oversight

Housing Authority of the City of El Paso, El Paso, Texas, Did Not Follow Procurement and Other Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-12-24.

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

                                                                  Issue Date
                                                                           December 24 , 2008
                                                                  Audit Report Number
                                                                           2009-FW-1003




TO:         Justin R. Ormsby
            Director, Office of Public and Indian Housing, 6APH


FROM:

            Gerald R. Kirkland
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: Housing Authority of the City of El Paso, El Paso Texas, Did Not Follow
         Procurement and Other Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             Based on a congressional request, we performed an audit of the Housing
             Authority City of El Paso’s (Authority) procurement process and board of
             commissioners (board) activities. Our objectives were to determine whether the
             Authority properly followed procurement requirements and whether the executive
             director was selected in accordance with applicable procedures.


 What We Found
             The Authority did not follow its procurement policies or the U. S. Department of
             Housing and Urban Development’s (HUD) procurement requirements.
             Specifically, it inappropriately paid more than $700,000 because it did not
             properly administer its procurements. Also, a former board member and a former
             employee created conflicts of interest. Further, the Authority did not establish
                  written procedures for the selection of its executive director, and its board
                  members did not always file ethics questionnaires in a timely manner.

    What We Recommend


                  Our recommendations include requiring the Authority to

                           Repay from nonfederal funds $661,5801 to its restricted operating reserve
                           for locally owned properties account, $12,697 to HUD, and $31,640 to its
                           capital fund account.
                           Implement procedures to ensure that it complies with its procurement
                           policies and HUD regulations and requirements.
                           Ensure that its executive director and its contracting department
                           employees attend HUD-approved procurement training.
                           Seek filing of ethics questionnaires from all board members in a timely
                           manner.

                  We also recommend that the Director, Office of Public and Indian Housing, Fort
                  Worth, take administrative or other actions regarding the conflicts of interest
                  created by a former board vice-chair and a former employee.

                  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 draft to the Authority on November 18, 2008, and held an exit
                  conference on December 3, 2008. The Authority provided written comments on
                  December 12, 2008. The complete text of the auditee’s response, along with our
                  evaluation of that response, can be found in appendix B of this report. The
                  Authority also provided documents as attachments to the response that are not
                  included in appendix B but are available upon request.




1
       $647,252 in excess of contract limits, plus $13,717 in ineligible expenses and $611 in late fees.


                                                          2
                           TABLE OF CONTENTS

Background and Objectives                                                                   4

Results of Audit
      Finding 1: The Authority Inappropriately Paid More Than $700,000 Because It Did Not   5
                 Properly Administer Its Procurements
      Finding 2: A Former Board Vice-Chair and a Former Employee Created Conflicts of       10
                 Interest
      Finding 3: The Authority Did Not Have Written Procedures for Selecting its            12
                 Executive Directors
      Finding 4: Board Members Did Not Always Complete Ethics Questionnaires in             14
                 a Timely Manner

Scope and Methodology                                                                       15

Internal Controls                                                                           16

Appendixes
    A. Schedule of Questioned Costs                                                         17
    B. Auditee Comments and OIG’s Evaluation                                                18




                                            3
                          BACKGROUND AND OBJECTIVES

The Housing Authority of the City of El Paso (Authority), Texas, was created in February 1938.
The Authority’s mission is to provide safe, decent, sanitary housing for assisted families at or
below 80 percent of median income. The Authority owns and operates approximately 6,028
units and provides rent subsidies for another 4,000 families through the U. S. Department of
Housing and Development’s (HUD) Housing Choice Voucher rental assistance programs and
495 Section 8 new construction units.

The Authority also provides a variety of other programs, including education, recreation,
antidrug, job training, small business development, and community organization, that are
designed to help the residents of public housing achieve self-sufficiency and economic
independence.

Based on information on the Authority’s Web site, it has a workforce of approximately 488
regular, temporary, and part-time employees in 18 sections/departments.

The Authority is located at 5300 East Paisano, El Paso, Texas. An executive director2
administers the Authority’s programs and is responsible for its day-to-day operations. The
executive director is overseen by a board of commissioners (board) comprised of five individuals
appointed by the mayor of the City of El Paso (mayor). On March 14, 2008, the mayor
appointed several members of the Authority’s board including the board chair, who has since
resigned, and the board vice-chair.

Based on a congressional request, we performed an audit of the Authority. Our objectives were
to determine whether the Authority properly followed procurement requirements and whether the
executive director was selected in accordance with applicable procedures.




2
    Before the current executive director, the Authority used the title, “president,” rather than “executive director.”



                                                           4
                                       RESULTS OF AUDIT
Finding 1: The Authority Inappropriately Paid More Than $700,000
           Because It Did Not Properly Administer Its Procurements
The Authority did not follow its procurement policies or HUD’s procurement requirements. For
example, it exceeded contractual amounts, made ineligible payments, evaluated proposals on
criteria not known to all contractors, and used a contractor’s price list as a statement of work.
This condition occurred because the Authority did not adequately monitor contracts, abide by its
contracting authority, or follow contract award requirements. Further, it lacked the necessary
expertise to properly administer its contracting activities. As a result, the Authority
inappropriately paid $705,9173 from HUD funds.



    The Authority Inappropriately
    Paid More Than $700,000


                  In violation of its procurement policies and HUD requirements, the Authority
                  inappropriately paid $859,072, of which $705,917 was from HUD funds. Of the
                  47 contracts reviewed, the Authority did not follow requirements for 19.
                  Violations included payments without valid contracts, payments for employees of
                  the Authority’s affiliate, duplicate payments, and other ineligible payments.
                  Further, in violation of requirements, the Authority modified the scope of several
                  contracts after the contracts expired.4 It also did not properly monitor one
                  contractor’s work, which resulted in shoddy workmanship. This condition
                  occurred because the Authority lacked the expertise or did not understand the
                  importance of properly administering contracts.

                  Inappropriate Payments for a Resident Employee Training Program
                  One example of the Authority’s violation of contracting requirements involved a
                  resident employee training program. Two months after the program began, the
                  Authority determined that continuing the program under the contractor would
                  result in higher costs than it expected; thus, it terminated the contract. However,
                  the Authority did not want to terminate the employee training program, so in
                  November 2006, it transferred the costs to an existing temporary services contract
                  with a firm that provided temporary employees to the Authority. Although the
                  Authority charged the costs of the resident employee training program to the
                  temporary services contract, it did not properly increase the contract total or
                  revise the contract scope.


3
       $661,580 in operating subsidies/rent receipts funds, $12,697 in expired capital grant funds, and $31,640 in
       current capital grant funds.
4
       HUD Handbook 7460.8, section 1.9.


                                                          5
                  Inappropriate Increase in a Contract Amount
                  In October 2006, two weeks before a temporary services contract expired, the
                  former president increased the contract by $297,231. At the time of the contract
                  increase, the president only had authority to approve contract modifications up to
                  $25,000 without board approval.5 The contract increase created a cardinal
                  change6 to the contract because it increased the cost of the contract by 158
                  percent. Later the Authority executed another contract with the contractor
                  discussed above. In total, from November 2005 to April 2008, the Authority paid
                  $364,561 in excess of contract amounts from operating subsidies/rent receipts
                  funds for the temporary services contracts.7

                  Payments Made after a Contract Expired
                  The Authority also paid $11,189 from operating subsidies/rent receipts funds on a
                  contract for pager services after the contract expired. The initial contract period
                  was from March 1, 2004, through February 28, 2005. The Authority extended the
                  contract annually through February 28, 2007. However, it continued to pay the
                  contractor through March 2008, one year after the contract expired.

                  Other Ineligible Payments
                  The Authority paid $13,717 from operating subsidies/rent receipts funds under a
                  temporary services contract for employees that were employed by its non-HUD
                  property or its tax credit property. It also paid $2,296 in duplicate payments to a
                  contractor that provided support services to families. Further, without HUD
                  approval,8 the Authority paid $611 in late fees.


    The Authority Did Not Properly
    Evaluate Proposals for One
    Contract


                  Contrary to requirements, for one contract award, the Authority did not properly
                  document the files and evaluated proposals using criteria that were not known to
                  all bidders. The Authority’s risk manager evaluated the proposed fee schedules
                  before awarding a contract for indemnity claims. Although the proposal
                  submitted by the firm that was awarded the contract included a higher fee for
                  indemnity claims than the other proposals, the risk manager determined that the
                  higher fee would be offset by a lower annual administration fee. However, the
                  contract file did not contain evidence that a comparison of the bids occurred.



5
       According to a board resolution, the executive director had the authority to authorize expenditures on goods
       and services and enter into contracts valued at up to $25,000 without approval by the board.
6
       A cardinal contract change is defined as a change that is beyond the scope of the contract.
7
       The previously discussed addition of the resident employees to the temporary services contract contributed to
       these excess costs.
8
       HUD Handbook 7460.8, section 3.4.


                                                         6
                 In addition, although the statement of work did not include a local preference, a
                 letter prepared by the Authority’s risk manager stated that the winning contractor
                 “. . . is the only vendor that submitted a fee schedule that has a local presence
                 which would enhance communication and make meeting much easier to organize
                 and less costly.” Procurement requirements9 stated that the evaluation of
                 proposals was to be based on the evaluation factors set forth in the request for
                 proposal. Factors not specified in the request for proposal were not to be
                 considered. Further, the records were required to document the complete history
                 of the procurement.10 Also, the Authority’s contracting manual11 states, “If non-
                 price factors are used, they shall be made known to all those solicited.”

                 Since a local preference was not in the scope of work provided to prospective
                 bidders, the Authority should not have used a local preference as a factor in
                 awarding the contract.

     The Authority Used a
     Contractor’s Price List to
     Develop the Statement of Work


                 On a small contract, the Authority’s public information officer requested
                 procurement of a professional photographer to take pictures of Authority events
                 on December 16, 2003. The contract was not to exceed $5,000. Before the
                 contract was awarded, the public information officer requested that the winning
                 contractor be considered “. . . as this vendor performed work for the Authority
                 well in the past.”

                 The Authority’s contracting department used a price list faxed from the selected
                 contractor to establish the scope of work. The contract was a one-year
                 firm-fixed-price contract not to exceed $4,995. However, the contract stated: “. .
                 . unless extended/renewed or modified in writing by both parties.” The contract
                 file contained a memorandum, dated April 7, 2005, stating that the contract would
                 be extended for 12 months until April 11, 2006. The contract was reawarded to
                 the contractor on November 15, 2006, for the period November 22, 2006, through
                 November 22, 2007. The Authority renewed the contract again to November 21,
                 2008.




9
       24 CFR (Code of Federal Regulations) 85.36(d)(3).
10
       24 CFR 85.36(b)(9).
11
       The Authority’s procurement manual, D.1.d.


                                                       7
   The Authority Modified
   Contracts after They Expired

                The Authority also modified several contracts after the contract terms had expired
                or after the contract amounts had been exceeded. For example, two months after
                a cell phone contract expired, the Authority modified the contract to extend the
                expiration date and increase the contract amount. HUD regulations required that
                changes to contracts occur within the contract scope. Additionally, less than two
                weeks before the expiration of a temporary services contract, the Authority
                increased the contract amount by more than 158 percent to cover contract
                overages as previously discussed.

The Authority Did Not Oversee
a Sprinkler System Installation
Contract

                The Authority did not properly oversee a contract for the installation of a
                sprinkler system. It paid a contractor $29,344 from its capital grant funds to
                install the sprinkler system and connect it to the water supply. However, as
                demonstrated by the following photograph, the contractor’s work was shoddy.
                The picture shows that the water lines for the sprinkler system protruded above
                the ground.




                                                 8
                  If the Authority had properly monitored the contractor’s work, it would have
                  known that the workmanship was unacceptable. The Authority concluded that it
                  would not be cost beneficial to try to correct the work. Thus, the Authority
                  unnecessarily spent $29,344. Further, since the system was unusable, the
                  Authority’s maintenance staff watered the area with a water hose.

     Conclusion



                  Because the Authority lacked the necessary expertise to properly administer its
                  contracting activities, it inappropriately paid $705,917 from HUD funds. This
                  amount included $661,580 in operating subsidies/rent receipts funds and $44,337
                  in capital grant funds that should be repaid. Further, payments from capital grant
                  funds included $42,04112 paid from grants that are now closed. Thus, the $42,041
                  must be repaid to HUD.

     Recommendations



                  We recommend that the Director, Office of Public and Indian Housing, Fort
                  Worth, require the Authority to

                  1A. Repay $661,580 from nonfederal funds to its restricted operating reserve for
                      locally owned properties account.

                  1B. Repay $12,697 from nonfederal funds to HUD for ineligible payments from
                      capital grants that are closed.

                  1C. Repay $2,296 from nonfederal funds to its 2006 capital fund grant account.

                  1D. Repay $29,344 from nonfederal funds to HUD for unnecessary costs paid
                      from capital grants that are closed.

                  1E. Implement procedures to ensure that it complies with its procurement
                      policies and HUD regulations and requirements.

                  1F. Provide HUD-approved procurement training to Authority’s executive
                      director and its contracting department employees.




12
        $12,697 + $29,344 = $42,041.


                                                  9
Finding 2: A Former Board Vice-Chair and a Former Employee Created
           Conflicts of Interest
A former board vice-chair obtained an employment position with New Beginnings of Texas, Inc.
(New Beginnings), before the owner of New Beginnings received a contract award from the
Authority. Also, a former director of the Authority’s technical services division accepted an
employment position with an Authority contractor after terminating his employment with the
Authority. Neither the former board vice-chair nor the former director of technical services
believed they had done anything wrong by accepting the positions. As a result of accepting the
position with New Beginnings, the vice-chair created a conflict of interest that violated HUD
rules. Also, HUD regulations require a one-year moratorium between the employment of an
Authority employee actively involved in procurement and the employment of that employee with
a contractor.


 A Former Board Vice-Chair
 Had a Conflict of Interest


              A former board vice-chair obtained a paid employment position with New
              Beginnings, a company owned by the president of Aliviane, Inc. (Aliviane). At
              the time the former board vice-chair obtained the position, the owner of New
              Beginnings and president of the nonprofit Aliviane was in the process of
              obtaining a contract to provide services to Authority residents. The former board
              vice-chair did not notify the Authority board of his position with New
              Beginnings. Section 19 of the annual contributions contract and HUD Handbook
              7460.8 preclude the Authority, its officers, and employees from entering into a
              contract with a real or apparent conflict of interest.

              Further, the former board vice-chair pushed for the Authority to award the
              contract noncompetitively to Aliviane because no other vendors in the El Paso
              area provided the parenting services using the Dando de la Familia program that
              Aliviane provided. The Authority’s president and its director of public housing
              expressed concern about the services Aliviane wanted to provide because the
              concept was new and experimental. However, in October 2006, the former board
              vice-chair made a motion and voted to award Aliviane a $300,000 contract over
              the objections of Authority staff. In December 2006, he sent a statement of work
              for Alivaine’s contract to the Authority’s legal counsel for review. The Authority
              awarded the contract to Aliviane on May 7, 2007. Between May 2007 and
              February 2008, the Authority paid Aliviane $240,000 for services under this
              contract.

              New Beginnings hired the former board vice-chair on April 16, 2007, about three
              weeks before the Authority awarded Aliviane the contract. The employment
              continued until August 8, 2007. New Beginnings paid the former board


                                              10
           vice-chair $10,407 during the employment period. He repeatedly denied to HUD
           and the Authority that he worked for Aliviane. Finally, during a December 2007
           Authority board meeting, he admitted to his employment with New Beginnings.

           On February 19, 2008, Aliviane terminated its contract with the Authority due to
           the “unforeseen, unexpected, and unusual circumstances” of a drop in parenting
           session attendance by Authority residents.

A Former Authority Employee
Worked for an Authority
Contractor


           A former director of technical services resigned from the Authority and
           immediately began working as an architect for the architecture and engineering
           contractor for the Authority’s HOPE VI project. The former Authority employee
           developed the scope of work and sat on the committee that reviewed and scored
           the contractors’ proposals for architectural and engineering services on the HOPE
           VI project. The acceptance of the position with the architectural and engineering
           contractor violated both the federal conflict-of-interest requirements and the
           HOPE VI grant agreement.

           After the Office of Inspector General (OIG) brought this matter to the executive
           director’s attention on May 21, 2008, he requested that the contractor remove the
           former employee from all Authority work.

Recommendation



           We recommend that the Director, Office of Public and Indian Housing, Fort
           Worth,

           2A. Take administrative or other appropriate actions regarding the former board
               vice-chair and former Authority employee involved in the potential conflicts
               of interest.




                                           11
Finding 3: The Authority Did Not Have Written Procedures for
           Selecting an Executive Director
Although the Authority has had eight executive directors/presidents since 2000, it did not have
written procedures governing its selection process. The Authority did not believe it was
necessary to have written procedures because its outside legal counsel had used the same
procedures for recommending past candidates to the board. Given the recent history of turnover
of key personnel and questionable activities by some board members, the Authority, as a matter
of good business practice and to improve transparency in the selection process, should establish
written procedures for selecting key personnel. Without written procedures, the Authority
cannot ensure that it will consistently apply established procedures.



     The Authority Did Not Have
     Written Procedures Governing
     its Selection Process


                   According to the Authority’s outside legal counsel, the Authority has had eight
                   executive directors/presidents since 2000. Despite the frequent turnover of
                   executive directors/presidents, the Authority did not have written procedures
                   governing its selection process. Rather, at the board’s instruction, its outside legal
                   counsel designed and oversaw the search process.

                   In seeking qualified candidates for the most recent hiring, the Authority used the
                   same process that it had used in the past. Its outside legal counsel received the
                   applications and determined which candidates were qualified. The board
                   members then selected the finalists and interviewed them.

                   Although the selection of the executive director was placed on the board agenda
                   several times in November 2007, without discussion or a vote, the board voted to
                   hire the present executive director after the board chair left the November 28,
                   2007, general board meeting. The board chair, knowing that she would not be
                   able to attend the entire board meeting, asked that all important matters be moved
                   to the beginning of the meeting so that they could be attended to before her
                   departure. However, after the board chair left the meeting, the board vice-chair13
                   introduced a motion to hire the present executive director. The board did not go
                   into executive session to discuss the matter before voting.

                   Although HUD allowed local governing bodies to determine their criteria for
                   selecting an executive director, the Authority should have formalized its process
                   by developing written procedures as a matter of good management practices,

13
        The same board vice-chair discussed in finding 2.


                                                            12
          especially given the recent history of turnover of key personnel and questionable
          activities by some board members.

Recommendation

          We recommend that the Director, Office of Public and Indian Housing, Fort
          Worth,

          3A. Require the Authority to develop and implement written procedures for the
              selection of key personnel.




                                          13
Finding 4: Board Members Did Not Always Complete Ethics
           Questionnaires in a Timely Manner
Three former board members and one current board member did not complete their ethics
questionnaires in a timely manner. Board members did not understand the importance of the
timely completion of the ethics questionnaire, and Authority staff was reluctant to pursue the
issue with the board members. The Authority’s code of ethics required that board members
complete the ethics questionnaire within 30 days of their appointment. As a result of the board
members’ not completing the ethics questionnaire, the Authority could not determine whether
conflicts of interest existed.


 Staff Was Reluctant to Push
 Compliance


              The Authority’s code of ethics for the board stated that within 30 days of
              appointment to the board or taking office, a signed ethics questionnaire was to be
              filed with the executive director. According to Authority staff, although the
              executive director’s office informed board members of their responsibility to
              complete the form, they sometimes did not complete the form in a timely manner.
              Staff members also said that due to their position as staff, they found it difficult to
              push the board to comply. As a result, potential financial or other conflicts of
              interest may have not been readily disclosed.

 Recommendation



              We recommend that the Director, Office of Public and Indian Housing, Fort Worth,

              4A. Require the executive director to obtain the ethics questionnaires from the
                  board members.




                                                14
                        SCOPE AND METHODOLOGY

Our objectives were to determine whether the Authority properly followed procurement
requirements and whether the executive director was selected in accordance with applicable
procedures.

To accomplish our objectives, we

              Reviewed applicable HUD regulations and the Authority’s procurement manual.
              Reviewed the Authority board minutes and transcripts.
              Reviewed 47 contracts.
              Conducted an impromptu inventory count.
              Attended a bid opening.
              Conducted an impromptu cash count.
              Interviewed the Authority’s current and former employees, former board
              members, and a contractor.

We conducted our audit from March through September 2008 at the Authority’s office located at
5300 East Paisano, El Paso, Texas, and our office in Fort Worth, Texas. Our audit period was
January 2006 to March 2008. We expanded our scope as necessary to accomplish our
objectives. We performed our review 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 objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.




                                              15
                              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:

                  Compliance with laws and regulations – Policies and procedures that
                  management has implemented to reasonably ensure that resource use is
                  consistent with laws and regulations.
                  Safeguarding resources – Policies and procedures that management has
                  implemented to reasonably ensure that resources are safeguarded against
                  waste, loss, and misuse.

              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:

                      Controls over compliance with applicable procurement laws and regulations
                      were ineffective.
                      Policies and procedures regarding safeguarding of resources were
                      ineffective.



                                               16
                                     APPENDIXES

Appendix A

                  SCHEDULE OF QUESTIONED COSTS

                   Recommendation             Ineligible 1/     Unreasonable/
                       number                                   unnecessary2/
                           1A                      $661,580
                           1B                         12,697
                           1C                          2,296
                           1D                       _______              $29,344

                         Totals                    $676,573              $29,344




1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or federal, state, or local
     policies or regulations.

2/   Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
     prudent, relevant, and/or necessary within established practices. Unreasonable costs
     exceed the costs that would be incurred by a prudent person in conducting a competitive
     business.



                                              17
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         18
Comment 1




            19
20
21
Comment 2




Comment 3




            22
23
Comment 4




            24
Comment 5


Comment 6




Comment 7




            25
Comment 4




Comment 8




            26
Comment 9




            27
Comment 10




             28
29
Comment 10




             30
                                OIG Evaluation of Auditee Comments

Comment 1       We acknowledge the actions of the present board, including implementing the
                “Blue Ribbon Committee’s” recommendations to correct past deficiencies with
                the Authority.

Comment 2       As agreed to at the exit conference, we revised the finding heading to include
                procurement administration and changed the term “overpayment” to the phrase
                “paid in excess of contract terms.”

Comment 3       We disagree with the Authority that it simply used the wrong “contract vehicle.”
                The contract that the Authority entered into for temporary services contained a not
                to exceed amount of $115,000.14 The primary purpose of the contract was to
                provide temporary services in the area of administrative, office support, handlers,
                and inspectors. The Authority president modified the contract amount by
                $297,231, or 158 percent, when the Authority expanded the scope to include the
                resident employee trainees. Thus, the Authority exceeded the scope and created a
                cardinal change.15 Further, the Authority’s argument leads to irresponsible
                conclusions that could allow the executive director to enter into a contract of less
                than $25,000 without board consent and then modify the cost and contract scope
                to any extent without board approval. HUD regulations require that any contract
                change order/modification be within the contract scope and a cost or price
                analysis be performed.16 As the Authority did not anticipate the inclusion of the
                resident employee trainees in the original contract, its argument regarding the
                “contract vehicle” appears invalid. We maintain that the Authority paid $297,231
                in excess of the contract terms.17 The Authority should have procured these
                services rather than adding the cost to another contract. We added clarifying
                language to the body of the finding.

Comment 4       We appreciate the changes made to prevent future occurrences of this error.
                However, for one year after the pager contract ended, the Authority continued to
                make payments. The Authority should repay to its programs amounts spent in
                excess of contractual amounts.

Comment 5       The Authority agreed with the recommendation.


14
     The Authority modified this contract on October 20, 2005, to add $65,000, increasing the original contract
     price of $50,000 to $115,000.
15
     A cardinal contract change is defined as a change that is beyond the scope of the contract.
16
     24 CFR 84.36(f).
17
     Before July 26, 2007, with board resolution 1451, the Authority president did not have the authority to
     approve contracts above $25,000.


                                                       31
Comment 6     We acknowledge the Authority’s efforts to improve its contracting department
              and procedures.

Comment 7     We considered the Authority’s comments but did not change our conclusions. In
              addition to the conditions cited in the report, an internal electronic message listed
              the photographer as the contractor in the solicitation before being sent to others.
              We maintain our conclusion that the Authority’s action gave the appearance that
              the photographer was preselected.

Comment 8     We appreciate the Authority’s willingness to consider “low-water use
              landscaping” in its projects and its acknowledgment of lack of workmanship.

Comment 9     We included a statement in the body of the finding that the former board member
              admitted to his involvement at a December 2007 board meeting.

Comment 10 We disagree with many of the inferences in the Authority’s response. The
           process used to hire the present executive director was also the process used to
           hire previous people to that position. These former presidents were not at the
           Authority for a significant period and were part of the history of turmoil at the
           Authority that necessitated the Blue Ribbon Committee referred to in the
           Authority’s response. We did not conclude whether the current executive director
           was the best candidate or how well he performed. The current executive director
           was not in charge during the majority of our audit scope. Our finding noted the
           process as determined by the various documentation reviewed. We concluded
           that the Authority did not have and was not required to have a written process for
           selecting its key personnel. We recommended that the Authority establish a
           written procedure before selecting key personnel. The Blue Ribbon Committee
           report stated in part:

              The committee drafted a template of suggested Standard Operating Procedures for
              use by the Board of Commissioners and made recommendations regarding overall
              governance and operational procedures for use by the Board.

              Our finding and recommendation are consistent with this report. The Authority
              should have standard procedures for selecting key personnel.

              We revised the finding to stress the importance of written policies and procedures
              as a matter of good business practice to help ensure consistency and improve the
              transparency of the selection.



                                               32