oversight

The City of New London Housing Authority Lacks the Capacity to Properly Administer its Capital Funds Act Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-08-07.

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

                                                                 Issue Date
                                                                        August 7. 2009
                                                                 Audit Report Number
                                                                        2009-BO-1010




TO:         Deborah Hernandez, Deputy Assistant Secretary for Office of Field Operations, PQ
            Donna Ayala Director, Office of Public Housing, Boston Hub, Region 1, 1APH


FROM:       John Dvorak, Regional Inspector General for Audit, Region 1, 1AGA

SUBJECT: The City of New London Housing Authority Lacks the Capacity to Properly
           Administer its Capital Funds Program and Recovery Act Funds


                                   HIGHLIGHTS

 What We Audited and Why

             We initiated this audit of the City of New London, Connecticut, Housing
             Authority (the Authority) as part of OIG’s initiative to evaluate public housing
             authority’s capability to administer the capital funds provided under the American
             Recovery and Reinvestment Act of 2009 (The Recovery Act). The Authority has
             had significant management deficiencies for more than ten years and HUD
             identified the Authority as “overall troubled” in May of 2004. Our objectives
             were to determine whether the Authority (1) properly administered its Capital
             Fund program, and (2) has the capacity to administer its Recovery Act capital
             funds in accordance with HUD requirements and the Recovery Act.


 What We Found


             The Authority did not properly administer its Capital Fund program and lacks
             adequate capacity to ensure that Recovery Act funding for the Capital Fund
             program will be administered in accordance with HUD requirements and the
             Recovery Act. The Authority improperly awarded contracts without the Capital
                   Funds to cover the costs; and failed to openly compete procurements and establish
                   formal written contracts with required contract provisions to protect the
                   Authority’s interests. The Authority also did not ensure that contractors paid
                   workers the minimum wage required by law or always ensure that contractors
                   maintained adequate performance bonds and liability insurance. In addition, the
                   Authority did not complete a cost or price estimates to ensure that prices paid
                   were reasonable.

                   The Authority also lacked formal accounting procedures and has not had an
                   effective financial or capital fund manager since February of 2008. Its capital
                   funds were not monitored on a regular basis and its accounting records were not
                   accurate or updated timely. In addition, it did not accurately report obligations
                   and expenditures to HUD, and could not support $91,027 in capital funds used to
                   administer the program.

                   HUD evaluated the Authority as a medium risk grantee requiring additional
                   controls and oversight for administration of its Recovery Act funds.1 HUD also
                   concluded that based on the Authority's extended history of poor performance and
                   lack of improvement, the Authority lacked the management capacity to
                   successfully operate its federal public housing programs. Based on our review,
                   we agree with HUD’s assessment. HUD also recommended that the Authority
                   procure a contractor to manage its federal housing programs; and, the Authority
                   was in the process of procuring a contract administrator.


    What We Recommend


                   We are recommending that the Director of HUD’s Boston Office of Public
                   Housing (1) fully implement its strategy for troubled public housing authorities
                   and ensure the Authority properly expends and accounts for its Capital Funds
                   received under the Recovery Act; (2) require the Authority’s Board of Directors
                   to implement adequate procurement and accounting controls over Capital Funds;
                   and (3) require the Authority to support or repay $91,027 in unsupported
                   administrative fees. We also are recommending that the Deputy Assistant for
                   Field Operations inform the Assistant Secretary for Public and Indian Housing of
                   the Authority’s inability to improve its score or meet the goals of the
                   memorandum of agreement with HUD and determine the statutory remedies
                   required under section 6 (j) of the U.S. Housing Act of 1937

                   For each recommendation in the body of the 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.


1
    The Authority was allocated $381,631in Capital Funds under the Recovery Act.

                                                         2
Auditee’s Response


           We provided Authority officials with a draft audit report on July 16, 2009, and
           requested a response by July 27, 2009. We held an exit conference with
           Authority officials on July 20, 2009, to discuss the draft report, and we received
           their written comments on July 24, 2009. The Authority generally agreed with
           the facts, conclusions, and recommendations. Also, HUD agreed with our finding
           but stated that recommendations 1A and 1D were not necessary because HUD
           was already implementing corrective actions. However, we did not remove
           recommendations 1 A and 1D due the Authority’s long standing deficiencies and
           HUD’s ineffective efforts to ensure the Authority complied with its requirements.

           The complete text of the auditee’s and HUD’s response, along with our evaluation
           of these responses, can be found in appendix B of this report.




                                            3
                            TABLE OF CONTENTS

Background and Objectives                                                        5

Results of Audit
      Finding 1: : The Authority Improperly Administered its Capital Funds and   6
      Lacks the Capacity to Properly Administer Recovery Act Capital Funds

Scope and Methodology                                                            13

Internal Controls                                                                14

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use             16
   B. Auditee Comments and OIG’s Evaluation                                      17
   C. Appendix C Summary of Procurement Deficiencies                             25




                                            4
                           BACKGROUND AND OBJECTIVES


The City of New London, Connecticut, Housing Authority (the Authority) provides low income
public housing for qualified individuals. The Authority has contracted with the Department of
Housing and Urban Development (HUD), for financial assistance pursuant to the United States
Housing Act of 1937, as amended, and the State of Connecticut, Department of Economic and
Community Development (DECD) for financial assistance for elderly housing projects in the
form of capital grants and/or loans. The Authority administers approximately 838 housing units
(1) 331 federal housing units,2 and (2) 507 state housing units.

The Authority was allocated more than $910,000 in Capital Program funds during 2006, 2007
and 2008. HUD provided the capital funds for the Authority’s operations, management
improvements, administration, fees and costs, dwelling structures, and non-dwelling equipment.
In addition, the Authority has been allocated more than $381,000 in Capital Funds as part of the
American Recovery and Reinvestment Act of 2009.

The Authority has had significant management deficiencies for more than ten years and has been
operating under a Memorandum of Agreement with HUD’s Troubled Agency Recovery Center
and Recovery Prevention Corps since 1998. HUD identified the Authority as “overall troubled”
in May of 2004.

Our audit objectives were to determine whether the Authority properly administered its Capital
Fund Program and has the capacity to ensure that capital funds will be administered, and
accounted for in accordance with HUD requirements and the Recovery Act.

                                                         .




2
    225 public housing and 106 housing choice voucher program units.

                                                         5
                                  RESULTS OF AUDIT

 Finding 1: The Authority Improperly Administered its Capital Funds
 and Lacks the Capacity to Properly Administer Recovery Act Capital
 Funds
 The Authority did not properly administer its capital fund program or have adequate controls to
 ensure that Recovery Act Capital Funds will be spent in accordance with HUD requirements and
 the Act. This condition occurred due to the executive director’s improper actions and continued
 uncorrected due the board of directors’ inability to identify and correct longstanding
 management, financial, and physical deficiencies. Specifically, the Authority did not have
 adequate procurement controls, lacked an effective Capital Fund or financial manager or formal
 accounting procedures; and its accounting records and reports sent to HUD were inaccurate. In
 addition, it did not ensure that Capital fund expenditures were within budgeted and HUD
 approved amounts; and could not support more than $91,000 in Capital Funds charged to
 administer the program.



Authority’s Long-Standing
Deficiency

               The Housing Agency has been designated as overall troubled for the past five years
               under HUD’s public housing assessment system (PHAS). The troubled status
               resulted primarily from the Authority’s failing scores in the financial and physical
               components of the PHAS. The failed score for the financial component indicates the
               Authority’s inability to effectively manage and administer its housing program
               funds. It’s failed score for the physical component of the PHAS indicates that the
               general condition of the properties result in units not being safe, sanitary, and decent.
               The audit also points out that the Authority does not have effective management
               control or practices. It has had long-standing procurement deficiencies, inadequate
               and ineffective financial controls, and a lack of oversight of capital fund activities.
               However, the executive director and board of commissioners have been unable to
               initiate the actions needed to remedy the Authority’s long-standing management,
               financial and physical deficiencies.




                                                  6
    Long-Standing Procurement
    Deficiency


                   HUD reviews of the Authority administration of its Capital Funds program show a
                   long history of procurement deficiencies that required improvement. HUD
                   completed a full procurement review in June of 2004 and limited reviews during the
                   next four years. The reviews identified numerous procurement deficiencies, many
                   of which were also identified during our audit and described in the next several
                   sections. During the four year period HUD required the Authority to improve
                   procurement practices, ensure service contracts were procured properly, conduct
                   cost analysis on all procurement actions, and establish a contracting file system.
                   Reviews conducted during the next three years showed that although the Authority
                   made some improvement the Authority still did not adequately correct procurement
                   deficiencies.

    Procurement Procedures not
    Followed

                   The Authority’s procurement procedures were not always followed because of
                   ineffective management controls. For example, the Authority failed to follow its
                   own procurement policy and HUD regulations when it incurred costs in excess of
                   the HUD approved Capital Fund budget violating federal regulations.3 This
                   occurred when the executive director executed two contracts without enough
                   funds to pay for masonry repairs and security systems at Thames River
                   Apartments. The executive director misled contractors when he advertised that
                   the projects were fully funded with HUD Capital Funds. However, the projects
                   were not fully funded and the Authority failed to pay the contractors $159,590
                   when work was completed.4 HUD does not expect 2009 Capital Funds to be
                   available before August of 2009. Therefore, the contractors will continue to be
                   unpaid leaving the masonry contractor unpaid for more than six months.

                   The contracting officer also awarded a $22,000 contract for architectural services
                   without advertising, and awarded a $9,500 construction contract without soliciting
                   at least three bids as required by HUD 5 and the Authority's procurement policy.
                   The executive director circumvented the requirement to solicit at least three bids
                   for the construction contract because he wanted the work completed quickly for
                   the planned opening of the Boys and Girls Club. Neither of these contracts met
                   the requirements for noncompetitive bidding.



3
    at 24 CFR § 968.225 (a)
4
    $159,590 = $132,458 for masonry repairs + $27,132 due for security systems
5
    24 CFR 85.36 (c)

                                                         7
                   The Authority also entered into a security services agreement without adequate
                   cost controls. The agreement was for additional police patrols to address long
                   standing security issues. However, the agreement did not limit the number of
                   patrols to be provided or the total amount the Authority would be obligated to
                   pay. As a result, the number of patrols and costs increased beyond the amount of
                   available funds, the Authority had to suspend the patrols, and the Authority failed
                   to pay $20,447 for patrols completed in November and December of 2008.


    Significant Procurement
    Deficiencies

                   The Authority also had numerous other procurement deficiencies because of
                   ineffective management controls. For instance, the executive director did not
                   always execute formal written contracts. Instead, bid proposals were used that did
                   not include the required clauses to protect ensure the Authority's interests. For
                   example the contractors did not always agree to pay workers the minimum wages
                   required by the Davis Bacon Act, maintain adequate liability insurance, or comply
                   with the Contract Work Hours and Safety Standards Act. In addition, an architect
                   worked for more than one year without a written contract.

                    The executive director failed to incorporate mandatory clauses in construction
                   contracts. The executive director executed a $319,000 construction contract using
                   a standard construction agreement. The agreement protected some of the
                   Authority's interests; however, it did not include the construction completion date,
                   liquidated damages, prohibition against liens, and anti kickback prohibitions. The
                   Authority also entered into a $192,830 contract to install security systems. The
                   contract included the required HUD form, 5370. However; the executive director
                   did not complete the form to establish the construction completion date, liquidated
                   damages, or minimum insurance requirements, and the Authority's interests were
                   not adequately protected.

                    The executive director also failed to ensure that contractors paid workers
                   minimum wages. Federal law and HUD's regulations require that the Authority
                   review certified contractor payrolls and conduct on site interviews to ensure that
                   all laborers and mechanics are paid in accordance with the applicable wage
                   determination. However, the executive director did not conduct certified payroll
                   reviews or on site interviews.

                   In addition, the executive director failed to

                       •    Obtain payment and performance bonds and proof of insurance,6 and the
                            Authority was not adequately protected against contractor default or
                            accidents.

6
    Required by 24 CFR 85.36 (h) 7 Required by 24 CFR 85.36 (f))

                                                         8
                      •   Complete cost estimates for all procurements to show the price paid was
                          reasonable,7 and without cost estimates the Authority could not show that
                          $192,830 paid for security systems and more than $22,000 paid to its
                          architect was reasonable.

                      •   Establish an adequate contract filing system,8 and although HUD required
                          the Authority to develop an effective contracting file system in June of
                          2005, the Authority was still in the process of developing its file system at
                          the time of our audit.

                 See appendix C for a complete list of procurement deficiencies.


    Inadequate Financial Controls


                 The Authority also had inadequate financial controls. It lacked formal accounting
                 procedures and also did not have an effective financial manager since February of
                 2008. As a result, the Authority's accounting records did not accurately show the
                 amount of Capital Funds it obligated and expended. For example, HUD's records
                 showed the Authority used $54,585 in 2006 Capital Funds for police patrols;
                 however, the Authority recorded more than $113,348 in its records. In addition,
                 although the Authority uses accrual accounting, it recorded accounts payables
                 only after the work was confirmed complete, and invoices were received from the
                 contractor and funds were received from HUD. As a result, the Authority's
                 payables were understated in its records. The Authority recently hired a fee
                 accountant who reviewed Capital Fund transactions and made adjusting entries,
                 and it was awaiting an audit to verify the accuracy of its accounts. However,
                 inaccurate financial data during the past year degraded it's and HUD's ability to
                 effectively track and manage Capital Fund transactions.

                 The Authority also could not support the $91,027 it charged to administer its
                 Capital Funds.9 The Authority performed some work preparing its capital plan
                 and administering contracts and agreements. However, it did not have a system to
                 track or record the amount of staff time or costs incurred to administer the
                 program.10




7
  Required by 24 CFR 85.36 (f))
8
  Required by (24 CFR 85.36(b)(9)
9
  1/1/206 – 12/31/2008
10
   The Authority also paid its Architect $7,000 to administer a masonry repair contract. The $7,000 was charged to
fees and costs however, the Authority did not reduce the amount of administrative fees it charged to the Capital
program.

                                                         9
     Capital Fund Transactions
     were not Monitored and
     Accurately Reported

                 The Authority did not monitor its capital fund transactions on a regular basis, and
                 did not accurately report expenditures to HUD.11 This condition occurred because
                 the Authority did not have effective management controls requiring the
                 monitoring and ensuring accurate reporting of its capital fund activities, and it
                 lacked accounting procedures for its capital funds, and its staff did not have
                 formal training on accounting for Capital Fund.12 For example in November
                 2008, the Authority reported that it spent more funds than it received.13 It also
                 under reported expenditures when reporting that $141,538 in 2006 capital funds
                 was expended but actually expended $285,873. The Authority continued the
                 inaccurate reports for nine months until HUD identified and corrected the errors.14
                 In addition, the Authority did not maintain documentation to itemize and support
                 the amount of funds obligated on HUD's Line of Credit Control System. This
                 inaccurate and unreliable information degraded HUD’s and its ability to track
                 Capital Fund expenditures and ensure they complied with HUD’s requirements.



     Current Developments


                 HUD concluded in March 2009 that based on the Authority's extended history of
                 poor performance and lack of improvement, it lacked the management capacity to
                 successfully operate its federal public housing programs. HUD also evaluated the
                 Authority as a medium risk. HUD recommended that the Authority’s Board of
                 Commissioners contract out management of its federal housing developments.
                 The Board agreed and is in the process of procuring a contract administrator with
                 HUD’s assistance. In addition, the Board requested and the executive director
                 agreed to resign, effective on August 3, 2009.

                 In April of 2009, HUD published its strategy for troubled public housing agency’s
                 use of Recovery Act funds. HUD's strategy for a troubled public housing agency
                 includes: (1) zero threshold on Recovery Act funds, (2) procurement policy
                 review prior to grantees initiating any action, (3) baseline remote and on-site
                 review required by end of 3rd quarter, then minimum of quarterly on-site review,
                 4) monthly progress updates, and (5) Assignment of a HUD special work
                 assessment team for technical assistance, monitoring and oversight.

11
   On HUD’s Line of Credit Control System, the primary system used to control Capital Fund disbursements.
12
   One employee successfully completed Capital Fund training in March of, 2009. However, he had not been
assigned to manage the Capital Fund program as of April 24, 2009.
13
   The Authority received $265,919 in 2008 CFP funds and reported that it expended $286,919 in 2008 CFP funds.
14
   August 2008 through April of 2009

                                                      10
Conclusion


                   Long-standing deficiencies regarding the Authority’s inadequate procurement
                   controls and financial control weaknesses showed that it did not have capacity
                   to properly administer its Capital Fund program. The Authority’s weak
                   procurement and accounting controls allowed

                   •   Awarding contracts without funds to cover the costs
                   •   Awarding construction work without competition
                   •   Awarding contract with no maximum cost
                   •   Approving work without formal written contracts
                   •   Contracts without the proper clauses to protect the Authority's interests
                   •   Contracts to be issued without assurance that Contractor’s would pay the
                       minimum wage required by law, or without adequate bonding and liability
                       insurance
                   •    Procurements without complete cost estimates to show prices paid were
                       reasonable
                   ƒ   An inadequate and ineffective contract file system, which has existed for
                       more than four years, and
                   ƒ   The Authority to expend $91,027 for its staff to administer its Capital
                       Fund program without adequate support.

        The audit and HUD’s assessment show that the Authority did not have the capacity or
        the management controls to administer its Capital Fund program. The audit also
        showed that it could not ensure that the more than $381,000 in Capital Funds
        allocated to it under the American Recovery and Reinvestment Act of 2009 would be
        spent in accordance with HUD requirements and the Act.


Recommendations

     We recommend that the Deputy Assistant for Field Operations

             1A.       Inform the Assistant Secretary for Public and Indian Housing of the
                       Authority’s inability to improve its score or meet the goals of the
                       memorandum of agreement with HUD and determine the statutory
                       remedies required under section 6 (j) of the U.S. Housing Act of 1937.

     We also recommend that the Director of HUD’s Boston Office of Public Housing


             1B.       Fully implement its strategy for troubled public housing authorities and
                       ensure the Authority expends and accounts for its Capital Formula grant

                                               11
      funds in accordance with HUD requirements and the American Recovery
      and Reinvestment Act.

1C.   Require the Authority or its alternative management entity maintain and
      implement adequate procurement and accounting controls over Capital
      Funds.

1D.   Require the Authority to support or repay the Capital Fund $91,027 for the
      amount of unsupported Capital Fund Administrative fees.




                              12
                        SCOPE AND METHODOLOGY


We conducted our audit between January and July 2009. We completed our fieldwork at the City of
New London Housing Authority’s offices located at 78 Walden Ave, New London, Connecticut.
Our audit covered the period January 1, 2006 through December 31, 2008 and was extended when
necessary to meet our audit objectives.

To accomplish our audit objectives, we

   •   Reviewed relevant HUD regulations, including

       24 CFR 85.36 - Administrative Requirements for Grants and Cooperative Agreements -
       24 CFR § 968 - Public Housing Modernization
       HUD Handbook No. 7460.8 REV 2 - Procurement Handbook for Public Housing
       Agencies -
       HUD Handbook 13441 Federal Labor Standards Compliance in Housing and Community
       Development Programs
       Housing Authority of the City of New London Procurement Policy

   •   Interviewed the Authority’s staff and its contract administrators to determine what
       controls were in place to ensure compliance with HUD’s requirements.

   •   Reviewed the Authority’s procurement files to verify all capital expenditures exceeding
       $5,000 were properly procured, adequately supported, properly classified, eligible, and
       within budgeted amounts.

   •   Reviewed the Authority’s accounting records to verify capital expenditures were properly
       recorded and reported to HUD

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(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective(s).




                                               13
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

   •   Program operations,
   •   Relevance and reliability of information,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding of assets and resources.

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 controls were relevant to our audit
              objectives:

                •   Controls over procuring contacts

                •   Controls over accounting and reporting capital fund expenditures

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

 Significant Weaknesses


              Based on our review, we believe that the following items are significant weaknesses:

                •   Procurement controls did not ensure goods and services were obtained in
                    accordance with the Authority’s procurement policy and federal requirements.
                    (see finding 1)

                •   Accounting procedures did not ensure that capital expenditures were
                    accurately recorded and reported to HUD. (see finding 1)



                                               14
•   Accounting procedures did not ensure administrative costs were tracked and
    recorded. (see finding 1)




                              15
                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

 Recommendation                        Unsupported 1/
        number
             1C.                               $91,027



1/   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 the 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.




                                             16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         18
Ref to OIG Evaluation   Auditee Comments




                         19
Ref to OIG Evaluation                     Auditee Comments




                         OIG Evaluation of Auditee Comments


Comment 1   Evaluate each comment (as concisely as possible) referenced in the first part of




            Note - The Auditee’s comments included emails documenting the board of
            commissioners’ questions for the executive director in an attempt to provide
            oversight of the Authority’s administration. We considered the emails in our
            evaluation however, did not include them in the report because they contained
            personal identifying information.

                                            20
Ref to OIG Evaluation                    HUD Comments



                Thank you for the opportunity to comment on the New London HA Report.
Comment 6       While we concur with the finding, we have found several major
                inconsistencies in the assumptions made on how many years the NLHA has
                actually been troubled and the current status of the ARRA Troubled Risk. I
                have explained in more detail below:

                Additionally, as I mentioned in my earlier comments, Recommendation 1.A.
                and now this addition of 1.D., are not corrective actions and we do not concur
                with them as they are moot. We are already completing the implementation of
Comment 7       the ARRA Troubled Strategy for Medium Risk PHAs; and the DAS for OFO
                is aware of and we have had discussions with her on NLHA’s inability to
                improve its score and Ms. Hernandez has concurred with our corrective action
                of contracting out the entire program.

                Years Officially Declared Troubled – should be 5 or 6 not 10 as noted in at
Comment 6       least two places in the report. The first year declared PHAS troubled was
                FFY2002 but HUD’s REAC did not declare NLHA Substandard under FASS
                until 8/23/03 for its FY2002 PHAS. At that time they were Substandard
                Financial. For the FYE 2001, NLHA was declared Substandard Troubled, but
                that designation did not occur until 1/16/2004, after the FYE2002 declaration
                had been made.

                The NLHA did not become “Overall Troubled” until 5/26/2004 for its
Comment 6       FYE 2003. Accordingly, NLHA has actually been declared overall troubled
                for the past 5 years. (Your report Pages 5, 6)

                Official PIH ARRA Risk and Strategy - When your office originally began
                this review we reported to you that we had rated NLHA as “high risk” under
Comment 6       the category of Troubled PHAs for purposes of ARRA monitoring. However,
                after that time as the strategy was implemented, a review panel of HQs, FO
                and RPC determined that NLHA was a “Medium” Risk ARRA Troubled PHA
                and the strategy for medium risk PHAs is different from that of the high risk
                PHA. This strategy has been implemented and is in process in accordance
                with HQ OFO’s requirements. (Your report, Pages 2, 10 and 11)




                                           21
Ref to OIG Evaluation                     HUD Comments




                        Other misc. comments:

                            •     On p. 2, under “what we recommend”, second paragraph needs
Comment 6
                                   grammatical clarification; “For each recommendation in the
                                   body of the without…????
Comment 6                   •     On p.11, the beginning of the final bullet needs grammatical
                                   clarification; “It to expend $91,027 for its staff to administer
                                   …”
                            •     Recommendation 1A and 1D are completed (or already
Comment 7                          implements) actions by the Hub and RPC and have no impact
                                   on any new corrective actions by the NLHA or the Hub Office
                                   and should be removed.
                            •     In the Background and Objectives section, it states that NLHA
Comment 6                          administers 331 federal housing units. The number is actually
                                   225, unless IG is including HCVP units, which should not be
                                   included as CFP does not apply to them.




                                             22
                           OIG Evaluation of Auditee Comments

Comment 1     We agree that some responsibility should be placed on the executive director.
              However, the board's inability to effectively identify and correct the Authority's
              material deficiencies allowed the deficiencies to continue. Therefore, we
              modified the report to read "This condition occurred due to the executive
              director’s improper actions and continued uncorrected due the board of
              commissioners’ inability to identify and correct long-standing management,
              financial, and physical deficiencies."

Comment 2 The auditee’s response shows that despite multiple sources that reported long-
          standing serious deficiencies the Board did not fully understand the depth of the
          Authority's problems. The deficiencies were reported through memorandums of
          agreement with HUD to correct multiple material management and financial
          deficiencies since 1998, HUD's designation as a troubled housing Authority since
          May 2004, failing REAC physical condition scores, and a 2008 independent audit
          report that questioned the Authority's solvency.

              Regarding the physical condition on of the properties, HUD's Real Estate
              Assessment Center reported that the Authority's two housing projects did not meet
              HUD's minimum physical quality standards in 2003, 2006, and 2009. The two
              properties scored only 44 of 100 possible points with more than one life
              threatening exigent safety deficiencies during the most recent inspection
              conducted on 2/9/2009.

Comment 3     The Authority’s Board indicated that the executive director hindered its attempts
              to oversee the Authority's operations, however, the Board ultimately responsible
              and could have considered removing the director for failing to act as directed by
              the Board.

Comment 4 The hiring of a new fee accountant should improve the Authority's financial
          controls and reporting. However, an on-site financial manager should be
          considered to ensure the Authority properly manages its cash flow, pays it bills on
          time, and carefully manages it day to day financial operations.

Comment 5 The Authority's Annual Contribution Contract with HUD requires the Authority
          to maintain complete and accurate books of account for the projects in such a
          manner as to permit the preparation of statements and reports in accordance with
          HUD requirements, and to permit timely and effective audit. The Authority's
          books and records could not show that the Authority incurred $91,027 in
          administrative costs for the program. Therefore, we determined the amount was
          unsupported and must be supported or repaid.




                                               23
                            OIG Evaluation of HUD Comments

Comment 6 The comments were considered and the report was adjusted to reflect the updated
          information provided by HUD or to make the report factually correct.

Comment 7 This finding shows that HUD’s previous efforts have been ineffective in correcting
          the Authority’s long standing deficiencies and ensuring that the Authority complied
          with its requirements. It is because of HUD’s previous ineffective efforts and new
          stated corrective actions now being implemented that we did not remove
          recommendations 1 A and 1D (now 1A and 1B), but also revised 1A to ensure that
          there is a resolution in-line with HUD regulations and requirements.
          Recommendation 1A requires the Deputy Assistant Secretary to: “Inform the
          Assistant Secretary for Public and Indian Housing of the Authority’s inability to
          improve its score or meet the goals of the memorandum of agreement with HUD
          and determine the statutory remedies required under section 6 (j) of the U.S.
          Housing Act of 1937.” This is to ensure that Assistant Secretary is provided
          information to assist in the administration of the Recovery Act.




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Appendix C
                                    SUMMARY OF PROCUREMENT DEFICIENCIES


                 Contract            Contract       Contract       %               Paid         % paid    Procurement          Contract 
                                                                              as of 6/1/2009 
                Description           Date          Amount      completed                                     Type            Deficiencies 

         1     Masonry repairs       8/14/2008      $393,546      100%        $261,088          66%         sealed bid            1,8,12 
               Security system 
         2     installation          7/2/2008       $192,830      100%        $165,776          86%         sealed bid      1,4,5,6,8,9,10,12 
               Painting 
               hallways  and 
         3     stairwells           no contract     $26,500       100%            $26,500       100%        sealed bid      2,4*,5,6,7,8,10,12 
               Construction 
         4     boys & girls club    no contract      $9,500       100%            $9,500        100%      noncompetitive  2,3,4*,5,6,7,8,10,12
               Architect and 
               engineering for      8/23/2008** 
         5     masonry repairs                      $22,000       100%            $22,000       100%      noncompetitive     2, 3, 4,5,6,7**,8 
         6     Security Patrols      3/18/2008        none                        $137,392                noncompetitive             11 

Deficiency Legend –

1 Contract awarded without sufficient funds for payment                      7 Formal written contract not executed
2 Contract not advertised to the public                                      8 Required clauses not invoked to protect the Authority' interests
3 Noncompetitive procurement not justified                                     (HUD Form 5370, 5370C, or 5370 EZ)
4 Cost estimate not prepared to verify cost reasonableness                   9 Proof of performance and payment bonds not obtained
5 Evaluation of bids not on file to show the contractor was                  10 Proof of insurance not obtained
  responsive and capable of successfully completing the project              11 Contract did not limit costs to the Authority
6 Adequate procurement history not maintained                                12 Minimum wages not verified

* Additional audit procedures indicated that the price paid was reasonable for the work/services provided
** The Architect worked for one year without a contract




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