U.S. Department of Housing and Urban Development Region 4 Office of the Inspector General Office of Audit, Box 42 Richard B. Russell Federal Building 75 Spring Street, SW, Room 330 Atlanta, GA 30303-3388 (404) 331-3369 MEMORANDUM NO: 2009-AT-1801 September 25, 2009 MEMORANDUM FOR: Victor Rocher, Director, Office of Public Housing, 4DPH //signed// FROM: James D. McKay, Regional Inspector General for Audit, Atlanta Region, 4AGA SUBJECT: Miami-Dade Public Housing Agency Needs to Strengthen Controls over Its American Recovery and Reinvestment Act Funds INTRODUCTION The Miami-Dade Public Housing Agency (Agency) was awarded a $19.3 million capital fund formula grant under the American Recovery and Reinvestment Act of 2009 (ARRA). ARRA requires swift obligation and expenditure deadlines with stringent emphasis on accountability and transparency. As part of our organization’s commitment to ensure the proper use of these funds, we performed a review of the Agency’s operations to evaluate its capacity to administer ARRA funding. Specifically, our objective was to review and assess the Agency’s capacity and risks in the following areas: basic internal controls, financial management, and procurement. We provided a draft report to the Agency on September 9, 2009, and received written comments on September 18, 2009. We have included the comments and our evaluation of those comments in appendix A. For each recommendation without a management decision, please respond and provide status reports in accordance with U.S. Department of Housing and Urban Development (HUD) Handbook 2000.06, REV-3. Please furnish us copies of any correspondence or directives issued because of the audit. METHODOLOGY AND SCOPE To accomplish our objective, we Reviewed and obtained an understanding of relevant ARRA legislation, program guidance, and criteria; Reviewed relevant Agency policies and procedures; Interviewed HUD and Agency officials; Reviewed Agency financial records; Reviewed Agency files and records to include staffing assignments, job descriptions, and organization charts; Reviewed the Agency’s annual plans; and Reviewed Agency procurement files and records for two ARRA activities. At the time of our review, the Agency had not awarded any construction contracts but indicated that contracts for three planned ARRA activities were almost finalized. We reviewed the two planned ARRA activities with the largest dollar amounts totaling $345,049. Since the Agency had not finalized the award of these contracts, we limited our review to determining (1) whether the selection(s) appeared reasonable and justified, (2) that documentation was available to support the selection process, and (3) whether the procurement procedures were in accordance with applicable laws and regulations. The results of our review apply only to the items selected and cannot be projected to the universe or population. Our review generally covered the period January 1 through May 31, 2009, and we extended the period as needed to accomplish our objective. We conducted our review from June 1 through July 31, 2009, at the Agency office located at 1401 NW 7th Street, Miami, Florida. For this capacity report, our work was not conducted in accordance with generally accepted government auditing standards. Under ARRA, inspectors general are expected to be proactive and focus on prevention; thus, this report is significantly reduced in scope. BACKGROUND On February 17, 2009, the President signed ARRA. It provided $13.61 billion for projects and programs, which included a $4 billion appropriation of capital funds to carry out capital and management activities for public housing agencies as authorized under Section 9 of the United States Housing Act of 1937. HUD awarded the Agency approximately $29.9 million in capital funds in fiscal years 2007 and 2008. In March 2009, HUD awarded the Agency an additional $19.3 million in capital funds under ARRA. As of May 2009, the Agency had not expended any ARRA funds. 2 We conducted two audits of the Agency’s capital fund program and issued the audit reports on April 24 and September 17, 2008. Those reports disclosed that (1) the Agency did not maintain adequate supporting documentation for contracts, (2) the Agency’s internal controls over capital fund drawdowns were inadequate, and (3) the Agency used capital fund program drawdowns for ineligible and unsupported expenses. In response to the audits, the Agency implemented a realignment of the procurement process for contracts to be reviewed at its procurement office. It also created new accounting policies and procedures for capital funds and better defined the roles and responsibilities of its accountants that administer capital funds. RESULTS OF REVIEW Procurement Procedures Had Weaknesses Public housing agencies must follow Part 85 and other ARRA requirements. Regulations at 24 CFR [Code of Federal Regulations] 85.36 require that public housing agencies maintain records sufficient to detail the significant history of each contract’s procurement. The Agency did not comply with ARRA procurement requirements for the two contracts reviewed. Specifically, it needs to strengthen its controls to ensure that it maintains records sufficient to detail the significant history of each contract’s procurement such as Identifying that it was an ARRA activity in advertising and within the contract and specifying that the bidder agrees to accept all the terms and conditions according to ARRA regulations at 2 CFR 176.210 within the contract, the bid form, and special conditions; Maintaining documentation to support the basis for the independent cost estimate and the reason for substantial differences between the cost estimate and price as required by HUD Procurement Handbook 7460.8; Requiring the contract to indicate the amount of liquidated damages that can be assessed to the contractor and the number of required days to complete the work according to regulations at 24 CFR 85.36; and Documenting the rationale for the procurement method used and selection of contract type according to regulations at 24 CFR 85.36. Regulations at 2 CFR 176.60 prohibit use of recovery funds for construction unless all goods used in the project are produced in the United States. The Agency did not include in the two contracts the requirement to buy American products for construction until HUD informed it of the requirement. It later notified the two contractors of this requirement. HUD officials informed us that the Agency needed to issue a change order or addendum to the contracts to ensure that the contractors complied with this requirement. The Agency’s approach to ensuring that contractors comply with this requirement for future contracts was also inadequate. Regulations at 2 CFR 176.100(b) require that a determination be 3 made, regarding whether the contractor will use U.S. manufactured products, before the recipient obligates or awards the funds. Agency officials planned to incorporate 2 CFR Part 176 into future contracts and require contractors to certify compliance with this requirement. Some Agency officials informed us that contractors would certify compliance with the buy American requirement after the contract was awarded, while other staff said that the certification would be provided before the funds were obligated. HUD officials informed us that Agency certifications were not sufficient to document compliance with regulations at 2 CFR 176.60. Public and Indian Housing (PIH) Notice 2009-12 states that public housing agencies shall amend their procurement standards and policies and remove all procurement standards that are contrary to Part 85 or the Recovery Act. This amended policy can be used only for procurements related to Public Housing Capital Fund Stimulus (Formula) Recovery Act Funded grants. The Agency had not reviewed or amended its procurement policies and procedures to ensure compliance with ARRA requirements. Staffing Levels May Be Inadequate Office of Management and Budget memorandum M-09-15 requires heightened management attention in ensuring that a sufficient and adequate trained workforce be available to responsibly plan, evaluate, award, and monitor contracts. We focused our analysis on the responsibilities of the asset project managers and purchasing specialists. Asset project managers coordinate the bidding process, prepare contract documentation, and monitor progress toward completion of ARRA-funded activities. Purchasing specialists coordinate the administration and awarding of contracts. We estimate that the workload for the asset project managers and purchasing specialists will increase approximately 60 percent for the three-year duration of the capital fund recovery grant if current staffing levels remain the same. Asset project managers Capital fund Capital fund Description program grant recovery grant Totals Average amount of funds administered per $7,214,337 $4,249,110 $11,463,447 year (1) Number of employees to administer the 3 3 3 programs Average amount of funds administered per $2,404,779 $1,416,370 $3,821,149 employee Percentage increase in workload per 58.9% employee (2) 4 Purchasing specialists Capital fund Capital fund Description program grant recovery grant Totals Average amount of funds administered per $9,569,330 $5,775,843 $15,345,173 year (1) Number of employees to administer the 3 3 3 programs Average amount of funds administered per $3,189,777 $1,925,281 $5,115,058 employee Percentage increase in workload per 60.4% employee (2) (1) For each budget line item of the 2007 and 2008 capital fund program grants and 2009 capital fund recovery grant, the Agency provided us with an estimated percentage of the grant amount administered by staff. To obtain the average amount of capital funds administered per year for the 2007 and 2008 program grants, we totaled the percentage calculations per budget line item and divided the result by two. To obtain the average amount of capital funds administered per year for the capital fund recovery grant, we totaled the percentage calculations per budget line item and divided the result by three. We divided by three to conservatively spread these funds over the three years during which the Agency must expend the funds. (2) Asset project manager: $3,821,149 - $2,404,779 / $2,404,779 = 58.9 percent Purchasing specialist: $5,115,058 - $3,189,777 / $3,189,777 = 60.4 percent Based on the increased workload, Agency staffing levels may be inadequate to administer the additional $19.3 million in capital funds awarded under ARRA. Agency management indicated that it did not conduct an analysis of staffing needs but believed its staffing was adequate to administer capital funds. ARRA-funded activities were included in previously approved annual plans, and Agency management considered the staffing adequate to administer them. However, Agency staff said that deficiencies in ARRA contracts, such as failing to indicate the amount of liquidated damages and the number of required days to complete the work, were due to workload pressures. Agency staff also expressed concerns over the shortage of staff due to the lengthy contract bidding process, list of responsibilities, and increase in capital fund activities. Agency staff members said that they had not received any formal training and believed that additional staff and training on ARRA requirements were needed. The Agency Had Not Properly Prioritized Its ARRA-Funded Activities Public Law 111-5 (otherwise known as ARRA) requires that public housing agencies give priority to capital projects that can award contracts based on bids within 120 days from the date the funds were made available. Also, PIH Notice 2009-12 states that public housing agencies must give priority consideration to the rehabilitation of vacant rental units. 5 HUD made funds available to the Agency on March 18, 2009. The Agency maintains a monthly report that details the status of each activity and the percentage of work that has been obligated. Based on this report, as of July 13, 2009, no construction contracts had been awarded. Agency staff stated that the delay in awarding contracts was due to the lengthy procurement process, which could take up to six months. The Agency gave priority to activities based on need and high dollar amount and not to the rehabilitation of vacant units. Conclusion The Agency needs to strengthen its controls to fulfill the requirements under the ARRA capital fund program. It needs to (1) maintain sufficient records to detail the significant history of each contract’s procurement, (2) amend its procurement policies and procedures as required by HUD, (3) evaluate its staffing levels and provide staff with training on ARRA requirements to better administer the program, and (4) prioritize its ARRA-funded activities to move them more quickly toward completion and meet ARRA requirements to obligate all funds within one year of availability (March 18, 2010). RECOMMENDATIONS We recommend that the Director of the Office of Public Housing require the Agency to 1A. Fully document the significant history of the procurement for the two contracts reviewed to comply with ARRA procurement requirements. 1B. Provide HUD with documentation supporting that change orders or addendums were issued for the two contracts reviewed to ensure that the contractors comply with the ARRA buy American requirements. 1C. Amend its existing procurement policies and procedures to ensure compliance with all applicable federal and ARRA requirements for all future procurements when obtaining goods and services. 1D. Conduct a formal analysis to assess its staffing levels and ensure that staff members are adequately trained to comply with ARRA requirements. 1E. Prioritize its ARRA-funded activities to ensure that it complies with ARRA obligation deadlines. 6 APPENDIXES Appendix A AUDITEE COMMENTS AND OIG’S EVALUATION Refer to OIG Evaluation Auditee Comments Comment 1 7 Comment 2 Comment 3 Comment 4 8 Comment 4 9 10 OIG Evaluation of Auditee Comments Comment 1 The Agency stated that the Donn Gardens and Jack Orr projects inadvertently excluded the ARRA procurement requirements and that corrective measures were being taken. However, we informed Agency staff that they also did not comply with ARRA procurement requirements for the Jollivette Plaza project contract. Comment 2 The Agency stated that the rationale for competitive bidding of all work and awarding the work to the lowest responsive bidder is allowed under HUD regulations. We maintain that the Agency should document the rationale for the procurement method used and selection of contract type according to regulations at 24 CFR 85.36. Comment 3 The Agency stated that to monitor the Buy American requirements they designed a waiver form as required by 2 CFR 176.60 to be used by contractors if the products presented for approval are not American made. HUD officials informed us that Agency certifications were not sufficient to document compliance with regulations at 2 CFR 176.60. Comment 4 The Agency stated that it has begun implementing several corrective measures to address our findings and recommendations. We believe that the corrective measures when implemented and enforced would improve Agency administration of the ARRA capital fund program. 11
Miami-Dade Public Housing Agency Needs to Strengthen Controls over Its American Recovery and Reinvestment Act Funds
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-09-25.
Below is a raw (and likely hideous) rendition of the original report. (PDF)