U.S. Department of Housing and Urban Development
Office of Inspector General
Gulf Coast Region, Office of Audit
Hale Boggs Federal Building
500 Poydras Street, Room 1117
New Orleans, Louisiana 70130
Phone (504) 671-3710 Fax (504) 589-7277
Internet http://www.hud.gov/offices/oig/
MEMORANDUM NO:
December 15, 2009 2010-AO-0801
MEMORANDUM FOR: Deborah Hernandez
Deputy Assistant Secretary, Office of Field Operations, PQ
//signed//
FROM: Sonya D. Lucas
Acting Regional Inspector General for Audit, Gulf Coast Region, GAH
SUBJECT: HUD Needs to Ensure That the Housing Authority of New Orleans Strengthens
Its Capacity to Adequately Administer Recovery Funding
INTRODUCTION
The U.S. Department of Housing and Urban Development (HUD) awarded the Housing
Authority of New Orleans (Authority) $34.5 million, under the American Recovery and
Reinvestment Act of 2009 (ARRA), to use toward its Public Housing Capital Fund projects. In
an effort to stimulate the economy, ARRA funding must be obligated and spent within three
years. As part of the HUD Office of Inspector General’s (OIG) obligation to ensure
accountability and transparency in use of the ARRA funds, we performed a review to assess the
Authority’s capacity to administer ARRA funding. Our objective was to evaluate the
Authority’s capacity and risks in the following areas: basic internal controls, financial
operations, procurement, and outputs/outcomes.
We provided a draft report to HUD and the Authority on November 3, 2009, and received
written comments on November 24, 2009. The complete text of the auditee’s response, along
with our evaluation of that response, can be found in appendix B of this report.
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.
METHODOLOGY AND SCOPE
Our review period was May 1, 2008, to May 31, 2009. We conducted our review between May
12 and September 9, 2009, at the Authority’s headquarters, 4100 Touro Street, New Orleans,
Louisiana, and the local HUD OIG field office, 500 Poydras Street, 11th Floor, New Orleans,
Louisiana.
To accomplish our objective, we
Reviewed and obtained an understanding of ARRA legislation, relevant program
guidance and criteria, the Authority’s amended annual contributions contract, and its
planned activities under ARRA.
Reviewed applicable public housing federal regulations and HUD handbooks.
Interviewed HUD and Authority management and staff regarding the Authority’s
operations and ARRA plans.
Analyzed and evaluated HUD OIG, HUD, and independent public accountant reports of
the Authority and the Authority’s responses and/or corrective action plans, as applicable.
Reviewed the Authority’s organizational charts; staffing levels; job descriptions; and
future staffing plans in the Finance; Contracting and Compliance; and Real Estate
Planning and Development Departments.
Reviewed Authority financial records related to accounts payable disbursements made
between May 1, 2008, and May 29, 2009. Selected a nonstatistical random sample of 30
accounts payable disbursements from a universe of 2,524 disbursements. Reviewed
cancelled checks, if applicable, and all other available supporting documentation
associated with the disbursements.
Reviewed Authority procurement files for rehabilitation contracts that were procured
between May 1, 2008, and May 15, 2009. Selected a sample of four contracts based upon
type of contract (e.g. rehabilitation and/or development type contracts),1 completed
contracts, and dollar amount from a universe of 25 contracts.2
Reviewed Authority outputs/outcomes related to14 completed rehabilitation and/or
demolition type projects that were completed between May 2008 and May 2009, a 100
percent selection. Conducted sites visits for all 14 projects to determine whether the
outputs/outcomes were adequate.
Reviewed the Authority’s cash receipts policy, finance policy, accounts payable policy,
procurement policy, ARRA policy, ARRA risk analysis, five-year capital plan, and
various HUD reviews.
BACKGROUND
ARRA became Public Law 111-5 on February 17, 2009. ARRA makes supplemental
appropriations for job preservation and creation, infrastructure investment, energy efficiency and
science, assistance to the unemployed, and state and local fiscal stabilization for the fiscal year
ending September 30, 2009, and for other purposes. HUD was appropriated $13.6 billion in
ARRA funds. Of the $13.6 billion, $3 billion3 was allocated to public housing capital funding to
1
The Authority planned to use the ARRA funding for the same purposes, rehabilitation and development, as the regular capital funding, which
was included in the five-year capital funding plan.
2
The 25 contracts exclude all contracts that were cancelled, did not receive proposals or responses, were pending, etc.
3
The amount of funding was formula generated in accordance with the regulation found at 24 CFR (Code of Federal Regulations) 905.10. The
Public Housing Capital Fund formula was computed based on data for buildings and units as reported in the Office of Public and Indian Housing
Information Center system as of September 30 of the prior fiscal year, 2008, which is “the reporting date” designated by HUD.
2
carry out capital and management activities for public housing agencies. Of the $3 billion, $34.5
million was allocated to the Authority toward its public housing capital funding (capital
funding).
In addition to the $34.5 million in ARRA funding, the Authority was authorized approximately
$158.8 million in other allocated capital funding, totaling more than $193.3 million. As of
October 2009, the Authority had an available balance of $110 million, as reflected in the chart
below:
Authorized Amount Available Balance
Program area (as of October 2009) (as of October 2009)
Capital fund recovery (or ARRA)4 $34,576,051 $33,904,567
5
Capital fund $158,806,183 $76,596,835
Total funding: $193,382,234 $110,501,402
The Authority, as authorized by HUD, also combined more than $194.66 million in voucher and
public housing funding to use with its ARRA and capital funding. The Authority planned to use
the combined funding towards its capital fund program. Therefore, the Authority had more than
$387.9 million to use towards its capital fund program.
The Authority plans to use the ARRA funds to procure various contracts to rehabilitate existing
and/or develop new public housing units. It also plans to conduct physical needs assessments.
As a result, the implementation of the ARRA plans would be associated primarily with the
Authority’s Contracting and Compliance7, and the Real Estate Planning and Development
Departments.8 The Authority must expend all of its ARRA funding within three years of the
Authority’s amended annual contributions contract effective date.
The Authority is a state-created public agency governed by a board of commissioners. The
Authority’s mission is to provide decent, safe, sanitary, and affordable housing to low-income
residents in the New Orleans, Louisiana, area. HUD took control of the Authority in 2002,
because it had performed poorly almost continuously since 1979. To accomplish the takeover,
HUD replaced the Authority’s governing body with two HUD managers. HUD’s administrative
receiver replaced the Authority’s executive director to control the day-to-day operations of the
4
The capital fund recovery included the ARRA grant funded for fiscal year 2009.
5
The capital fund included grants ranging from fiscal years 2005 to 2008.
6
Section 901 of the Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006,
allowed Public Housing Agencies to combine funds under the fungibility process. Under Section 901, HUD approved the Authority’s 2006, 2007,
and 2008 fungibility plans allowing the Authority to combine $97.9 million, $66.7 million, and $30 million in housing choice voucher and public
housing funds for those years, respectively. The Authority has 5 years to spend the combined funding. HUD was unable to verify the amount of
funds expended to date.
7
The Authority’s Contracting and Compliance Department’s goal is to maintain continuous supply of goods and services necessary to support
site development, production, and service schedules.
8
The Real Estate Planning and Development Department includes three subdivisions, which were the Development Division, the Modernization
Division, and the Homeownership Division. The Modernization Division was tasked to oversee capital funding grant activities as of February
2009. As a result, ARRA was placed under the Modernization Division.
3
Authority, and HUD’s one-member board of commissioners replaced the Authority’s board of
commissioners for reviewing and approving policies, procedures, and contracts. The
administrative receiver and one-member board has since been replaced. Specifically, on October
9, 2009, HUD’s Secretary announced that (1) a new leadership team will take charge of the
Authority and (2) the creation of a local Authority advisory panel that will provide counsel to the
new leadership team.
RESULTS OF REVIEW
The review determined that the Authority had capacity deficiencies related to internal controls,
financial operations, procurement, and inventory. Specifically, the Authority lacked (1) internal
control capacity related to staffing levels and segregation of duties; (2) financial capacity related
to its accounts payable procedures, financial policies, and independent public accountant
reviews; and (3) procurement capacity as the Authority did not always comply with the
procurement policy and the policy was not always clear. The Authority generally ensured that its
outputs and outcomes related to rehabilitation contracts were adequate. However, it did not
maintain an adequate inventory listing of items removed from some of the rehabilitated projects.
To ensure that the Authority has adequate safeguards and procedures in place to adequately
administer the ARRA funds, HUD, as the Authority’s administrative receiver, must ensure that
the Authority strengthens its capacity in the areas of internal control, finance, procurement, and
inventory. A detailed discussion of deficiencies follows.
The Authority Did Not Maintain Adequate Staffing Levels Based upon Its Organizational
Structures
According to HUD’s recovery plan, dated October 2006, the Authority lacked adequate staffing.
The recovery plan stated that to implement the financial recovery plan, the Authority needed to (1)
retain staff to assist in daily operations, (2) develop efficient and effective controls, and (3)
develop an efficient and effective Finance Department structure. The Authority was to
implement this plan by January 1, 2007. Based upon our review, however, inadequate staffing
levels remained a concern in both the Finance and the Contracting and Compliance Departments.
We further determined that, at the time of our review, the Real Estate Planning and Development
Department maintained adequate staffing levels. All departments will play vital roles in the
expenditure and/or implementation of the ARRA funds.
Finance Department
A review of the Authority's organizational structure determined that the staffing levels in
the Finance Department were not appropriate. The organizational structure required ten
employee positions. As of May 2009, four positions were filled with Authority
employees.9 The Authority contracted with Caballero and Castellanos (C&C), which
satisfied three of the positions.10 The remaining three positions were vacant. Although
9
There was a chief financial officer, budget analyst 3, treasury manager, and accounting specialist supervisor.
10
The specific positions that were filled and/or covered by C&C were the internal auditor, Housing Choice Voucher program accountant, and
payroll coordinator, based on the job descriptions. The remaining C&C team focused on various function areas within the Finance Department
(e.g., budget, mixed finance, Section 8, utilities) but did not have a specific title.
4
the Authority contracted with C&C, according to Authority officials, the contract ended
June 30, 2009, leaving a number of vacancies within the Finance Department and the risk
for internal control deficiencies. Based upon the four Authority employees alone, the
number of staff was insufficient for the workload.
The Authority’s Finance Department, therefore, was deemed understaffed. HUD must
ensure that the Authority obtains and maintains adequate staffing levels.
The Finance Department also lacked a segregation of duties in that some employees
performed dual roles. For example, (1) the chief financial officer also performed the
duties of the accounting manager, (2) the budget analyst also performed the duties of the
accounts payable coordinator, and (3) the treasury manager also performed the accounts
receivable function. In particular, the dual roles performed by the treasury manager
presented a concern.
The treasury manager’s roles and responsibilities included verifying and reconciling all
accounting records, including daily cash and banking. In performing the accounts
receivable function, the treasury manager was also responsible for receiving and
accounting for incoming cash (cash receipts). These duties should be performed
separately, since this lack of segregation of duties presents a risk for funds’ exposure to
waste and misuse. In addition, since the treasury manager performed the dual roles, the
Authority’s cash receipts procedures were not performed in accordance with the
established policies. Specifically, the treasury manager:
(1) Performed both the receiving and processing function of the cash receipts procedure,
although the policy called for an administrative assistant and a staff accountant to
perform these duties,11 and
(2) Physically took the received deposits to the bank, at the time of our review, when the
policy required that the receipts be transferred to the bank by a courier.
An analysis of the Authority’s organizational structure and job descriptions for current
and future employees determined that an accounts receivable role was not considered for
future staffing. The Authority should consider separating the Finance Department roles
and responsibilities.
Contracting and Compliance Department
As of May 2009, there were two employees in the Contracting and Compliance
Department, the director and a contracting specialist. The Authority’s organizational
structure required three employees within the department. The vacant position pertained
to a contract monitoring and compliance specialist, whose role was to oversee the
Authority’s departments and/or ensure that they monitored its contractors and received
the desired deliverables. In the absence of the contracting and compliance monitor, the
11
The cash receipts policy is unclear as it states that the mailed cash receipts are to be received by the chief financial officer’s administrative
assistant and then processed by a staff accountant. However, neither the Authority's organizational chart nor its job descriptions list the title of
chief financial officer administrative assistant or staff accountant.
5
director and contracting specialist shared the role. The staff admitted that little
monitoring was conducted, since the contract monitoring and compliance specialist
positions were not filled. The Authority should hire a qualified individual to fill the
contract monitoring and compliance specialist vacancy to ensure that its procured
contracts are properly monitored.
A contracting specialist, hired in March 2009, was tasked to procure all contracts for the
Authority regardless of the procurement type and dollar amount (which includes small
purchase, sealed bids, construction contracts, etc.) The Authority should consider
additional staff to minimize workloads for the current staff.
Real Estate Planning and Development Department
A review of the Authority's organizational structure determined that staffing levels, work
load assignments, and staff responsibilities were appropriate to perform the Authority's
Real Estate Planning and Development functions and to ensure adequate segregation of
duties. The Authority’s organizational structure required 12 employee positions. As of
May 2009, there were 12 individuals filling the positions outlined for the department.
Adequate staffing levels and the proper segregation of duties are increasingly important, as it was
recently revealed that the Authority was exposed to three alleged fraud schemes. Specifically, since
June 2009:
1. The Authority’s former chief financial officer, contracted through C&C, plead guilty to
embezzling over $900,000 in Authority funds. The former chief financial officer billed and
received funds from the Authority, for work his wife did not perform and falsified hourly
rates through other various means;12
2. Three Authority staff in the Finance, and Contracting and Compliance Departments was
placed on administrative leave after accusations that the staff stole more than $100,000
through an accounting scheme that dated back at least two years. In the scheme, the staff
allegedly colluded to receive funds by creating bogus purchase orders for services that the
Authority did not receive; and
3. On December 2, 2009, the Authority’s former Section 8 department director plead guilty to
a federal theft charge for illegally using Section 8 voucher funding to pay rent on his
residence. The director unlawfully used over $45,000 to pay the rent for more than two
years.
By July 14, 2009, the Authority had filled an additional five positions, one within the Contracting
and Compliance Department,13 and four within the Finance Department14, which alleviated some of
the dual roles. The employment of the chief financial officer, hired March 2009 to replace the
12
Control weaknesses that contributed to this issue were identified in HUD OIG Audit report 2009 AO 0002.
13
Positions filled included a contract monitoring and compliance specialist.
14
Positions filled included accounting manager, Housing Choice Voucher program accountant, payroll coordinator, and accounts payable
coordinator.
6
former C&C chief financial officer, ended September 2009, again decreasing the Authority’s
Finance Department’s staffing level.
Given that the Authority was awarded $34.5 million in ARRA capital funding, as well as $158.8
million for non recovery capital funding, and planned to use over $194.6 million15 of combined
funding towards its capital fund program, adequate staffing levels and proper segregation of duties
are crucial. Adequate staff and proper segregation of duties will aid the Authority in adequately
administering its funding and assist in minimizing its exposure to fraud, waste, and misuse. At the
time of our review, the staffing levels in the Finance, and Contracting and Compliance Departments
were insufficient to maintain adequate controls over the millions of dollars planned for procurement
and/or expenditure through the Authority. As such, HUD must ensure that the Authority obtains
and maintains adequate staffing levels to (1) promote safeguards of its resources and the proper
segregation of duties, (2) ensure that the Authority follows its policies and procedures, and (3)
ensure that funds are protected from fraud, waste, and misuse.
The Authority Did Not Ensure That Its Finance Policies Were Followed or Clear, and Its
Independent Public Accountant Audit Findings Were Corrected
A review of 30 randomly selected accounts payable disbursements, totaling more than $1.2
million, determined that eight (27 percent) were unsupported. This condition occurred because
the Authority’s Finance Department did not follow the established departmental policies, and/or
the departmental policies were not clear. As a result, the Authority spent $321,462 on eight
unsupported disbursements. Further, although supported, seven (23 percent) disbursements
were processed without proper payment authorization, in part, because the finance policies and
procedures were unclear.
The finance policy stated, “the Finance Department shall ensure that proper authorization is
received from the appointed approving official prior to release of payment. All payments shall
be issued based upon original invoices or vendor certified copies only.” The review determined
that these procedures were not always followed. Instances were noted in which disbursements
were approved that did not contain an invoice or vendor-certified copy, and some invoices were
not authorized by the Finance Department.
In addition, the finance and accounts payable policies were unclear with respect to approval
forms, approving officials, and job titles for persons required to perform some finance functions.
The finance policy was unclear with respect to (1) what documentation served as sufficient
support for disbursements, (2) how to process exceptions in the absence of stated documentation,
(3) how the Finance Department ensured proper authorization, (4) who in the Finance
Department served as the authorizer, and (5) at what point in the process the Finance Department
authorization should occur.
The accounts payable policy did not explain which form was the governing document for
disbursement approvals. The Authority’s accounts payable policy, effective April 2008, required
the Authority to document a check request form, which must be signed by the chief financial
officer and administrative receiver, to show that the disbursement was properly authorized. The
15
2006 fungibility plan $97.9 million + 2007 fungibility plan $66.7 million + 2008 fungibility plan $30 million. See background section above.
7
accounts payable policy also stated that the check request form was originally used in the event
that a purchase order was not used. However, the accounts payable policy did not explain (1)
whether the check request form was required for all disbursements and became the governing
approval document, regardless of whether there was a purchase order, and (2) whether the chief
financial officer and the administrative receiver were required to sign the purchase order if the
check request form did not serve as the governing document. In addition, the account payable
policy did not specify proper procedures related to prepaid items and whether those types of
payables would need prior approval using the check request form as well. Finally, regarding the
accounts payable process, the policy outlined a budget manager as a reviewer and approver
throughout the process. However, the Authority did not have a budget manager to satisfy this
requirement.
Independent public accountant reports have also identified the Authority’s deficiencies, related to
processing vendor invoices and its policies and procedures, as ongoing concerns since 2002. The
January 2009 HUD OIG audit report cited the same deficiencies.16 The Authority indicated that
it was taking measures to address the findings. Based upon this capacity review, the Authority
continued to have issues related to its financial operations.
The unsupported accounts payables, lack of proper approvals for the payables, unclear finance
policies, and unaddressed independent public accountant findings presented a significant concern
related to adequate safeguards of Authority funding, including the $34.5 million in ARRA
funding. HUD must ensure that the Authority updates its finance policies to reflect the
appropriate accounts payable processes and clarify authorizing requirements to correct the
accounts payable deficiencies and address the similar independent public accountant findings.
HUD must also ensure that the Authority follows its established policies and procedures. These
measures are needed to improve the Authority’s capacity regarding its financial operations.
The Authority Did Not Ensure That Its Procurement Policy and HUD Rules Were
Followed
A procurement file review determined that (1) required documentation was not always
maintained in the procurement files and (2) the procurement process was not always followed. It
was also determined that the Authority’s procurement policy was unclear in some instances.
The Authority’s procurement policy, as well as HUD rules, required the Authority to document
the rationale for chosen procurement methods and to notify bidders of the contract selection
results. It also outlined the required procurement process. A review of four files identified
issues in three (75 percent), as explained below:
The procurement method was not documented for one file.
Neither the procurement method nor the notifications to bidders of the contract selection
results were documented in one file. In addition, the procurement process was not
followed, as the bid was not advertised for the minimum 15 days as required for
competitive proposals. According to the contracting and compliance director, the bidders
16
2009-AO-0002
8
were notified informally. However, federal regulations17 and the Authority’s
procurement policy required sufficient record of the notification.
The procurement method was not documented for one file. In addition, the procurement
process was not followed, as (1) work was initiated by the contractor without a written
notice to proceed; and (2) additional work commenced prior to formal approval. A
verbal change order was issued by the user department,18 but the contracting officer did
not formally authorize the change, nor was documentation developed until after the
change order was completed. The change order included some items that were outside
the scope of the contract and other items that were already in the initial contract.
The remaining file included the required documentation and followed the procurement process.
The procurement policy was not always clear. Specifically, the policy included a section related
to ethical standards. The ethical standards discussed conflicts of interest but did not specify
items that would be considered a conflict of interest as documented within HUD’s regulations.19
As a result, the policy was vague with respect to conflicts of interest and could potentially lead to
confusion for the Authority staff. The policy did not identify the type of documentation required
to support the bid advertisement to ensure consistency throughout the files. As a result, the
Authority should consider adding clarification and/or specifics to the procurement policy to
improve the procurement process.
The Authority’s lack of procurement file documentation, failure to follow the procurement
policies, and unclear procurement policy presented a concern with respect to procurement
capacity. Since the ARRA funds were meant to be obligated relatively quickly and the Authority
planned to expend most of the ARRA funds through procuring contractors for rehabilitation and
development, the procurement issues must be corrected to ensure that the expenditure of the
ARRA funding will be properly documented and tracked.
The Authority Generally Ensured That Its Outputs and Outcomes Were Adequate but
Lacked Sufficient Inventory Listings
An evaluation of 14 closed rehabilitation projects determined that the Authority generally
ensured that its outputs and outcomes were adequate. Site visits to 14 projects determined that
11 (79 percent) were completed in accordance with the scope of work requirements. We were
unable to verify the remaining three because the projects’ units were in the demolition process
and many of the items required as part of the scope of work, such as toilets, cabinets, hot water
heaters, and doors, had been removed and placed in inventory or in other units. As related to the
three unverified projects, we determined that the inventory listing and supporting documentation
were not sufficient to track the items that were removed in some rehabilitated units. The
inventory did not contain serial or other identification numbers. Further, a site visit to the
Authority’s inventory location determined that the items were not labeled with identification
17
24 CFR 85.36(b) (9) states, “Grantees and subgrantees will maintain records sufficient to detail the significant history of procurement. These
records will include, but are not necessarily limited to the following: rationale for the method of procurement, selection of contract type,
contractor selection or rejection, and the basis for the contract price.”
18
A user department is any department within the Authority.
19
CFR 85.36(3)
9
numbers or other identifying information, thus preventing verification that the items had been
removed from the projects’ units.
The lack of a sufficient inventory listing presented an internal control concern, as the ARRA
funding was planned to be partially expended on rehabilitation projects similar to the 14 projects
reviewed. Since the Authority’s inventory was not traceable for three of the projects (21
percent), the Authority did not have an adequate system in place to safeguard and account for its
assets. To ensure that the Authority’s assets are safeguarded; adequately accounted for; and
protected from loss, damage, and theft, HUD should consider requiring that the Authority label
all assets with (1) identification numbers, (2) the source of the item, and (3) the
condition/description of the item before these items are placed in the inventory.
HUD Had Implemented Controls to Monitor the Authority’s Administration of the ARRA
Funds and the Authority Developed ARRA Policies
In accordance with ARRA requirements, the HUD Secretary agreed to provide troubled public
housing agencies with funding to improve HUD’s inventory and engage in much-needed capital
and management activities. HUD also determined that troubled agencies would require
enhanced monitoring and oversight to meet the ARRA obligations. As a result, HUD’s Office of
Public and Indian Housing, Office of Field Operations, developed a troubled public housing
agency Recovery Act strategy to ensure increased monitoring and oversight. There were 174
agencies designated as troubled as of February 25, 2009, including the Authority.
HUD performed a risk analysis and determined that the Authority had systemic capacity
problems requiring atypical technical assistance to achieve any success in administering the
ARRA funds. As a result, HUD implemented a $0 threshold requiring prior HUD approval on
all obligations and expenditures related to the ARRA funding. HUD performed a remote and on-
site ARRA review in July 2009. During the review, HUD identified that (1) environmental
review documents must be completed before the obligation of funds and (2) there was no
funding obligation with just over 200 days remaining before the statutory deadline. HUD noted
that the Authority had addressed both issues. HUD’s overall assessment denoted the Authority
as “on track,” based on the remote review, and “no obligations; no expenditures,” based on the
on-site review.
To comply with the ARRA requirements, the Authority also developed policies and procedures.
The policies and procedures included (1) which projects the Authority planned to fund and the
associated amount allocated per project; (2) required deadlines for the obligation and expenditure
of funds; (3) HUD’s reporting requirements; and (4) guidance on how the Authority would
implement the policies.
We acknowledge HUD’s and the Authority’s actions, as these types of measures are necessary to
ensure that the ARRA funding is spent in accordance with the requirements. HUD must also
ensure that the Authority strengthens its capacity in the areas of internal control, financial
operations, procurement, and inventory, as the Authority had weaknesses in these areas, and
these areas will play a vital role in the proper administration of the ARRA funding.
10
Conclusion
Due to capacity limitations, the Authority will encounter difficulty in both obligating and
expending the $34.5 million in ARRA funds within the statutory time limits. While the
Authority had taken measures to develop policies and procedures for obligating and expending
the ARRA funds, the Authority’s prior performance continues to raise serious concerns about the
Authority’s ability to comply with the statutory requirements and safeguard these limited
resources. HUD must make a realistic determination on the Authority’s ongoing capacity
limitations. To assist HUD in evaluating the Authority’s capacity, we are also recommending
the Authority hire two separate contractors to assist the Authority and HUD in overseeing,
safeguarding, and monitoring the implementation of the planned ARRA activities.
RECOMMENDATIONS
We recommend that the Deputy Assistant Secretary, Office of Field Operations, ensure that the
Authority strengthens its capacity in the areas of internal control, financial operations,
procurement, and inventory by requiring the Authority’s receiver to
1A. Support or repay its applicable accounts for eight unsupported disbursements totaling
$321,462.
1B. Maintain adequate staffing levels in its Finance, and Contracting and Compliance
Departments, based upon the organizational structure. In addition, as related to the Finance
Department, the Authority should obtain qualified staff to perform the accounts receivable
function.
1C. Amend its finance policies to specify approving officials, appropriate staff titles, and
required approval forms and procedures. In addition, the Authority should incorporate in its
finance policy procedures related to expenditure of prepaid items and ensuring that
independent public accountant audit findings are addressed in a timely manner.
1D. Consider cross-training employees in the Finance Department and rotate respective roles
periodically in an effort to prevent collusion.
1E. Amend its procurement policy to comply with 24 CFR 85.36. Specifically, the Authority
should
Clarify the procurement policy with respect to adequate documentation needed in the
files.
Prohibit procurement practices that do not comply with 24 CFR 85.36 to prevent
informal procurement practices.
Ensure that the corrected procurement policies are followed.
11
1F. Consider labeling all asset inventory items obtained for rehabilitation with (1)
identification numbers, (2) the source of the item, and (3) the condition/description of the
item before placing items into the inventory to ensure that its assets are safeguarded;
adequately accounted for; and protected from loss, damage, and theft.
1G. Obtain a contractor to oversee the contracting, and the progress and completion of the
work activities. At a minimum, the contract with the firm must have a scope of work
which requires:
Ensuring that all contracts comply with HUD requirements;
Ensuring that costs are appropriate for contracted work;
Ensuring that work is progressing at an acceptable rate and in compliance with
the contract specification(s);
Ensuring that cost invoices are consistent with work completed;
Biweekly reporting of activities compared to plan and contract schedules;
1H. Contract with an accounting firm to maintain a separate accounting and biweekly
reporting of ARRA funds expended on ARRA activities.
We also recommend that the Deputy Assistant Secretary, Office of Field Operations,
1I. Request that the Assistant Secretary for Public and Indian Housing immediately
deobligate all or some of the Authority’s ARRA funds and reallocate the funds to housing
authorities that can utilize the funds, if the lack of capacity continues and indicates the
Authority’s inability to obligate or complete the planned work by the statutory deadline.
12
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Unsupported 1/ Funds to be put to
number better use
1A $321,462
1I 2/
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.
2/ Recommendations that funds be put to better use are estimates of amounts that could be
used more efficiently if an Office of Inspector General (OIG) recommendation is
implemented. These amounts include reductions in outlays, de-obligation of funds,
withdrawal of interest, costs not incurred by implementing recommended improvements,
avoidance of unnecessary expenditures noted in pre-award reviews, and any other savings
that are specifically identified. This schedule does not include any amounts associated
with implementing recommendation 1l. To the extent that HUD reallocates all or a
portion of the Authority’s $34,576,051 in ARRA funds to other housing agencies, such
amounts will be recognized at a later date as “funds put to better use.”
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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-5000
ASSISTANT SECRETARY FOR
PUBLIC AND INDIAN HOUSING
MEMORANDUM FOR: Sonya D. Lucas, Acting Regional Inspector General for Audit, Gulf
Coast Region, GAH
FROM: Deborah Hernandez, General Deputy Assistant Secretary for Public and Indian
Housing, P
SUBJECT: Public and Indian Housing Response to Recommendations in OIG Capacity Review
of HANO for Memorandum Number 2010-AO-1801, Dated November 3,
2009
PIH is responding to the recommendations of the draft report referenced above.
Comment 1 General:
HUD agrees that ensuring that the Recovery Act funds are used in a timely, appropriate and
efficient manner is a top priority, and we share the IG’s commitment to ensure accountability and
transparency in the use of the Recovery Act funds.
As discussed previously, in response to the importance of ensuring that our PHAs’ administer the
funds appropriately and timely PIH has implemented a comprehensive monitoring strategy. The
troubled PHA strategy, which is being implemented at HANO, contains several components that
serve to strengthen the capacity of the troubled agencies to adequately administer the Recovery
Act Capital funds. These components include:
Review and approval of all obligation documents prior to obligations
A zero threshold manual review for all requests of funds prior to release in LOCCS,
which means that HANO can not draw down any funds without HUD approval.
An initial remote review that included a review of grant initiation activities, uses of
funds, environmental compliance, procurement policy, and grant performance.
On-site review with follow-up monitoring. HANO is being monitored on-site quarterly.
The period of review for the subject MEMORANDUM NO: 2010-AO-1801 for the Housing
Authority of New Orleans was May 1, 2008 – May 31, 2009. It is important to note that the
review was completed prior to HUD fully implementing the troubled monitoring strategy for the
Recovery Act funds and before HANO began implementation of the Recovery Act Capital Fund
grant. HANO is adhering to the requirements of the troubled agency monitoring strategy
described above and has currently obligated $7,695,495 (22%) of the grant.
The HUD Team has been working closely with the HANO staff to ensure adequate
administration of this grant and will continue to work closely with the new Leadership Team at
HANO. The new management team of 12 began their work on November 2, 2009 and while
managing the day-to-day operations, will also be conducting a comprehensive operational and
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PIH Comment: Due to the recent leadership changes at HANO, the
new team will need time to review the recommendation and
management assessment of all functional areas, including: finances, development, property
maintenance, public safety & security, resident services, procurement, IT, and audit & compliance.
The results of this in-depth forensic investigation will become the basis of a new recovery plan that
lays out, in detail, how HANO’s deficiencies will be remedied.
Recommendation 1A: Support or repay its applicable accounts for eight unsupported
Comment 2 disbursements totaling $321,462.
PIH Comment: Due to the recent leadership changes at HANO, the new team will need
time to review the recommendation and determine what course of action is necessary.
Specifically for this recommendation, the new leadership team will review the eight
identified disbursements and provide supporting documentation for the disbursements
totaling $321,462. Once the review is complete, if supporting documentation is
unavailable, a plan for repayment of the unsupported disbursements will be developed
and implemented.
Target Date: To be determined after review by the new leadership team.
Comment 3 Recommendation 1B: Maintain adequate staffing levels in its Finance and Contracting and
Compliance Departments based upon the organizational structure. In addition, as related to the
Finance Department, the Authority should obtain qualified staff to perform the accounts receivable
function.
PIH Comment: Due to the recent leadership changes at HANO, the new team will need
time to review the recommendation and determine what course of action is appropriate
and necessary.
Target Date: To be determined after review by the new leadership team.
Comment 3
Recommendation 1C: Amend its financial policies to specify approving officials, appropriate
staff titles, and required approvals forms and procedures. In addition, the Authority should
incorporate in its finance policy procedures related to expenditure of prepaid items and ensuring
that independent public accountant audit findings are addressed in a timely manner.
PIH Comment: Due to the recent leadership changes at HANO, the new team will need
time to review the recommendation and determine what course of action is appropriate
and necessary.
Target Date: To be determined after review by the new leadership team.
Comment 3
Recommendation 1D: Consider cross-training employees in the Finance Department and rotate
respective roles periodically in an effort to prevent collusion.
PIH Comment: Due to the recent leadership changes at HANO, the new team will need time to
review the recommendation and determine what course of action is appropriate and necessary.
15
Target Date: To be determined after review by the new leadership team.
Recommendation 1E: Amend its procurement policy to comply with 24 CFR 85.36.
Comment 4 Specifically, the Authority should:
Clarify the procurement policy with respect to adequate documentation needed
in the files.
Prohibit procurement practices that do not comply with 24 CFR 85.36 to
prevent informal procurement practices
Ensure that the corrected procurement policies are followed
PIH Comment: A review by HUD of HANO’s Recovery Act procurement policy
showed it to be in compliance with 24 CFR 85.36. In addition, due to the increased
oversight and monitoring of Recovery Act activities at HANO, including prior approval
of all obligating and expenditure documents, HUD believes the proper checks are
already in place to address the concerns raised.
Target Date: HUD respectfully requests removal of this recommendation
Comment 3 Recommendation 1F: Consider labeling all asset inventory items obtained for rehabilitation
with (1) identification numbers, (2) the source of the item, and (3) the condition/description of the
item before placing items into inventory to ensure that its assets are safeguarded; adequately
accounted for; and protected from loss, damage, and theft.
PIH Comment: Due to the recent leadership changes at HANO, the new team will need
time to review the recommendation and determine what course of action is appropriate
and necessary.
Target Date: To be determined after review by the new leadership team.
Recommendation 1G: Obtain a contract to oversee the contracting, and the progress and
Comment 5 completion of the work activities. At a minimum, the contract with the firm must have a scope of
work which requires:
Ensuring that all contracts comply with HUD requirements;
Ensuring that costs are appropriate for contracted work;
Ensuring that work is progressing at an acceptable rate and in compliance with
the contract specifications;
Ensuring that cost invoices are consistent with work completed;
Biweekly reporting of activities compared to plan and contract schedules
PIH Comment: HUD agrees with the importance of the requirements listed, but has already put
in place measures to ensure that they are met. The contract with the new leadership team defines
their roles and responsibilities in such a way that includes these
16
requirements. And as an additional check, under the enhanced strategy for the oversight
and monitoring of troubled agencies, HUD will ensure that many these requirements are
in place prior to approval of obligations and expenditures.
Target Date: HUD respectfully requests removal or closure of this recommendation.
Recommendation 1H: Contract with an accounting firm to maintain separate accounting and
Comment 3 biweekly reporting of ARRA funds expended on ARRA activities.
PIH Comment: Due to the recent leadership changes at HANO, the new team will need
time to review the recommendation and determine what course of action is appropriate
and necessary.
Target Date: To be determined after review by the new leadership team.
Comment 6 Recommendation 1I: Request that the Assistant Secretary for Public and Indian Housing
immediately deobligate all or some of the Authority’s ARRA funds and reallocate the funds to
housing authorities that can utilize the funds, if the lack of capacity continues and indicates the
Authorities inability to obligate or complete the planned work by the statutory deadline.
PIH Comment: While HUD shares the OIG’s concern that ARRA funds be obligated in a
timely and efficient manner, we disagree with this recommendation. In light of our
common objective to restore HANO to its full capacity as a public housing authority, it
would seem counter-productive to deobligate funds that are critical to achieving that end.
As indicated in previous comments, HANO and HUD have both developed policies and
procedures to ensure greater compliance with the Recovery Act funds going forward.
HUD thus believes that the measure recommended is unnecessary.
Lastly, it should be noted that at the request of the Assistant Secretary for PIH, the newly
appointed Administrative Receiver will meet with the Acting Regional Inspector General
in New Orleans on an ongoing basis to ensure that the IG’s office is kept updated on
HANO’s progress.
Target Date: HUD respectfully requests removal of this recommendation.
17
OIG Evaluation of Auditee Comments
Comment 1 HUD agreed with ensuring that the Recovery Act funds are used in a
timely, appropriate, and efficient manner is a top priority. HUD also
shared the HUD Office of Inspector General’s (OIG) commitment to
ensure accountability and transparency in the use of the Recovery Act
funds. As a result, HUD implemented a comprehensive monitoring
strategy to strengthen the Authority's capacity. HUD noted that the OIG
completed its review prior to HUD fully implementing this strategy and
before the Authority began implementation of the Recovery Act Capital
Fund grant. HUD also stated that the HUD team has been working closely
with the Authority to ensure adequate administration of the grant and will
continue to work closely with the new leadership team at the Authority.
We acknowledge HUD's efforts in implementing the monitoring strategy
for the Recovery Act funds and ensuring that the new leadership team
assesses the Authority’s deficiencies to establish appropriate corrective
actions.
Comment 2 In response to recommendation 1A, HUD asserted that the corrective
action was contingent upon review by the Authority's new leadership team
who will provide supporting documentation regarding the eight accounts
payable reimbursements totaling $321,462. If supporting documentation
is not provided, HUD agreed to repay the unsupported costs.
We acknowledge HUD's proactive measures to resolving the
recommendation.
Comment 3 For recommendations 1B, 1C, 1D, 1F and 1H, HUD stated that due to the
recent leadership changes at Authority, the Authority’s new leadership
team will need time to review the recommendations and determine what
course of action is appropriate and necessary.
We acknowledge HUD's approach to resolving the recommendations.
Comment 4 HUD asked that OIG remove recommendation 1E. Specifically, HUD
determined the Authority's Recovery Act procurement policy was in
compliance with 24 CFR 85.36 and that HUD's Recovery Act monitoring
strategy established proper checks to address the recommendation.
During fieldwork, we reviewed the Authority’s Recovery Act procurement
policy, 24 CFR 85.36, and the Authority’s procurement files. Based on
that review, we believe that sufficient and appropriate evidence was
18
gathered, which provided a reasonable basis for our findings and
conclusions. As such, we stand by our original recommendation.
Comment 5 HUD agreed that the requirements noted in recommendation 1G were
important but requested that OIG remove the recommendation from the
memorandum. HUD asserted that the contract with the new leadership
team includes the requirements in the recommendation.
HUD did not provide a copy of the new leadership team's contract. As
such, we were unable to confirm HUD's assertions. Therefore, we stand
by our original recommendation.
Comment 6 HUD disagreed with recommendation 1I and requested that OIG remove
the recommendation. HUD explained that it was counterproductive to
deobligate the Recovery Act funds. In addition, HUD and the Authority
have both developed policies and procedures to ensure greater compliance
with the Recovery Act funds going forward. HUD thus believes that the
measure recommended is unnecessary.
The deobligation of funds would only occur if the Authority's lack of
capacity continues. In addition, although HUD and the Authority have
both developed policies and procedures, HUD must ensure that the
Authority has corrected the deficiencies identified in this audit
memorandum. As such, we stand by our original recommendation.
19
HUD Needs to Ensure That the Housing Authority of New Orleans Strengthens Its Capacity to Adequately Administer Recovery Funding
Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-12-15.
Below is a raw (and likely hideous) rendition of the original report. (PDF)