oversight

The Mississippi Development Agency, Jackson, MS, Generally Ensured That Contracts Were Procured in Accordance With Its Disaster Recovery Program Policies and Procedures

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)

                                                                 Issue Date
                                                                          June 22, 2010
                                                                 
                                                                 Audit Report Number
                                                                              2010-AO-1004




TO:        Scott G. Davis, Director Disaster Recovery and Special Issues Division, DGBD


FROM:      Rose Capalungan, Regional Inspector General for Audit, Gulf Coast Region,
             GAH

SUBJECT: The Mississippi Development Authority, Jackson, MS, Generally Ensured That
           Contracts Were Procured in Accordance With Its Disaster Recovery Program
           Policies and Procedures


                                   HIGHLIGHTS

 What We Audited and Why

             We conducted a review of the State of Mississippi (State), a $5.5 billion
             Community Development Block Grant (CDBG) disaster recovery grantee. We
             initiated the audit as part of the Office of Inspector General (OIG) Gulf Coast
             Region’s audit plan and examination of relief efforts provided by the Federal
             Government in the aftermath of Hurricanes Katrina and Rita. Our objective was
             to determine whether the State ensured that contracts were procured in accordance
             with its and other applicable policies and procedures under its disaster recovery
             program (program).


 What We Found


             Although the State generally ensured that contracts were procured in accordance
             with its program policies and procedures, it paid program funds to one contractor
             that exceeded the contract maximums. This condition occurred because the State
           did not always ensure that it followed its invoicing verification policies and
           procedures.

What We Recommend


           We recommend that the Director of the U.S. Department of Housing and Urban
           Development’s (HUD) Disaster Recovery and Special Issues Division require the
           State to support or repay its program $21,964 in unsupported costs and ensure that
           its staff is knowledgeable of its invoice verification policies and procedures.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.


Auditee’s Response


           We provided our discussion draft audit report to the State and HUD’s staff during
           the audit. We asked the State to provide comments on our discussion draft audit
           report by May 11, 2010. The State provided written comments, dated May 07,
           2010. The State agreed with our finding and recommendations.

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




                                             2
                           TABLE OF CONTENTS

Background and Objective                                                     4

Results of Audit
      Finding: The State Generally Ensured That Contracts Were Procured in   5
      Accordance With Its Program’s Policies and Procedures

Scope and Methodology                                                        7

Internal Controls                                                            8

Appendixes
   A. Schedule of Questioned Costs                                           10
   B. Auditee Comments and OIG’s Evaluation                                  11




                                            3
                      BACKGROUND AND OBJECTIVE

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 $3.8 billion toward housing initiatives. This recovery
program is specifically targeted at rebuilding housing, repairing public infrastructure, and
rejuvenating the local economy. As of April 7, 2009, the State had approved more than $1.8
billion in direct assistance to more than 25,000 homeowners whose homes were either damaged
or destroyed by Hurricane Katrina in August 2005. Also as of November 9, 2009, the State had
allocated more than $317 million to independent contractors providing professional services
related to its disaster recovery program (program).

Our objective was to determine whether the State ensured that contracts were procured in
accordance with its and other applicable policies and procedures under its program.




                                               4
                                RESULTS OF AUDIT

Finding: The State Generally Ensured that Contracts Were Procured in
Accordance with Its Program’s Policies and Procedures
The State generally ensured that contracts were procured in accordance with its program’s
policies and procedures. However, it paid excess program funds to Gulf Coast Security Service
without having a fully executed contract. This condition occurred because the State did not
follow its invoice verification policies and procedures. As a result, it was unable to support
$21,964 in program costs.



 The State Paid $21,964 in
 Unsupported Costs


              A review of 12 contract files determined that 1 contractor received payments in
              excess of the contract maximum.

              On May 25, 2007, the State executed a small purchase contract with Gulf Coast
              Security Service, with a maximum award amount of $50,000, for the purpose of
              providing after-hours security services for the Homeowners Assistance Program.
              The period of performance covered November 1, 2006, through October 30, 2007.

              On November 20, 2007, the State executed an amendment to this contract to
              increase the award amount to $71,240 and to extend the period of performance to
              March 31, 2008. In a later amendment, the State attempted to further extend the
              period of performance to June 30, 2008, and increase the award amount to
              $96,240. However, although required, the amendment was not signed by the
              contractor, and the State continued to pay the contractor without a fully executed
              contract.

              Between November 1, 2006, and June 30, 2008, the State paid $93,204 to the
              contractor, exceeding the $71,240 amended and fully executed contract amount
              by $21,964.

              According to the Mississippi Development Authority’s bureau manager, in the
              event that a contract has not been executed, the purchasing team is instructed to
              hold invoices until the authority to pay has been received in the form of an
              executed agreement. This procedure was not followed as required.




                                               5
The State is Taking Action


             During an update meeting on January 20, 2010, the State was informed of the
             potential unsupported reimbursements paid to its contractor. The Mississippi
             Development Authority’s chief financial officer stated that the State would not
             pay for any services rendered during the extended/amendment period and was
             making arrangements to repay the funds. We acknowledge the State’s steps
             toward resolving this issue.


Conclusion

             The State generally ensured that contracts were procured in accordance with its
             and other applicable policies and procedures under its program. However, it paid
             program funds without having a fully executed contract amendment. This
             condition occurred because the State did not follow its finance policies and
             procedures, specifically the invoice verification procedures, when paying
             extended and/or amended contracts. The State should have held the invoice until
             authority to pay had been received in the form of an executed agreement and
             verify that the requested expenditures agreed with the contractual agreement.
             Since it failed to do so, it could not support $21,964 in program costs, which it
             must either support or repay.


Recommendations

             We recommend that the Director of the U.S. Department of Housing and Urban
             Development’s (HUD) Disaster Recovery and Special Issues Division require the
             State to

             1A. Support or repay its program $21,964 in unsupported costs.

             1B. Ensure that its staff responsible for reviewing invoices is knowledgeable of
                 its program policies and procedures to ensure that invoices are held until
                 authority to pay has been received in the form of an executed agreement to
                 prevent overpayment of contract maximums.




                                              6
                         SCOPE AND METHODOLOGY

We conducted our review at the local HUD Office of Inspector General (OIG) field office, the
State’s Disaster Recovery Division, and other sites as deemed appropriate. We performed our
work between November 2009 and February 2010.

To accomplish our objective, we used data mining software to statistically select 23 of the State’s
procurement files from the 35 executed contracts as of October 31, 2009. The 23 files were
selected to determine whether the State ensured that contracts were procured in accordance with
its and other applicable policies and procedures under its program. Our sampling criteria used a
90 percent confidence level with a 50 percent estimated error rate.

We reviewed the hard-copy files to determine whether the files included the required information
as outlined in the (1) Mississippi Development Authority’s checklist for procuring personal and
professional contracts, (2) Personal Service Contract Review Board regulations, and (3) the
State’s contract policies and procedures. We also reviewed the hard-copy files to determine
whether the information in the files was complete. In addition, we reviewed the expense data to
ensure that funds expended complied with the terms of the executed contract agreement.

In addition to the file reviews, we

      Reviewed HUD Handbook 6509.2, REV-5, CHG 2; 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 monitoring reports issued by the Mississippi State Auditor’s Office and HUD.
      Interviewed key HUD and State officials involved in the administration of the program.
Our review covered the period July 1, 2007, through October 31, 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 objective. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions based on our
audit objective.




                                                7
                              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 reasonably ensure that contracts are procured in
                      accordance with State procurement regulations.

                     Relevance and reliability of information – Policies and procedures that
                      management has implemented to reasonably ensure that valid and reliable
                      data are obtained, maintained, and fairly disclosed in 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.




                                                8
           We assessed the relevant controls identified above.

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


Significant Weaknesses


                 Based on our review, there were no significant weaknesses.


Separate Communication of
Minor Deficiencies


           Minor internal control and compliance issues were reported to the State’s executive
           director and the Director of HUD’s Disaster Recovery and Special Issues Division
           in a separate memorandum, dated May 17, 2010.




                                             9
                                   APPENDIXES

Appendix A

                  SCHEDULE OF QUESTIONED COSTS

 Recommendation                          Unsupported
     number                                  1/
      1A                                   $21,964



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.




                                             10
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




                         11
Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




                         12
                        OIG Evaluation of Auditee Comments

Comment 1   We acknowledge the State’s proposed actions to remedy the recommendation.
            The State should provide supporting documentation to HUD’s staff, who will
            work with the State, to resolve the recommendations.

Comment 2   See comment 1.




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