
reassessments of the Authority’s performance to determine whether there was any improvement
under the receivership and waived two of its most useful tools for evaluating the Authority’s
housing performance. Further, HUD set the receivership up without a clear chain of command,
failed to properly monitor the receivership, and did not have a long-term recovery plan during much
of the receivership. As a result, HUD lacked information necessary to fully assess the Authority’s
progress in addressing its problems and make an informed decision about when to return the
Authority to local control or whether the Authority would operate effectively and efficiently if it
returns to local control.



    HUD Placed the Authority
    Under Receivership


                       In February 1996 and June 2000, HUD executed cooperative endeavor agreements
                       with the Authority and the City outlining plans to aid the Authority in its recovery.
                       In December 2000, HUD and the City amended the cooperative endeavor agreement
                       to extend it until December 2003. In February 2002, however, HUD terminated the
                       cooperative endeavor agreement in accordance with federal regulations,4 declaring
                       the Authority to be in substantial default of its annual contributions contract.5 HUD
                       placed the Authority under receivership because it decided that the Authority’s
                       recovery needed greater HUD involvement. Consequently, a memorandum of
                       agreement was executed between HUD and the Authority to correct conditions at the
                       Authority that jeopardized its low-income and Section 8 housing programs.


4
  According to 42 U.S.C. (United States Code) 1437d(g)2, HUD has the authority to reconvey possession of the public housing agency in terms
of the annual contributions contract as soon as practicable, which is either (1) after HUD is satisfied that all defaults have been cured and that the
project will, thereafter, be operated in accordance with the terms of the contract or (2) after the termination to make annual contributions available
unless there are any covenants or obligations to HUD which are then in default.
5
  Upon occurrence of substantial default of the annual contributions contract, the Authority shall convey to HUD title to the projects as demanded
by HUD or deliver possession and control of the projects to HUD. If HUD acquires title to or possession of the projects, it shall deliver a notice
of substantial default and provide a specific timeframe within which the Authority is to cure the substantial default, taking into consideration the
nature of the default.




                                                                          6
                      Between February 2002 and April 2008, HUD appointed eight receivers, three of
                      them after Hurricane Katrina. The tenure of the first two post-Hurricane Katrina
                      receiver appointees was eight and nine months, respectively, while the current
                      receiver has been in office since October 2007.


    In Phase 1, HUD Did Not Have
    Evidence to Support Its
    Assessment of the Authority’s
    Condition



                      HUD did not properly plan the receivership because it did not perform an initial
                      assessment of the Authority’s condition or continuous assessments after the receiver
                      took over. In phase 1 of the recovery process, the receiver should have assessed the
                      Authority’s condition, which would have established an inventory of the Authority’s
                      problems. Although there was a February 2002 decision to terminate the
                      cooperative endeavor agreement and/or execution of the August 2002 memorandum
                      of agreement, HUD did not provide initial assessments of the Authority’s operations
                      before or after the agreements were executed.

                      The initial assessment would have provided the details needed to identify problems
                      with the Authority’s operations. The assessment would have been an inventory of
                      problems that would have provided the receiver with a road map of the management
                      areas in need of improvement and would have provided the foundation for
                      documenting improvements through periodic reports. The initial assessment results
                      would have also provided insight into the Authority’s downward trend in its PHAS
                      scores, which were 68 in 2002, 66 in 2003, and 59 in 20046. However, HUD could
                      not provide an initial assessment, nor could it provide an assessment of the
                      Authority’s condition at the expiration of the memorandum of agreement in
                      December 2003. Because there were no assessments, there were no periodic reports
                      to show how the receivers corrected problems that the assessments would have
                      identified.

                      The lack of assessments and reports continued after Hurricane Katrina. If HUD’s
                      receiver had performed an initial assessment in phase 1, that assessment would have
                      had to have been significantly revised due to the Hurricane Katrina disaster on
                      August 29, 2005. However, neither HUD headquarters nor the receiver could
                      provide evidence to show that it reassessed or performed continuous assessment of
                      the Authority’s condition after Hurricane Katrina.




6
 According to 24 Code of Federal Regulations part 902.67, PHAS scores less than 60 generally indicate an agency is troubled, the lowest
available designation. Scores between 60 and 89 generally indicate a standard performer. Scores above 90 indicate a high performer.




                                                                      7
                     Further, HUD limited its ability to detect problems with the Authority’s operations
                     following Hurricane Katrina by not conducting PHAS7 and Section Eight
                     Management Assessment Program (SEMAP)8 reviews. The receiver discontinued
                     the PHAS and SEMAP reviews because in October 2005, HUD issued waivers to all
                     housing agencies affected by the hurricane, authorizing them to suspend the
                     administrative process and focus on reestablishing operations. The receiver’s
                     decision to suspend the reviews in 2005 and 2006 was understandable, but from
                     fiscal year 2007 forward, the lack of performance reviews undermined the receiver’s
                     ability to understand the Authority’s operating problems and initiate corrective
                     actions.

                     From 2002 through 2008, the receivers could not provide documents to support
                     periodic assessments of the Authority’s problems. At a minimum, the receiver
                     needed documentation of the initial problem inventory and periodic assessments
                     starting in 2007 to demonstrate that the receiver was aware of the problems and the
                     changing nature of the problems to effectively and efficiently implement subsequent
                     phases.

    In Phase 2, HUD Had Little
    Evidence Showing Its
    Determination of the Critical
    Issues



                     According to the five-phase model, the Authority needed in phase 2 to address
                     critical issues that might impede a complete recovery, while maintaining current
                     operations and program delivery. The five-phase model lists nine critical areas in
                     which adjustments may be needed. The critical areas are (1) governance, (2)
                     organization and staffing, (3) finance, (4) procurement and contract management,
                     (5) property management, (6) resident relations, (7) capital funds and
                     development, (8) security, and (9) information technology.

                     The current receiver explained that before Hurricane Katrina, the Authority was
                     mostly involved in redevelopment, while after the hurricane, it was mostly
                     involved in recovery efforts such as asset recovery and rehousing displaced
                     Hurricane Katrina victims. The prior receiver confirmed that his priorities
                     included providing housing to displaced public housing tenants who wanted to
                     return after the hurricane and redevelopment. However, neither receiver could
                     provide documents to support these assertions. Again, at a minimum, one would

7
  PHAS is a HUD management tool conducted by the Real Estate Assessment Center to measure the performance of a public housing agency in
four areas: physical condition of its properties, its financial conditions, its management operations, and resident service and satisfaction
feedback.
8
  SEMAP is a HUD management tool for public housing agencies that administer the Housing Choice Voucher program. SEMAP measures 14
key areas and helps HUD target assistance to those areas that need the most assistance. After HUD took control of the Authority in 2002, the
SEMAP performance increased from a “poor performer” (the lowest performance level) in 2002 to a “high performer” (the highest performance
level) in 2005.




                                                                      8
expect a schedule of planned activities and monthly reports related to the planned
achievements.

HUD provided little evidence to confirm or identify which of the nine critical
areas it determined to be critical issues that needed to be stabilized at the
Authority. However, the current receiver provided the following:

•   The Authority’s physical asset recovery plan was dated November 2006 and
    focused on rehabilitation. However, it was incomplete, referring to several
    appendixes that were missing. Also, the plan contained a blank space in place
    of the number of units to be constructed on the Lafitte site. According to the
    plan, the Authority’s post-Hurricane Katrina goals were to provide
    approximately 3,000 public housing units in mixed-income communities,
    including rental and homeowner units, and improve living conditions and
    housing choice to New Orleans’ low-income families. Therefore, the plan
    entailed repairing and reoccupying approximately 2,200 housing units that
    were damaged by the storm, completing the construction of 205 units at two
    sites that was begun before the storm, constructing 329 units at eight sites
    using 2006 Gulf Opportunities Zone tax credits, and constructing
    approximately 2,100 additional units using 2007-2008 Gulf Opportunities
    Zone tax credits. Since the Authority’s physical asset recovery plan’s focus
    was repair and reoccupancy, it did not address other critical issues. Further,
    the receiver did not provide progress reports or other documentation showing
    that the plan had been implemented.

•   A contractor developed three draft plans for HUD, but they dealt with the
    impending conversion to asset management. These plans were the conversion
    to asset management, financial, and personnel plans. The draft plan for
    conversion to asset management included steps to restructure the Authority for
    asset management. The draft financial plan included the financial aspects of
    the Authority after Hurricane Katrina under an asset management model
    required by the Public Housing Operating Fund rules (24 CFR (Code of
    Federal Regulations) Part 990), the approach to be used in developing
    operating budgets for the Authority’s projects, the central office cost center,
    and the Authority’s Housing Choice Voucher program. The draft personnel
    plan included an initial staffing assessment that would complement the draft
    organizational design for the Authority, summary job descriptions, skill
    requirements, and salary ranges for key positions within the organization
    when the contractor estimated that the Authority would be returned to local
    control in 2011. The focus of these three draft asset management-related
    plans was restructuring the Authority and planning for the financial aspects of
    asset management. Therefore, none of these three draft plans addressed other
    critical issues. Further, the receiver did not provide progress reports or other
    documentation showing that these plans had been implemented.




                                 9
                    •    The only plan that addresses most of the critical issues is the strategic
                         improvement plan that the current receiver implemented in July 2008. The
                         plan includes eight of the nine critical issues in the five-phase model. The
                         only missing critical issue is capital funds and development. The plan lays out
                         six strategic priorities, with each priority having one or more corresponding
                         work plans designed to correct the Authority’s performance and return it to
                         local control by 2011. The work plans target the critical issues and the
                         specific tasks in the work plans that are to be completed from 2008 through
                         2011. Therefore, the strategic improvement plan has not been in effect long
                         enough for us to determine its outcomes or reasonably evaluate whether its
                         steps will cure the Authority’s deficiencies or move the Authority closer to
                         local control.

    In Phase 3, HUD Did Not Have
    Evidence of a Long-Term
    Recovery Plan


                    Neither HUD, its receivers, nor the Authority could provide documentation of an
                    overall plan, before July 2008, to aid the Authority’s return to local control. HUD
                    managers stated that they placed responsibility on each receiver to develop his or
                    her own recovery plan for the Authority, which would aid the Authority in its
                    progression. The extent of HUD headquarters involvement in developing these
                    plans was not documented.

                    Therefore, each receiver should have established a documented recovery plan.
                    However, after the memorandum of agreement ended in 2003, there were only
                    two recovery plans identified, the physical asset recovery plan and the strategic
                    improvement plan9 discussed above. The following is a timeline of the
                    Authority’s recovery plans.

                         •   From August 2002 to December 2003, HUD and the Authority executed
                             the memorandum of agreement. The agreement included performance
                             targets, strategic plans, and technical assistance to be provided by HUD to
                             improve the Authority’s performance.

                         •   For the period January 2004 to November 2006, neither HUD nor the
                             Authority could provide a plan.

                         •   In 2006, the Authority developed the physical asset recovery plan
                             summarized in phase 2 above.

                         •   In April 2008, HUD, the Authority, and the City executed a cooperative
                             endeavor agreement, which called for the creation of a plan, within six

9
    The terms “strategic improvement plan” and “recovery plan” are used interchangeably throughout the report.



                                                          10
                  months of the agreement, for transition of the Authority to local control.
                  The agreement ended on December 31, 2008, and resulted in the strategic
                  improvement plan, which provided for returning the Authority to local
                  control by 2011.

              •   In July 2008, the receiver implemented the strategic improvement plan
                  summarized in phase 2 above.

          During most of the receivership, there was no documented recovery plan which
          covered all aspects of the Authority’s condition. The current strategic
          improvement plan was not implemented until after we began our audit in April
          2008.


In Phase 4, HUD Did Not
Properly Set Up or Monitor the
Receivership


          HUD did not properly monitor or control the receivership at the Authority.
          During much of the time that the receivership was in existence, it was apparent
          that HUD had not established a clear operating structure and reporting chain of
          command. This condition is evidenced by the lack of documents to support the
          receivership’s actions and results in improving operations at the Authority.

          According to interviews with HUD staff, until April 2008, the former Secretary of
          HUD and some of his executive staff were intermittently involved with the
          receivership. However, due to a lack of documentation, we could not evaluate the
          extent of their involvement in the recovery of the Authority or how their
          involvement was coordinated with the Assistant Secretary’s oversight and the
          receivers.

          Because HUD did not establish a clear structure for the receivership, it was
          unclear how it intended to guide the Authority while under receivership after the
          memorandum of agreement ended in 2003. For example, after Hurricane Katrina,
          HUD continued to appoint HUD employees as the Authority’s receiver and/or
          board of commissioners via delegations of authority. According to the
          delegations, the appointees were to report to the Assistant Secretary for Public
          and Indian Housing; however, the delegations did not explain the frequency,
          format, and/or content of such reports. The receivers provided two written reports
          for the period January 2006 through October 2007. One of the reports, dated June
          23, 2006, was a memorandum from a prior receiver to HUD’s Assistant Secretary
          for Public and Indian Housing. The memorandum contained a brief summary of
          activities in each of the Authority’s departments. It was informal, lacked detailed
          information, and did not provide a clear picture of the Authority’s progress in its




                                           11
recovery. For example, the memorandum did not discuss the number of public
housing, disaster voucher, or housing choice voucher units planned or occupied.

The second report was an informal, undated document with more specific
information, but there were no markings to show who sent it or to whom it was
sent. The Authority did not begin providing consistent written monthly status
reports to HUD concerning progress until November 2007, after the current
receiver was in place. The reports included, among other things, (1) the status of
development at select sites; (2) staffing issues; (3) progress in completing public
housing units, including occupancy and number of units ready and nearly ready;
(4) the number of Housing Choice Voucher program and Disaster Voucher
program units leased; and (5) required actions pending in HUD headquarters.
These reports contained more information than prior reports.

In addition to regular status reporting, under the current receiver, the Authority
made some progress toward a return to local control during the recovery plan
implementation phase. However, much remains to be accomplished; specifically,

   •   The July 2008 strategic improvement plan addressed ongoing issues at the
       Authority, including housing operations, contracting and compliance, and
       financial management issues, and suggested goals and deadlines for
       improving such functions. However, the results of our audits performed in
       2008 show that the Authority still needed to address serious deficiencies in
       its operations, such as the quality of housing operations, the accuracy of
       financial reporting, ensuring proper contract administration, and ensuring
       that payments for goods and services were properly authorized (see
       Follow-up on Prior Audits section of this report). Further, the Authority
       had not corrected internal control weaknesses in its vendor payments that
       its independent auditors identified from 2002 through 2007. The
       Authority must address these deficiencies to ensure that its recovery
       efforts are sustainable when it returns to local control.

   •   The Authority had downsized its maintenance staff because it contracted
       maintenance functions as part of its conversion to asset management and
       because it did not need as many maintenance staff after Hurricane Katrina
       damaged or destroyed a large part of its public housing stock. The
       Authority had hired a general counsel and director of administrative
       services. It had not, however, selected a chief financial officer or an
       executive director. These are critical positions that the Authority should
       fill as soon as possible.

   •   The Authority had identified a new management information system, but
       it did not expect to begin processing all of its financial and Housing
       Choice Voucher program transactions using the new system until March
       2009.




                                 12
 Transition to Local Control
 Remains Uncertain

            Whether HUD will meet its deadline of 2011 for transitioning the Authority to
            local control and whether the Authority will be able to operate effectively and
            efficiently after the transition remain uncertain. HUD had not properly set up the
            receivership with a clear chain of command, required an immediate plan for
            improving the Authority’s operations to cure the deficiencies that led to the
            receivership, or assigned someone to monitor the Authority’s and the receiver’s
            progress at the beginning of the receivership. Consequently, progress had been
            slow in returning the Authority to local control following the setback of
            Hurricane Katrina. HUD had done none of these things until recently and further
            limited its ability to evaluate conditions at the Authority by waiving the PHAS
            and SEMAP requirements and not requiring regular reporting of accomplishment
            of goals. HUD lacked information necessary to fully assess the Authority’s
            progress in addressing its problems and make an informed decision about the
            continuation of HUD control.

Recommendations
           We recommend that the Deputy Assistant Secretary, Office of Field Operations,

           1A.     Establish a clear organizational structure regarding the Authority’s
                   receivership, which outlines responsible HUD headquarters officials as
                   well as responsibilities of receivers and the board of commissioners.

           1B.     Appoint a monitoring team, independent of the receiver, to ensure that the
                   Authority progresses toward local control.

           1C.     For all receiverships, establish a method to document involvement of all
                   HUD offices outside the Office Public and Indian Housing.

           1D.     Require the receiver to establish specific management milestones and
                   submit documentation concerning the Authority’s progress in achieving
                   those milestones to the appointed monitoring team and have the
                   monitoring team consistently review and verify such documentation.

           1E.     Ensure that the Authority meets the target dates in the strategic
                   improvement plan implemented in July 2008; documents the reviews of
                   activities; and justifies the changes or actions related to the target
                   activities.

           1F.     Train management staff to ensure they are capable of working with
                   troubled housing agencies and developing housing projects.



                                            13
                      SCOPE AND METHODOLOGY

We conducted our audit at the Authority and the HUD OIG office in New Orleans, Louisiana.
We performed our audit work between April and November 2008.

To accomplish our objectives, we reviewed available status, progress, annual, and quarterly
reports and other relevant documents provided to HUD by the Authority. We also obtained
available contracts between the Authority and HUD, delegations of authority from the Office of
Public and Indian Housing, PHAS and SEMAP scores from HUD’s Office of Public and Indian
Housing Information Center system, etc.

During the audit, we interviewed various senior HUD and Authority officials and other HUD
and/or Authority staff. We also reviewed the Authority’s annual contributions contract, the
applicable federal regulations, Federal Register waivers, independent auditor reports, and other
documentation relevant to the Authority’s receivership.

Our audit period covered January 1, 2006, through April 30, 2008. We expanded this period as
necessary to determine the information available since 2002, the beginning of the current
receivership arrangement. We conducted the audit in accordance with generally accepted
government auditing standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objective.




                                               14
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are 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. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls
              We determined that the following internal control was relevant to our audit
              objective:

                  •   Compliance with laws and regulations - Policies and procedures that
                      management has implemented to reasonably ensure that the Authority’s
                      receivership is consistent with HUD’s laws and regulations.

              We assessed the relevant control 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 that the following items are significant weaknesses:

              •       HUD did not maintain sufficient documentation to evaluate the
                      receivership’s progress (finding 1).

              •       HUD did not properly structure the receivership with a clear chain of
                      command or monitor its progress in returning to local control (finding 1).




                                               15
                       FOLLOW-UP ON PRIOR AUDITS

This audit report is the third and final OIG audit report issued at the request of the two United
States senators, regarding HUD’s oversight of the Authority while under receivership. Our first
and second audit reports, issued on December 12, 2008, and January 29, 2009, respectively, are
discussed below.


 Report Number: 2009-AO-0001


               HUD OIG audit report 2009-AO-0001 showed that HUD’s receiver did not
               provide adequate management oversight to ensure that the Authority complied
               with HUD’s requirements when operating its voucher program and public housing
               operations. Specifically, HUD’s receiver (1) did not ensure that eight of ten
               randomly selected voucher program units complied with HUD’s housing quality
               standards; (2) did not ensure that six of nine public housing units were in good
               repair; and (3) did not ensure that the Authority used a rent reasonableness system
               to avoid excessive payments to landlords, properly calculated or paid voucher
               program tenant rents, and maintained a proper waiting list for its Section 8
               program.

               We recommended that the Deputy Assistant Secretary, Office of Field Operations,
               require the receiver to ensure that the Authority conducts not only annual inspections
               on all of its voucher program units but also all of the supervisory quality control
               inspections required by its administrative plan, implements an inspection process to
               routinely review the physical condition of public housing units to ensure compliance
               with HUD’s requirements, develops and implements a method for assessing rent
               reasonableness to owners, properly calculates and pays rental assistance, and
               maintains a proper waiting list that complies with HUD’s requirements for its
               Section 8 applicants. The recommendations were still open at the time of this report.


Report Number: 2009-AO-0002


               HUD OIG audit report 2009-AO-0002 showed that HUD’s receiver did not provide
               adequate management oversight to ensure that the Authority properly (1) accounted
               for fungibility funds, (2) monitored and paid its contractors, and (3) disbursed its
               accounts payable.

               The report cited a total of $7.5 million in questioned costs. We recommended that
               the Deputy Assistant Secretary, Office of Field Operations, require the receiver to
               ensure that the Authority provides support for or repays more than $5.1 million in
               unsupported costs, repays $2.4 million in ineligible costs, develops and



                                                16
implements the appropriate controls to ensure that accounts payable
disbursements are properly documented and receive proper authorization to
safeguard the accounts payable funding, and requires the Authority to provide an
accurate report including all eligible fungibility funds expensed in its 2006 annual
report. The recommendations were still open at the time of this report.




                                 17
                    APPENDIXES

Appendix A

       AUDITEE COMMENTS AND OIG’S EVALUATION




Comment 1




                        18
Comment 2




Comment 3




Comment 4




            19
Comment 5




            20
21
                         OIG Evaluation of Auditee Comments


Comment 1   The Deputy Assistant Secretary, Office of Field Operations stated in her response
            that HUD believes that a clear organization structure is already in place for the
            Authority’s receivership. She explained that the Authority has an Executive
            Director, responsible for the day-to-day operations, a Board official responsible
            for decision making and oversight of the Authority in conjunction with both the
            Offices of Field Operations (OFO) and Office of Receivership Oversight (ORO)
            who both report to the General Deputy Assistant Secretary on the Authority’s
            matters. In addition, she mentioned that a Senior Advisor to the Secretary for
            Disaster and Recovery was recently appointed and designated by the HUD
            Secretary to serve as his advisor on all matters related to New Orleans.

            We agree that the current organizational structure at the Authority is probably
            clearer than it was during most of the receivership. However, the current
            organizational structure is a recent structure and its effectiveness has not been
            evaluated. On July 2, 2008, the Deputy Assistant Secretary stated that the
            Assistant Secretary was responsible for the Authority’s performance, and she
            disclaimed any oversight responsibility for the receivers. She said that the
            receivers were selected from her staff, and that they sent her monthly reports only
            as a courtesy. She said that she did not do anything with the reports. Further, she
            said that she had not had any input into the current receiver’s plan and had not
            even seen it. Therefore, we conclude that as late as July 2008, there was no clear
            organization structure at the receivership, and we stand by our recommendation.

Comment 2   In her response, the Deputy Assistant Secretary agreed that PIH needed
            independent checks on all PHA activities and to establish independent
            monitoring. However, she proposed to form a monitoring team by June 30, 2009
            rather than having an individual performs the monitoring function. She added
            that many independent checks were already in place, including Board oversight,
            contracted inspectors and auditors but they do not cover all aspects of the
            Authority.

            We agree that a monitoring team could provide the appropriate oversight
            and thus we revised our recommendation 1B to recommend a monitoring team
            rather than an individual.

Comment 3   The Deputy Assistant Secretary, Office of Field Operations stated that she could
            not respond to or accept recommendation 1C as it is beyond the scope of her
            responsibility.

            We disagree that the recommendation is beyond the scope of the Deputy Assistant


                                            22
            Secretary’s responsibility. The purpose of this recommendation is to avoid in the
            future the lack of documentation that characterized this receivership. Further, the
            current administration says there is a need for more transparency and
            accountability in government. Documenting outside involvement in the
            receivership provides transparency which facilitates accountability. Documenting
            such involvement could be as simple as maintaining record memorandum in a file
            or requiring the Authority’s Board to include outside involvement in Board
            meeting minutes. The Deputy Assistant Secretary has already stated in her
            response to recommendation 1A that the Office of Field Operations is working
            with a senior advisor to the Secretary for Disaster and Recovery on all decisions
            relative to the Authority. Implementing a policy of keeping and filing records of
            such meetings would suffice to document involvement of the senior advisor in
            making decisions. Further, the receiver is in an ideal position to be aware of
            HUD involvement in the Authority outside of the Office of Public and Indian
            Housing. Requiring the receiver to document and report such involvement to the
            Deputy Assistant Secretary would suffice to document involvement. Therefore,
            we stand by our recommendation.

Comment 4   The Deputy Assistant Secretary, Office of Field Operations explained that the
            Executive Administrator was required to establish a recovery plan that included
            milestones for accomplishments. The Authority developed the strategic
            improvement plan (SIP) and began implementing it in July 2008 and provided the
            supporting documentation for the finalized SIP. The SIP is scheduled to run
            through December 2011. The SIP is centered on six Strategic Priorities linked to
            work plans covering all major functions of the Authority. She added that, as
            indicated in recommendation 1B, HUD agreed to establish a team to monitor the
            activities at the Authority, including verification of accomplishments and have
            that team submit the first report by October 31, 2009. She provided supporting
            documentation in the form of a new Standard Operating Procedure for monitoring
            and reporting work plan progress, and two quarterly reports for the period July
            2008 - December 2008.

            We acknowledge that the receiver and the Office of Field Operations are
            implementing the recommendation through the SIP. However, the
            implementation began outside the scope of our review and therefore was not
            tested. We reviewed the supporting documentation associated with the finalized
            SIP and believe that it is a good starting point for the Authority to begin a
            return to local control as we stated in the audit report under the Phase 2 section of
            the report (pages 8-10). However, we stand by our recommendation to ensure the
            Authority meets the target dates associated with the SIP and documents its
            progress towards improvement.

Comment 5   The Deputy Assistant Secretary, Office of Field Operations explained that the
            Office of Public and Indian Housing awarded a contract to recruit individuals for
            key management positions within the Authority. The contractor hired a General
            Counsel, Chief Financial Officer (CFO) and others. She said she believed these


                                             23
tasks would satisfy recommendation 1F. However, she said that it is not necessary
to hire staff with a background in working with troubled agencies, but more
important to hire staff with a background in property management. She further
explained that at the time of the audit, all of the key mission critical positions for
the Authority’s Executive Management team were filled with the exception of the
Chief Financial Officer. She said that the CFO position was filled February 23,
2009 and that the new CFO had experience with large housing authorities.

We recognize HUD’s efforts in recruiting for key positions at the Authority. The
Authority may have hired a knowledgeable senior staff. However, given the
Authority’s troubled past, the senior staff needs to be familiar with operating
troubled agencies. Since the Authority has already hired its senior staff, we
revised the recommendation to reflect the senior staff’s need for training in
how to operate troubled agencies.




                                 24
Appendix B

           LIST OF AGREEMENTS BETWEEN HUD AND THE
                         AUTHORITY



Month/year Agreement type           Description
February     Cooperative endeavor   Executed between HUD and the City on February 8, 1996, outlining plans
1996         agreement              to aid the Authority in its recovery.
June         Cooperative endeavor   Executed between HUD and the City on June 20, 2000, outlining plans to
2000         agreement              aid the Authority in its recovery. This agreement terminated on December
                                    31, 2000.
December     Amended cooperative    Executed between HUD and the City on December 21, 2000, outlining
2000         endeavor agreement     plans to aid the Authority in its recovery. The agreement was to have
                                    terminated on December 31, 2003.
February     Termination of         Effective February 21, 2002, HUD decided to terminate the cooperative
2002         cooperative endeavor   endeavor agreement with the Authority and the City to assert more direct
             agreement              control over the Authority after determining that the Authority continued
                                    to be in substantial default of the annual contributions contract. According
                                    to the termination of the cooperative endeavor agreement and HUD’s
                                    declaration of administrative receivership, the receivership was to
                                    continue until HUD was satisfied that all defaults with respect to the
                                    projects had been cured and that the projects would, thereafter, be
                                    operated in accordance with the terms of the annual contributions contract
                                    and 42 U.S.C. 1437d(g)2.
August       Memorandum of          HUD monitored the Authority’s progress by executing a memorandum of
2002         agreement              agreement between HUD and the Authority from August 2002 to
                                    December 2003 in accordance with HUD regulations. The agreement
                                    included performance targets, strategic plans, technical assistance to be
                                    provided by HUD, etc.
April        Cooperative endeavor   Executed among HUD, the Authority, and the City on April 1, 2008. This
2008         agreement              agreement did not alter the organization of the administrative receivership
                                    but established an advisory committee to inform and advise Authority
                                    staff regarding policy decisions that impacted the Authority’s long-term
                                    recovery and revitalization efforts. The agreement also called for the
                                    creation of a plan, within six months of the agreement, for transition of the
                                    Authority to local control. The agreement ended on December 31, 2008.




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