oversight

Mississippi Development Authority, Jackson, Mississippi, Did Not Always Ensure Compliance under its Public Housing Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-06-22.

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

                                                                       Isssue Date
                                                                                 Decem
                                                                                     mber 15, 2009
                                                                       A
                                                                       Audit Report Num
                                                                                      mber
                                                                                2010-A
                                                                                     AO-1001




TO:          Nelson Bregon, Geeneral Deputyy Assistant Secretary,
                                                       S          D



FROM:        Sonya D.
                   D Lucas, Accting Regionnal Inspectorr General, GAH
                                                                  G

SUBJEC
     CT: Mississsippi Develoopment Authhority, Jacksoon, Mississipppi, Did Nott Always
           Ensu ure Compliaance under Itts Public Houusing Prograam

                                      HIGH
                                         HLIGHT
                                              TS

 What We
      W Audited
              d and Why

              We co  onducted a review of thee State of Miississippi (Sttate), a $5.5 billion
              Comm  munity Deveelopment Bloock Grant (C   CDBG) disasster recoveryy grantee. We  W
              initiatted the review
                                  w as part of the Office of
                                                          o Inspector General
                                                                         G         (OIG
                                                                                      G) Gulf Coaast
              Regio on’s audit plaan and exammination of reelief efforts provided
                                                                         p          by the federal
              govern  nment in thee aftermath of
                                              o Hurricanees Katrina annd Rita. Ourr objectives werew
              to determine whetther the Statee ensured thhat (1) publicc housing autthorities
              (authoorities) proviided quarterlly progress reports
                                                           r        (repoorts) in comppliance with their
              subreccipient agreeements (agreeements) andd (2) the agreeements for its authoritiees
              compllied with thee U.S. Deparrtment of Hoousing and UrbanU       Develoopment’s (HHUD)
              minimmum requirem   ments.

 What We
      W Found

              Althouugh the State generally ensured
                                               e       that the agreemeents complieed with HUDD’s
              minimmum requirem  ments, it didd not always ensure that authorities complied
                                                                                   c        witth
              their agreements.
                    a              Of 22 reporrts reviewedd, none compplied with the agreementt. In
              addition, the Statee did not alw
                                             ways ensure that
                                                           t the repoorts were com mplete and
              submiitted by the established
                                 e            d dates.
                                              due


                                                  1
           These conditions occurred because the State (1) did not develop adequate written
           policies and procedures for its staff to use during the review and verification of
           the data submitted in the reports, (2) believed that compliance was not necessary
           since the required information was included within the authorities’ project files or
           construction contracts, and (3) did not have a system or process for tracking
           submission of the reports. This lack of sufficient detail could prevent the State
           from having a sound basis for (1) requiring the authorities to comply, (2)
           adequately documenting and effectively monitoring the program’s progress, and
           (3) ensuring that program goals are met and deliverables are provided as required.

What We Recommend

           We recommend that HUD’s General Deputy Assistant Secretary for Community
           Planning and Development require the State to (1) develop and implement written
           policies and procedures for the review and verification of information in the reports;
           (2) ensure that subrecipients fully comply with their agreements by including all
           information required in the reports; and (3) implement a system or process for
           tracking the submission of the reports to ensure compliance with the agreements.

           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

           During the review, we provided the results of our review to the State’s
           management staff and HUD. We conducted an exit conference with the State and
           HUD on November 13, 2009.

           We asked the State to provide comments on our draft audit report by November
           20, 2009, and it provided written comments on November 19, 2009. The State
           generally disagreed with our results and recommendations. The complete text of
           the auditee’s response, along with our evaluation of that response, can be found in
           appendix A of this report. The attachments provided by the State are available
           upon request.




                                             2
                           TABLE OF CONTENTS

Background and Objectives                                                     4

Results of Audit
      Finding: The State Did Not Always Ensure Compliance under Its Program   5

Scope and Methodology                                                         10

Internal Controls                                                             11

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                   13




                                           3
                          BACKGROUND AND OBJECTIVES

Between December 2005 and June 2006, Congress approved a total of $16.7 billion in
supplemental Community Development Block Grant (CDBG) Disaster Recovery Assistance
funds for Gulf Coast hurricane relief. Of that amount, the U.S. Department of Housing and
Urban Development (HUD) awarded $5.5 billion to the State of Mississippi (State) for its
recovery efforts. The Mississippi Development Authority, the State’s designated agency,
administers the use of the supplemental CDBG funds.

Of the $5.5 billion, the State allocated $110 million to its public housing program (program), the
purpose of which is to provide long-term recovery assistance by replacing critical public housing
that existed before the hurricane.1 At least 51 percent of the residents of each residential
structure must earn less than 80 percent of the area median income. If the project intends to
provide assistance to individuals earning greater than 80 percent of the area median income, the
public housing authority (authority) must obtain a waiver from HUD before it can provide the
assistance.

Of the $110 million, the State allocated $100.92 million among four authorities. The State
allocated funding for each authority based upon estimates that reflected the costs needed to
repair, rehabilitate, and/or rebuild the public housing units. To ensure compliance, the State
executed subrecipient agreements (agreement)3 with the authorities. The table below shows the
funding allocated to each authority.

                   Name of authority                                   Grant funding allocation amount
    Bay–Waveland                                                                   $19,887,235
    Biloxi                                                                         $41,164,438
    Long Beach                                                                     $ 3,814,594
    Region VIII                                                                    $36,033,733
    Total                                                                         $100,900,000

As of June 15, 2009, the State had disbursed more than $44.7 million to the authorities.

Our objectives were to determine whether the State ensured that (1) authorities provided
quarterly progress reports (report) in compliance with their agreements and (2) the agreements
for its authorities complied with HUD’s minimum requirements.




1
  Hurricane Katrina made landfall in Mississippi on August 29, 2005.
2
  Of the remaining $9.1 million, the State allocated $5 million for administrative costs and had not allocated the
other $4.1 million as of August 10, 2009.
3
  The State executed 16 agreements.


                                                          4
                                        RESULTS OF AUDIT

Finding: The State Did Not Always Ensure Compliance under Its
Program
Although the State generally ensured that the agreements complied with HUD’s minimum
requirements, it did not always ensure that authorities complied with their agreements. Of 22
reports reviewed, none complied with the agreements. Specifically, the State did not ensure that
the reports included (1) proof of insurance, (2) a summary of income classifications for
affordable housing tenants, and (3) the number of residents who were or would be given the first
right to reoccupy. In addition, the State did not ensure that the reports were complete or
submitted by the established due dates. These conditions occurred because the State (1) did not
develop adequate written policies and procedures for the review and verification of data in the
reports, (2) did not believe compliance with the agreements was necessary since the required
information was included within the authorities’ project files and construction contracts, and (3)
did not have a system or process for tracking the submission of the reports. This lack of
sufficient detail could prevent the State from having a sound basis for (1) requiring the
authorities to comply, (2) adequately documenting and effectively monitoring the program’s
progress, and (3) ensuring that program goals are met and deliverables are provided as required.



    State’s Requirements


                    As HUD’s grantee, the State is responsible for administering and monitoring its
                    CDBG disaster recovery programs. To aid in its efforts, the State executed
                    agreements with the authorities for the purpose of repairing, rehabilitating, and
                    rebuilding public housing units. As part of the agreements and one of its
                    deliverables, the State required authorities to provide reports by the 15th of the
                    month after the end of each quarter.4 In those reports, the State required that the
                    authorities include

                    •   The number of units compared to the total that existed before the storm.
                    •   The number of residents present before the storm that were given the first
                        right to reoccupy.
                    •   Proof of 100 percent insurance coverage on replacement values of the
                        property for all hazard types.
                    •   Certification that 100 percent of the affordable housing units available before
                        the storm were still available at affordable housing rates.
                    •   A summary of income classifications for affordable housing tenants (e.g.,
                        number of low, very low, moderate).

4
    The due dates were April 15, July 15, October 15, and January 15.

                                                           5
           In addition, the State required that authorities provide information related to (1)
           milestones completed during the reporting period; (2) roadblocks or delays,
           including an amended task-based schedule for completing work, as necessary; and
           (3) funds planned versus actual for the reporting period.

HUD’s Requirements


           HUD’s regulations at 24 CFR (Code of Federal Regulations) 570.503 required the
           State to execute written agreements with the authorities before disbursing any
           CDBG funds. The regulations also required that, at minimum, those written
           agreements include a complete statement of work, which includes a description of
           the work to be performed, a schedule for completing the work, and a budget. The
           regulations further stated that these items should be in sufficient detail to provide
           a sound basis for the State to effectively monitor performance under the
           agreements.

Reports Missing Information or
Incomplete

           Of 22 reports reviewed, none complied with the agreements. Specifically, the
           reports lacked information such as

               •   The number of units compared to the total that existed before the storm,
               •   The number of residents present before the storm that were or would be
                   given the first right to reoccupy,
               •   Proof of 100 percent property insurance coverage on replacement values,
               •   Certification that 100 percent of the affordable housing units available
                   before the storm were still available at affordable rates, or
               •   A summary of current or projected income classifications for affordable
                   housing tenants.
           In addition, the reports were not complete because some authorities did not
           provide sufficient detail for milestones completed, explanations for roadblocks or
           delays, or an amended task-based schedule for completing work. For example,

               •   One authority identified a roadblock related to tax credit syndication,
                   preventing finalization of application documents and the beginning of
                   construction for the funded project. However, the authority did not
                   provide an amended task-based schedule for completing the work or an
                   adjusted schedule for completion as required by the agreement.
               •   One authority reported three adjustments to the proposed completion date
                   of the project, delaying the project for five months. However, the


                                             6
                   authority did not identify any roadblocks or provide an explanation for the
                   delay as required by the agreement.
               •   One authority showed that its project was in predevelopment for more
                   than a year, noting it as a milestone. However, the authority did not
                   identify any roadblocks or provide an explanation for the delay. Further,
                   the authority did not provide an amended task-based schedule for
                   completing the work or an adjusted schedule for completion as required by
                   the agreement.

           Further, the State did not ensure that authorities submitted their reports by the
           established due dates, since it did not document or track when authorities
           submitted the reports. Therefore, the State could not determine whether the
           authorities submitted the reports by the established due date as required by the
           agreement.

           The State must ensure that authorities submit reports by the established due date
           and with sufficient detail for all activities to ensure that authorities (1) follow the
           scope of work, (2) report the level of accomplishment, (3) follow the established
           timetables, and (4) collect and correlate all subrecipient data for each project.

Processes and Procedures Not
Adequate

           The State did not develop adequate written policies and procedures for its staff to
           use for the submission of the reports and the review and verification of the data
           submitted in the reports, thereby preventing the proper review of the reports.
           According to the State, it used the agreements and the program’s implementation
           manual as guidance for reviewing information submitted in the reports. However,
           the program’s implementation manual did not include a step-by-step process for
           the review and verification of the information included in each section of the
           reports.

           Regarding information included within the reports, the State did not believe it was
           necessary for the authorities to report all of the required information in the
           reports. The State noted that since some of the reports’ information required by
           the agreement was included elsewhere within the authorities’ project files, it was
           not necessary for the authorities to repeatedly provide the information in the
           reports. However, each authority’s project files were maintained in one to three
           large binders, making it difficult to readily locate and access information.
           Further, because the State did not require the authorities to include the
           information in the reports, it violated the terms of the agreements.

           In addition, although information related to the milestones completed during the
           reporting period and roadblocks or delays, including an amended task-based
           schedule for completing work, was required, the State did not believe it was

                                              7
                   necessary for the authorities to include this information in the reports. According
                   to the State, it remained in constant communication with the authorities. The
                   State also noted that it was always informed beforehand of any roadblocks or
                   delays that prevented or would have prevented milestones from being completed.
                   However, the State did not document its communication with the authorities,
                   preventing verification of this communication. Further, although the State
                   received periodic turn schedules, which documented the anticipated completion
                   dates, the periodic turn schedules did not document the reasons for roadblocks or
                   delays.

                   This lack of information in the reports could prevent the State from having a
                   sound basis for requiring the authorities to comply with their agreements and
                   adequately document and effectively monitor the program’s progress to ensure
                   that program goals were met. Therefore, the State must develop and implement
                   written policies and procedures for the review and verification of data submitted
                   in the reports. The State must also ensure that authorities fully comply with their
                   agreements.


    No System or Process for
    Tracking Report Submission

                   Regarding the tracking the submission of the reports, the State explained that it
                   did not need to track the submission and receipt of the reports since the reports
                   were only used for updating HUD’s system.5 The State further explained that it
                   could determine whether the authorities had submitted their reports when
                   updating HUD’s system. The State noted that if the authorities failed to provide
                   the reports, it would contact them and remind them to submit their reports.
                   However, the State could not provide documentation reflecting the submission
                   dates, its contact with the authorities, or efforts made for the purpose of obtaining
                   the reports. As a result, the State had no way of determining whether the
                   authorities submitted the reports by the 15th and, therefore, could not ensure
                   compliance with the agreements. Consequently, the State must implement a
                   system or process for tracking submission of the reports.


    Agreements Complied with
    HUD’s Requirements

                   Reviews of 16 agreements determined that 12 agreements included a complete
                   statement of work in accordance with HUD’s minimum requirements. A
                   complete statement of work was not necessary for the remaining four agreements.
                   Specifically, three agreements were for the acquisition of constructed properties,
                   and one agreement was for a project that was in predevelopment and did not have

5
    The State must update HUD’s Disaster Recovery Grant Reporting System on a quarterly basis.

                                                         8
             a construction contractor in place at the time of our review. Therefore, the State
             generally ensured that agreements for its authorities complied with HUD’s
             minimum requirements.


Conclusion


             Without tracking the submission of reports and ensuring that the agreements and
             reports include sufficient detail, the State may not have a sound basis for (1)
             requiring the authorities to comply, (2) adequately documenting and effectively
             monitoring the program’s progress, and (3) ensuring that program goals are met
             and that deliverables are provided as required by the agreements. Therefore, the
             State must ensure that (1) it develops and implements adequate written policies
             and procedures for reviewing the reports, (2) subrecipients fully comply with their
             agreements, and (3) it implements a system or process for tracking the submission
             of reports.

Recommendations



             We recommend that HUD’s General Deputy Assistant Secretary for Community
             Planning and Development require the State to

             1A. Develop and implement written policies and procedures for the review and
                 verification of information in the reports to ensure that the reports are
                 complete.

             1B. Implement adequate policies and procedures for tracking the submission of
                 the reports to ensure that authorities submit the reports by the established
                 due dates.

             1C. Ensure that subrecipients fully comply with their agreements by including
                 all information required in the reports.




                                              9
                         SCOPE AND METHODOLOGY

We conducted our review at the local HUD OIG field office, the State’s Disaster Recovery
Division, and other sites as deemed appropriate. We performed our work between May and
September 2009.

To accomplish our first objective, we used nonrepresentative sampling to select 22 reports for
four housing projects, from a universe of 65 reports for 16 housing projects, for review. We used
this sampling method since we knew enough about the universe to identify a relatively small
number of items of interest. We reviewed the hard-copy files to determine whether the reports
included the required information as outlined in the agreements. We also reviewed the hard-
copy files to determine whether the information in the reports was complete.

To accomplish our second objective, we used 100 percent sampling to review 16 agreements and
later modifications for 16 approved program projects. We used this sampling methodology due
to the relatively small universe. We reviewed the hard-copy files to determine whether the
agreements included a (1) statement of work or scope of services, (2) schedule of completion,
and (3) budget.

In addition to the file reviews, we

   •   Reviewed the HUD-approved action plan and later technical modifications and
       amendments, HUD/State grant agreements, State written policies and procedures,
       applicable contracts executed related to the administration of the program, the Code of
       Federal Regulations, public laws, and other legal authorities relevant to the CDBG
       disaster recovery grants;
   •   Reviewed reports issued by the Mississippi Office of State Auditor, HUD, and the State;
       and
   •   Interviewed key HUD/State officials and contractors’ staff involved in the administration
       of the program.
Our review covered the period August 1, 2007, through April 30, 2009. 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 objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objectives.




                                               10
                              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:

              •       Program operations – Policies and procedures that management has
                      implemented to provide reasonable assurance that authorities comply with
                      their subrecipient agreements.

              •       Relevance and reliability of information – Policies, procedures, and
                      practices that management has implemented to provide reasonable
                      assurance that relevant and reliable information is maintained and fairly
                      disclosed in subrecipient reports.

              •       Compliance with laws and regulations – Policies and procedures that
                      management has implemented to provide reasonable assurance that CDBG
                      disaster fund use is consistent with HUD’s laws, regulations, and
                      provisions of the grant agreement.

              •       Safeguarding of assets and resources – Policies and procedures that
                      management has implemented to provide reasonable assurance that CDBG
                      disaster funds are safeguarded against waste, loss, and abuse.

              We assessed the relevant controls identified above.




                                               11
           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:

           •      The State did not have adequate written policies and procedures to ensure
                  sufficient review and verification of information in reports. (See finding).




                                            12
APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         13
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2



                         14
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 3




Comment 4




                         15
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 5




Comment 6




                         16
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 7



Comment 8


Comment 9


Comment 10




                         17
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 11




Comment 12




Comment 13




Comment 14




                         18
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 15




Comment 16




Comment 17




                         19
                  OIG Evaluation of Auditee Comments

Comment 1   The State asserted that the HUD's Office of Inspector General has taken an
            extremely myopic view of MDA's efforts and elevated minor omissions
            and deficiencies to a finding of non-compliance. The State also asserted
            that it has complied with all statutory and regulatory requirements, as well
            as meeting and exceeding the Action Plan's objectives and criteria and,
            and generally ensured compliance under its Program. Therefore, takes
            strong exception to the finding asserted by OIG that it did not always
            ensure compliance under its Program.

            As discussed with State officials, the scope of our audit did not include a
            review of (1) the State's compliance with all statutory and regulatory
            requirements; or (2) whether or not the State met its Action Plan
            objectives and criteria. In addition, we obtained sufficient and appropriate
            evidence, which provided a reasonable basis for our findings and
            conclusions. As such, we stand by our final conclusions and
            recommendations related to the State not ensuring that authorities
            complied with their agreements.

Comment 2   The State emphatically stated that its contracts with the authorities meet
            the requirements of both state law and HUD regulations. The State also
            asserted that the contracts, which include supporting documentation
            incorporated by reference, are legal and binding documents that meet all
            CDBG program requirements and are clearly enforceable against the
            subrecipients.

            After we completed our fieldwork, the State provided additional
            documentation which supported its compliance with HUD’s minimum
            requirements for the subrecipient agreements. As such, we removed all
            reference related to the State's noncompliance with HUD's minimum
            requirements from the final report. However, we must note that during
            our fieldwork, we requested documentation supporting the State's
            compliance with HUD's minimum requirements. The State informed us
            that we had all of the documentation available. In addition, the State
            neither took issue when we presented and discussed the draft findings nor
            provided additional documentation at that point. Further, before the State
            provided its written comments to the draft report, we provided written
            notification to the State that the references in the finding related to this
            issue was removed from the final report.

Comment 3   The State conceded that the quarterly reporting required of the authorities
            is incomplete when measured against the requirements of the agreement,
            this omission of certain data on a quarterly basis is clearly justifiable as it
            is either (1) data required prior to signing the contract or the release of
            funds or (2) data to be reported upon completion or occupancy.

                                      20
            We based our conclusions on the requirements established by the State in
            its written agreements, which did not include the justifications above.
            Based upon those requirements and the lack of clarity in the agreements,
            we determined that the reports were incomplete and the State violated the
            terms of the agreements by not requiring the authorities to provide the
            information in its reports. As such, we stand by our conclusion that the
            State did not always ensure that authorities complied with their
            agreements.

Comment 4   The State acknowledged that although the agreements required quarterly
            reports that included (1) proof of insurance, (2) a summary of income
            classifications for affordable housing tenants, and (3) the number of
            residents who were or would be given the first right to reoccupy, it did not
            require the authorities to report quarterly on these matters. The State
            stated that reporting on these items was unnecessary and burdensome on a
            quarterly basis because (1) the necessary proof of insurance was required
            to be submitted with the application and further reporting would have been
            redundant, (2) reporting on income classifications for affordable housing
            tenants was a post construction and post occupancy matter and
            inapplicable at the time, and (3) the number of residents who were or
            would be given the first right to reoccupy was reported in the application.

            As discussed in Comment 3, since the State established the requirement
            for the authorities to report this information and did not ensure that
            authorities provided the required information in the reports, we stand by
            our conclusion that the State did not always ensure that authorities
            complied with their agreements. Further, because the State did not require
            the authorities to include the required information in the reports, it violated
            the terms of the agreements.

Comment 5   The State admitted that it did not require the authorities to report quarterly
            on information that had been previously submitted or was inapplicable at a
            particular stage in the process. However, the State disputed the assertion
            by the OIG that reports were not required by the due date but admitted that
            some authorities were tardy with their reports.

            The State did not provide documentation showing that it ensured that the
            reports were submitted by the established due dates. Further, the Public
            Housing Program Manager stated that the submission of the quarterly
            reports was not documented or tracked. As such, we stand by our original
            conclusion that the State did not track the submission of the reports.

Comment 6   The State disagreed with the assertion by the OIG that the agreements did
            not comply with HUD’s minimum requirements. The State asserted that
            the 16 agreements included a complete statement of work and all HUD
            required clauses and provisions.

                                      21
            As discussed in Comment 2, we reviewed additional documentation that
            was provided by the State after we completed our fieldwork. We
            determined that the additional documentation supported its compliance
            with HUD’s minimum requirements for the agreements. As such, all
            reference to this section of the finding was removed from the final report.

Comment 7   The State disagreed with the assertion by the OIG that it does not have
            adequate written policies and procedures for the review and verification of
            data in the reports. The State provided its Disaster Recovery Division
            Finance Group Policies and Procedures, revised March 03, 2009.

            We disagree with the State's assertion. The purpose of the finance policies
            and procedures was to establish and communicate guidelines for the
            finance group related to cash management, reporting, budgeting and
            internal controls. However, the policies and procedures did not provide
            guidance on the review and verification of data submitted in the reports.
            Therefore, we stand by our original conclusion that the State did not
            develop adequate written policies and procedures to review and verify that
            all required data was included in the reports.

Comment 8   The State asserted that it required the authorities to comply with their
            agreements, where necessary, to achieve its mission. The State stated that
            it did not require the authorities to comply with unnecessary and
            redundant reporting of information that had been previously reported.

            We disagree with the State's assertion. The State was responsible for
            ensuring that the authorities complied with their agreements. Since the
            State did not require the authorities to comply with the reporting
            requirements, it violated the terms of the agreements. Therefore, we stand
            by our original conclusion that the State did not believe compliance with
            the agreements was necessary because the information was included
            within the authorities' project files and construction contracts.

Comment 9   The State asserted that it had a system and process for tracking the
            submission of authorities' reports.

            We disagree with the State's assertion. The State provided a copy of the
            Public Housing Program report tracking spreadsheet. However, the
            spreadsheet provided the status of the public housing projects and did not
            track the submission of the authorities' reports. Since the spreadsheet did
            not provide submission dates, we stand by our initial conclusion that the
            State did not have a system or process for tracking the submission of the
            reports.




                                     22
Comment 10   The State disagreed with the assertion by the OIG. The State stated that it
             fully met the requirements of state law as well as HUD CDBG
             Regulations and that all of the required elements were contained in the
             agreements or incorporated by reference.

             As discussed in Comment 3, the State provided additional documentation,
             after we completed our fieldwork, to support its compliance with HUD’s
             minimum requirements for agreements. Based on our review of the
             additional documentation, we agree with the State. As such, all reference
             to this section of the finding was removed from the final report.

Comment 11   The State asserted that the agreements were valid and complete when
             viewed in their totality which provides the State with a sound basis (1) to
             require the authorities to comply with program requirements, (2) to
             adequately document and effectively monitor the program’s progress, and
             (3) to ensure that the program goals were met and the deliverables were
             provided as required.

             We agree with the State's assertion. The agreements were generally valid
             and complete in that they complied with HUD’s minimum requirements.
             Thus, as discussed in Comment 2 we removed all reference to the
             agreements not complying with HUD’s requirements from the final report.
             However, we stand by our initial conclusions that the State did not always
             ensure (1) that the authorities complied with their agreements and (2) that
             the reports were complete and submitted by the established due dates. We
             believe that the State's failure to require the authorities to comply with the
             agreements could prevent it from having a sound basis for (1) requiring
             the authorities to comply, (2) adequately documenting and effectively
             monitoring the program’s progress, and (3) ensuring that program goals
             were met and deliverables were provided as required.

Comment 12   The State asserted that OIG's assertions are without merit and based on a
             misunderstanding of the agreements and that OIG refused to acknowledge
             that a contract can include and incorporate provisions by reference.

             We disagree that the OIG has not acknowledged that a contract can
             include and incorporate provisions by reference. As discussed in
             Comment 2, although previously requested, the State did not provide
             supporting documentation showing its compliance with HUD's minimum
             requirements until after we completed our fieldwork. In addition, during
             the exit conference, we agreed to review the additional documentation
             provided by the State and to remove all references to this part of the
             finding, if warranted. Further, we notified the State, in writing and before
             it provided its written comments to the draft report that the references in
             the finding related to this issue was removed from the final report.



                                       23
Comment 13   The State asserted that it has effectively monitored the authorities, both at
             the program and monitoring levels. The State also asserted that is has
             successfully ensured that the authorities have rebuilt to date the vast
             majority of the public housing units lost to Hurricane Katrina; and the
             Action Plan's goals and objectives, as well as those set forth in the
             agreements, have in fact been met and public housing units have been
             delivered.

             We acknowledge the State's stated efforts. However, as discussed with
             State officials, the finding was not based on the effectiveness of the State's
             monitoring and the scope of our audit did not include a review of the
             progress of individual projects under the State's Public Housing program.

Comment 14   In response to recommendation 1A, the State asserted that it had adequate
             policies and procedures for the review of reports from its authorities and
             that it ensured that the reports were sufficiently complete to monitor
             individual projects as they progressed.

             Based on our review of the documentation provided, we disagree.
             Therefore, we did not change our recommendation for the State to develop
             and implement written policies and procedures for the review and
             verification of information in the reports to ensure that the reports are
             complete.

Comment 15   In response to recommendation 1B, the State asserted that it had adequate
             policies and procedures for tracking the submission of the reports to
             ensure timely submission.

             Based on our review of the documentation provided, we disagree.
             Therefore, we did not change our recommendation for the State to
             implement adequate policies and procedures for tracking the submission
             of the reports to ensure that authorities submit the reports by the
             established due dates.

Comment 16   In response to recommendation 1C, the State asserted that it had adequate
             policies and procedures to ensure that authorities fully complied with their
             agreements. The State stated that the reporting and progress of the public
             housing projects were tracked by its management with biweekly reports
             and monitoring meeting. Further, the State stated that its Public Housing
             Project Manager was in constant contact with the authorities.

             The State stated that it remained in constant communication with the
             authorities. However, it did not document its communication, thus
             preventing verification of this information. Therefore, we did not change
             our recommendation for the State to ensure that authorities fully comply
             with their agreements by including all information required in the reports.

                                       24
Comment 17   In response to recommendation 1D, the State stated that the agreements
             included all required HUD clauses and incorporated the applications, by
             reference, which included the schedule for completion of work.

             Based upon additional documentation provided by the State, after we
             completed our fieldwork, we removed all reference to the agreements not
             complying with HUD’s requirements from the report. As such, we
             removed this recommendation from the final report.




                                     25