oversight

The Housing Authority, City of Wilson, NC, Lacked the Capacity To Effectively Administer Recovery Act Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-07-27.

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

                                                                 Issue Date
                                                                      July 27, 2010
                                                                 Audit Report Number
                                                                      2010-AT-1007




TO:         Michael A. Williams, Director, Office of Public Housing, Greensboro, NC,
              4FPH
            Dominique Blom, Deputy Assistant Secretary for Public Housing Investments,
              PI

            //signed//
FROM:       James D. McKay, Regional Inspector General for Audit, Atlanta Region,
                4AGA

SUBJECT: The Housing Authority, City of Wilson, NC, Lacked the Capacity To Effectively
           Administer Recovery Act Funds


                                    HIGHLIGHTS

 What We Audited and Why

             We reviewed the Housing Authority of the City of Wilson (Authority) because it
             was granted $9.2 million for Public Housing Capital Fund (capital fund) projects
             under the American Recovery and Reinvestment Act of 2009 (Recovery Act). In
             addition, the U. S. Department of Housing and Urban Development (HUD),
             Office of the Inspector General (OIG), hotline received a citizen‘s complaint
             alleging that the Authority used unethical procurement practices and did not plan
             to use Recovery Act funds effectively.

             Our objectives were to (1) evaluate the Authority‘s capacity to administer
             additional capital funds received under the Recovery Act and (2) determine
             whether the Authority followed Federal procurement regulations. We expanded
             our objectives to include an assessment of the eligibility of the Authority‘s
             planned green renovation of 68 senior housing units using a $7.6 million Public
             Housing Capital Fund Competitive (Recovery Act Funded) grant.
What We Found


         The Authority lacked sufficient capacity to administer the additional $9.2 million
         in capital funds it received under the Recovery Act. It failed to comply with
         procurement and financial management requirements in its administration of other
         capital and operating funds. These deficiencies occurred because the Authority
         lacked sufficient controls, such as adequately trained personnel and adequate
         written procedures, to ensure full compliance with the requirements. As a result,
         it could not provide assurance that it properly awarded more than $2.4 million for
         contracts or that it had the capacity to administer Recovery Act funds in
         accordance with the requirements.

         The Authority‘s plan to substantially rehabilitate 68 senior housing units into an
         energy-efficient, green community using a $7.6 million Recovery Act competitive
         capital fund grant was ineligible. The plan the Authority submitted as part of its
         grant application exceeded HUD‘s total development cost limits and required the
         premature replacement of a number of recent improvements paid for with Federal
         funds. This condition occurred because the Authority failed to ensure that it
         submitted an accurate and well-planned application in accordance with the
         requirements of the HUD notice of funding availability. As a result, the true cost
         of renovating this development as planned would result in the inefficient and
         wasteful use of Federal funds and the unnecessary displacement of elderly
         tenants.

What We Recommend


         We recommend that the Director of the Greensboro Office of Public Housing
         continue increased oversight and monitoring of the Authority and require it to
         develop, implement, and enforce written policies and procedures for its
         procurement and financial management functions. The Authority must provide
         acceptable support for unsupported costs and either provide support or repay
         unsupported capital fund reimbursements.

         We also recommend that the Deputy Assistant Secretary for Public Housing
         Investments rescind the Authority‘s $7.6 million Recovery Act competitive grant.

         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.




                                          2
Auditee’s Response


           We provided the draft report to the Authority on June 8, 2010, and discussed the
           findings with Authority officials at an exit conference on June 18, 2010. The
           Authority provided its written comments on June 16. The Authority expressed
           general disagreement with the findings.

           The complete text of the Authority‘s response, along with our evaluation of that
           response, can be found in appendix B of this report. Attachments to the
           Authority‘s comments were not included in the report but are available for review
           upon request.




                                           3
                             TABLE OF CONTENTS

Background and Objectives                                                            5

Results of Audit
       Finding 1: The Authority Lacked the Capacity To Effectively Administer        6
                  Recovery Act Funds
       Finding 2: The Authority‘s Plan for Its Recovery Act Competitive Grant Was   11
                  Ineligible

Scope and Methodology                                                               20

Internal Controls                                                                   21

Appendixes
  A.   Schedule of Questioned Costs and Funds To Be Put to Better Use               22
  B.   Auditee Comments and OIG‘s Evaluation                                        23
  C.   Criteria                                                                     51
  D.   Procurement Deficiencies                                                     55




                                             4
                      BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Wilson (Authority) was established in 1953 pursuant to the
North Carolina Housing Authorities Law. Its primary objective is to maintain a stock of good
affordable housing to meet the needs of its citizens while providing an environment in which
families can live, raise their children, and feel safe. It is governed by a five-member board of
commissioners appointed by the mayor of Wilson. The Authority‘s records are located at 213
Broad Street, Wilson, NC.

In addition to its regular 2009 Public Housing Capital Fund (capital fund) allocation of $1.3
million, the U.S. Department of Housing and Urban Development (HUD) allocated the Authority
$1.6 million in formula-based capital funds under the American Recovery and Reinvestment Act
of 2009 (Recovery Act). Enacted as Public Law 111-5 on February 17, 2009, Division A, Title
XII, of the Recovery Act provides $3 billion in formula-based and $1 billion in competitive
capital funds to public housing authorities to carry out capital and management activities as
authorized under Section 9 of the United States Housing Act of 1937. On March 18, 2009, HUD
amended the annual contributions contract with the Authority to include the formula-based
capital funds to ensure that public housing developments continue to be available to serve low-
income families. HUD approved the Authority‘s planned use of the funds to include renovating
and converting 26 public housing units into homeownership units under Section 32 ($645,645),
constructing a new administrative facility ($693,992), and planning and administration costs
($289,200). As of May 19, 2010, the Authority had obligated 100 percent of the Recovery Act
formula funds and spent about 13 percent.

In addition, on September 23, 2009, HUD awarded the Authority a $7.6 million Public Housing
Capital Fund Competitive (Recovery Act Funded) grant. This award is for the substantial
rehabilitation of 68 public housing units to provide an energy-efficient, green community. Some
of the more substantial planned work includes roof areas with photovoltaic panels and
geothermal heating and cooling. As of May 19, 2010, the Authority had obligated 100 percent of
these funds and spent about 3 percent.

Our objectives were to (1) evaluate the Authority‘s capacity to administer additional capital
funds received under the Recovery Act and (2) determine whether the Authority followed
Federal procurement regulations. We expanded our objectives to include an assessment of the
eligibility of the Authority‘s planned green renovation of 68 elderly public housing units using a
$7.6 million Recovery Act competitive capital fund grant.




                                                5
                                      RESULTS OF AUDIT

Finding 1: The Authority Lacked the Capacity To Effectively
           Administer Recovery Act Funds
The Authority lacked sufficient capacity to administer the additional $9.2 million in capital funds
it received under the Recovery Act. It failed to comply with procurement and financial
management requirements in its administration of other capital and operating funds. These
deficiencies occurred because the Authority lacked sufficient controls such as adequately trained
personnel and adequate written procedures to ensure full compliance with the requirements. As
a result, the Authority could not provide assurance that it properly awarded more than $2.4
million for contracts or that it had the capacity to administer Recovery Act funds in accordance
with the requirements.




    Procurement Requirements Not
    Followed


                 Although the Authority‘s procurement policy generally complied with Federal
                 requirements, the Authority did not consistently follow the procedures designed to
                 ensure that it efficiently administered Federal funds.

                 We evaluated 18 procurements1 valued at about $2.6 million2 and found that the
                 Authority failed to follow Federal requirements and its own procurement policies
                 for 16 of them. The Authority did not comply with regulations at 24 CFR (Code
                 of Federal Regulations) 85.36 that required it to estimate and analyze costs,
                 develop clear statements of work, purchase through full and open competition,
                 and maintain records to document the significant history of each procurement.
                 The table in appendix D shows the results for the procurements reviewed.

                 Cost Estimates Not Prepared
                 The Authority awarded contracts without first estimating costs. Procurement
                 regulations required the Authority to prepare independent cost estimates before
                 every procurement action. Estimating the cost establishes what the Authority
                 expects to pay for the goods or services and can be used as a basis for evaluating
                 and negotiating prices to better ensure fair and reasonable costs. The Authority
                 could not provide cost estimates for 13 of the 18 contracts reviewed. Thus, the

1
  Of the 18 procurements, 14 were procured with capital funds–13 from prior years‘ formula funds and 1 funded
under the Recovery Act. The other four were funded with public housing operating funds.
2
  Due to open indefinite quantity contracts without a not-to-exceed amount, we are unable to determine the exact
total amount for the contracts reviewed.

                                                         6
Authority had no basis for ensuring that the contract costs were fair and
reasonable for $595,479 that it spent for goods and services or for another $7,021
that it planned to spend for a Recovery Act consulting contract. For example, the
Authority awarded an architect and engineering contract based on qualifications.
The Authority planned to negotiate the prices for the services when it issued
delivery orders. However, it did not estimate the costs for the services either
before awarding the contract or before issuing $320,064 in delivery orders.

Statements of Work Unclear
The Authority did not develop clear statements of work for a housing inspection
contract and a file assessment contract. A clear statement of work forms the basis
for a successful procurement action. It provides everyone involved a clear
understanding of the requirements, results in more competitive bids, and
minimizes the need for future changes. The descriptions of needed services for
these procurements were not specific. The costs quoted for the bids indicated that
the scopes of work were probably misunderstood by the bidders. For the housing
inspection contract, the Authority received two bids, with one priced five times
higher than the other. Similarly, two of the four bids received for the file
assessment contract proposed costs six to seven times higher than the lowest bid.

Full and Open Competition Not Provided
The Authority could not show that it awarded a $1.96 million maintenance
services contract through full and open competition. We reviewed the Authority‘s
request for proposals, the submitted offers, and the offer evaluation forms. These
documents indicated that the Authority did not follow its stated selection process.
The request for proposals required offerors to describe company and employee
qualifications and provide references. Offerors were required to submit
supporting documents and were cautioned that failing to do so would result in
their offer not being considered. The request for proposals indicated that the
Authority would select the offeror most qualified in terms of demonstrable
experience, knowledge, and perceived benefit.

The selected offeror did not submit the required documents, yet its offer was
accepted. The four Authority staff members evaluating the offer awarded it
scores of 58, 58, 59, and 60 out of a possible 60 points for the three criteria on
experience despite the lack of required supporting documents. The Authority‘s
facility director stated that the selected offeror was a company newly formed by
an individual who worked for the Authority as a subcontractor. The company had
no employees and did not exist as a North Carolina corporation until 27 days
before it signed the contract.

Although the selected offeror submitted the lowest price, according to request for
proposal requirements, it was not responsive and should have been eliminated
from the competition. The Authority‘s selection process required it to choose the
most qualified offeror and then enter into negotiations for a best and final price.
If the Authority and the most qualified offeror could not reach a cost-effective

                                 7
                agreement, the Authority could choose the next best qualified offeror and
                negotiate terms. The Authority did not select an offeror with the most
                demonstrable experience, thus violating its selection process and the Federal
                requirement that procurements be awarded through full and open competition.

                Unsupported Noncompetitive Award
                The Authority did not justify why it noncompetitively awarded a $33,569 energy
                performance consulting contract. Federal requirements and the Authority‘s
                procurement policy allowed noncompetitively awarding contracts only when
                other methods were infeasible. In addition, the Authority was required to prepare
                a cost estimate and a justification for a noncompetitive award. Acceptable
                justifications included (1) there was only a single supply source, (2) the service
                was needed for a public emergency, (3) HUD authorized the noncompetitive
                proposal, or (4) competition was attempted but sufficient sources could not be
                found. The Authority‘s files contained neither the cost estimate nor any
                justification for the noncompetitive procurement. We also could not locate either
                the request for proposals prepared by the Authority to locate potential offerors or
                the other offer that it claimed was received from its former assistant executive
                director. Without these supporting documents, the Authority could not show that
                it first attempted open competition and that the one submitted offer represented a
                fair and reasonable price.

    Unsupported Capital Fund
    Reimbursements


                The Authority could not support some reimbursement requests for capital fund
                program costs. Regulations at 24 CFR 85.20 required the Authority to maintain
                (1) accounting records that adequately identify the source and application of funds
                provided and include information pertaining to liabilities and expenditures and (2)
                effective control and accountability of cash and other assets to ensure that they are
                used solely for authorized purposes.

                We reviewed reimbursement requests totaling $724,000 and found that the
                Authority could not support draws for $93,989.3 The Authority did not have
                payment documentation, miscoded expenses, drew down funds from the wrong
                budget line item, and improperly used capital funds for regular operating costs or
                expenses not approved in the Authority‘s annual plan. Also, $40,210 included in
                the reimbursement requests was not for eligible capital fund program expenses.
                These deficiencies occurred because the Authority did not have adequate controls
                over the capital fund expense reimbursement process. At our request, the
                Authority provided additional documentation showing that several, but not all,
                deficiencies that we identified had been corrected.


3
 The actual amount for unsupported drawdowns was $95,690 and was adjusted to $93,989 to avoid double counting
$1,701, which is included in procurement deficiencies.

                                                      8
Improperly Used Recovery Act
Funds

             The Authority improperly used $95,114 in capital funds from the Recovery Act
             toward the purchase of a building. HUD approved the Authority‘s planned use of
             the formula-based Recovery Act capital funds to construct a new administrative
             building. During our review, we found that the Authority was buying and
             renovating an existing building and brought this ineligible use of Recovery Act
             funds to HUD‘s attention. The Greensboro HUD office worked with the
             Authority to correct the issue; however, it also placed the Authority on 100
             percent review for Recovery Act transactions as well as all other transactions over
             $25,000.

Other Control Weaknesses

             In addition to not following existing control procedures, the Authority had
             excessive staff turnover at key positions. It had hired its fourth director of finance
             since January 2007 and in December 2009, hired a director of development to
             oversee the capital fund program. That position had been vacant since March
             2009. The Authority‘s architect had been assigned to supervise the annual capital
             fund grants since the development director‘s position was vacant. In addition, the
             Authority had only recently hired a consultant to oversee the Recovery Act
             formula funds and a master developer to oversee the Recovery Act competitive
             funds.

             The Authority also recently changed its method for requesting capital funds. In
             the past, the Authority would request reimbursement after paying the expenses,
             but in the future, it will draw down funds in advance. However, the Authority did
             not have adequate written policies to provide its staff guidance for carrying out
             the new process.


Conclusion


             The Authority‘s past procurement record and internal control deficiencies showed
             a lack of sufficient capacity to administer Recovery Act funds. The Authority
             must improve its administration of Federal program funds by following its
             existing internal controls for procurement and financial management and by
             developing needed additional written procedures and addressing its staffing
             issues. Taking these measures will better ensure that it can provide the
             transparency and accountability required for the administration of Recovery Act
             funds.



                                               9
Recommendations



          We recommend that the Director of HUD‘s Greensboro, NC, Office of Public
          Housing

          1A. Continue the 100 percent review for Recovery Act procurement transactions as
              well as other procurement transactions over $25,000.

          1B. Require the Authority to develop, implement, and enforce written procedures
              to ensure effective performance and compliance with Federal procurement
              regulations and proper use of all capital funds.

          1C. Provide adequate documentation to support that the $2,328,050 spent and the
              $205,630 to be spent for contracts improperly procured between January 1,
              2007, and September 30, 2009, were awarded to the lowest responsive and
              responsible bidders. Any amounts determined to be ineligible should be
              reimbursed to their respective programs from non-Federal funds. The actual
              amount for contracts improperly procured was $2,368,260. To avoid double
              counting, the amount was reduced for the $40,210 in recommendation 1E.

          1D. Require the Authority to provide the supporting source documentation to
              show that the $93,989 was for eligible and allowable capital fund expenses.
              The remaining amount ($1,701) is included in recommendation 1C
              concerning procurement issues (see footnote 1).

          1E. Require the Authority to either provide another $40,210 in eligible capital
              fund expenses for the 2007 grant or reimburse the grant using non-Federal
              funds.




                                          10
    Finding 2: The Authority‘s Plan for Its Recovery Act Competitive
               Grant Was Ineligible
The Authority‘s plan to substantially rehabilitate 68 senior housing units into an energy-efficient,
green community using a $7.6 million Public Housing Capital Fund Competitive (Recovery Act
Funded) grant was ineligible. The plan the Authority submitted as part of its grant application
exceeded HUD‘s total development cost limits and required the premature replacement of a
number of recent improvements paid for with Federal funds. This condition occurred because
the Authority failed to ensure that it submitted an accurate and well-planned application in
accordance with the requirements of the HUD notice of funding availability (NOFA). As a
result, the true cost of renovating this development as planned would result in the inefficient and
wasteful use of Federal funds and the unnecessary displacement of elderly or disabled tenants.




The Authority, with help from its master developer, applied for additional capital funds provided
through the Recovery Act. In September 2009, HUD awarded the Authority more than $7.6
million to substantially rehabilitate a portion of its Forrest Road development into an energy-
efficient, green community. The 68 small senior housing units are made up of 30 efficiencies, 34
one-bedroom units, and 4 two-bedroom units. Some of the planned work included the use of
geothermal heating and cooling to reduce energy use, providing roof areas with photovoltaic
panels to produce electricity, and harvesting rainwater to conserve water. As submitted to HUD,
the Authority‘s plan would result in an average of $111,980 in renovation costs for each unit.

    Proposed Costs Higher Than
    HUD’s Limits

                 The budget the Authority provided as part of its application contained the wrong
                 total development cost limits.4 The Authority used the higher development cost
                 limits for Greensboro, NC, when it should have used those for Greenville, NC.
                 The Authority is located about 35 miles from Greenville and about 120 miles
                 from Greensboro. For the type of units in the Authority‘s plan, the total
                 development cost limit was more than $7.9 for Greensboro and less than $7.2
                 million for Greenville. As a result, the projected cost of the Authority‘s plan was
                 about $440,0005 over the maximum allowed.

                 The Authority‘s master developer stated that he had intended to select Greenville
                 and had inadvertently selected Greensboro. However, he contended that the

4
  HUD‘s total development cost limit represents the maximum amount of public housing funds a housing authority
may use in developing public housing. The total development cost for the modernization of existing units is 90
percent of the total development cost limit.
5
  Calculated by subtracting the HUD total development cost limit for Greenville, NC, which the Authority should
have used, from its requested amount: $7,614,642 – $7,174,438 = $440,204.

                                                       11
                 planned cost was well within the total development cost limit for Raleigh, NC,
                 and he considered Wilson to be part of the Raleigh housing market. The local
                 HUD field office engineer stated that the Authority should have selected the cost
                 limits for Greenville.

                 HUD‘s NOFA for the grant required that the applicants comply with specific
                 threshold requirements to be considered for funding. Threshold requirements
                 required the applicant‘s budget to propose reasonable costs in relation to
                 anticipated results and comply with HUD‘s total development cost limits for the
                 area. Thus, if the Authority had presented its planned cost of $7.6 million along
                 with the correct development cost limit of $7.1 million, it would not have met the
                 threshold requirement for the total development cost limit and would not have
                 been considered for funding.

                 The Authority‘s requested developer‘s fee was also excessive. The Authority
                 requested more than 13 percent of its planned development cost although the limit
                 in HUD‘s NOFA was 12 percent. The Authority‘s requested fee of about $1.1
                 million exceeded the NOFA maximum limit by $143,253 using the Greensboro
                 development cost limit, and $196,077 using Greenville‘s limit.6

                 According to both the NOFA and the award notification HUD provided to the
                 Authority, grant recipients had only limited ability to modify the plans they
                 submitted. Specifically, they could not change the plans in ways that would cause
                 them to be unable to comply with the commitments for which HUD awarded
                 grading points. Therefore, the Authority‘s plan was ineligible due to the cost
                 constraints, and HUD‘s rules prohibited it from being modified to render it
                 eligible.


    Premature Replacement of
    Recent Installations


                 Even if the Authority had used the correct development cost limits, its plan for
                 renovating the units contained other flaws rendering it ineligible for funding.
                 Although not disclosed in its application, the Authority had only recently
                 completed energy-conserving improvements to the development using a HUD-
                 approved energy performance contract. It had also made a number of other
                 improvements using HUD-provided capital funds. Implementation of the
                 Authority‘s plan would result in the wasteful destruction or removal of at least
                 $411,030 in such recently installed improvements.


6
 Fees based on the NOFA requirement should have been calculated based on the Authority‘s requested grant
amount multiplied by a maximum of 12 percent (NOFA allowed between 9 and 12 percent): $7,614,642 x .12 =
913,757 (Greensboro) and $7,174,438 x .12 = 860,933 (Greenville). The Authority requested $1,057,010, which
exceeds $913,757 by $143,253 for Greensboro limits and exceeds $860,933 by $196,077.

                                                      12
In October 2007, the Authority completed a $6 million improvement project
funded with a $2.65 million energy performance contract and a $3.7 million loan
received through HUD‘s capital fund financing program. All Authority
developments received improvements through this project.

The purpose of the energy performance contract was to provide an innovative
financing technique that uses cost savings from reduced energy consumption to
repay the cost of installing energy conservation measures. The Forrest Road
development received water meters, low-flow toilets, shower heads, lavatory
faucets, kitchen sink aerators, and new energy-efficient windows. The contract
required annual payments of $283,674 for 12 years. Since the Authority received
the contract through HUD‘s add-on subsidy incentive, HUD provides the funds
for the annual payment, and the Authority retains the energy savings.

Additional work performed under the capital fund loan or the annual capital fund
grants at Forrest Road since 2007 included asbestos abatement, interior painting,
new tile floors, bathroom renovations, new closet doors, new exterior deadbolts
and strikes, new roofs, soffit and fascia, and new energy-efficient heating/cooling
units. The Authority is making annual payments of $400,532 for 10 years to
repay the capital fund loan. HUD allows the Authority to set aside a portion of its
future annual capital fund grants to repay the loan. The loan will not be fully
repaid until 2016.

Although the loans funding the improvements will not be fully repaid for 6 years,
many of the recent improvements, including the roofs, floors, and paintwork,
would be destroyed in the green renovation process. In addition, the
improvements made during the recent energy performance contract, including the
low-flow toilets and other water fixtures, would be removed and replaced with
still more ―green‖ models. For example, as part of the energy performance
contract, the Authority replaced all of the old toilets requiring 3.5 gallons of water
with new low-flow toilets requiring only 1.6 gallons. It now plans to replace
these with new models requiring only 1.1 gallons. The other new water-
conserving fixtures in the bathrooms and kitchen would also be replaced with yet
more ―green‖ models.

Based on our review of invoices and payments, the Authority spent more than
$411,030 for work completed on the 68 units during 2007 and 2008. After we
began inquiries regarding the need to destroy or replace such recent
improvements, Authority management stated that any salvageable items would be
disconnected and used at another project. However, the Authority‘s grant
application did not disclose the cost of recent improvements it would destroy in
the renovation process or the cost involved in removing serviceable equipment,
storing it, and perhaps eventually installing it elsewhere. In addition, storage of
this equipment would result in increasing the Authority‘s reserves which is not a
permissible use of HUD capital funds, including Recovery Act funds.



                                  13
                 The Housing Act of 1937 as amended, specific HUD requirements, and other
                 Federal requirements generally prohibit housing authorities from using Federal
                 funds to replace serviceable capital improvements and dwelling equipment. The
                 Housing Act provides, in part, that the capital fund may be used to address
                 deferred maintenance needs and replace obsolete utility systems and dwelling
                 equipment. HUD‘s capital fund program regulations7 contain the same language.
                 None of the Authority‘s improvements were obsolete; they had all been made
                 within the last 4 years and should have many years of serviceable life remaining.
                 HUD also specifically addressed the issue of premature replacement in its
                 Modernization Standards Handbook (handbook) and provided guidance regarding
                 green renovations in Office of Public and Indian Housing (PIH) Notice PIH 2009-
                 09, issued in March 2009.

                 HUD‘s modernization handbook generally prohibits the premature replacement of
                 serviceable building components and equipment. An exception is made for
                 energy conservation improvements for which a cost-benefit analysis shows a 15-
                 year or less payback period. The March 2009 notice encourages public housing
                 authorities to purchase green products and equipment but stipulates that such
                 purchases must be economically feasible. Generally, the additional costs involved
                 must be recoverable from savings over the expected life of the equipment, and the
                 equipment must be cost-effective to maintain. The notice further states that
                 public housing agencies should use life-cycle costing analysis to calculate the
                 effective cost of equipment when maintenance is reduced and savings are accrued
                 over a specific amount of time.

                 In addition to the HUD-specific requirements, the Office of Management and
                 Budget‘s (OMB) Circular A-87 requires that grantees‘ expenditure of Federal
                 funds be both necessary and reasonable. The Authority‘s planned expenditures
                 were neither necessary nor reasonable given the excellent condition of the
                 development and the excessive costs. The unnecessary replacement of such
                 recently purchased serviceable items would be both wasteful and contrary to long-
                 standing Federal policy. If the Authority replaced these items prematurely, their
                 depreciated cost would add to the total development cost of the renovations.

    Development in Excellent
    Condition

                 The Forrest Road development consists of nice senior housing residences on tree-
                 lined streets. They have been well maintained by the Authority and the residents
                 both inside and out and, with the recent renovations, have no deferred
                 maintenance needs.


7
 The NOFA, section VI (J), Award Administration Information (page 117), requires grantees to comply with the
applicable governing regulations, specifically 24 CFR Parts 905 (Capital Fund Program), 968 (Public Housing
Modernization), and 941 (Public Housing Development).

                                                      14
                                      Jefferson Street units




Forrest Road units – Note the new roofs, heating/cooling units, and windows installed in 2007 and 2008.




                                              15
                   Bathroom renovations completed in 2007




          New energy-efficient heating/cooling unit installed in 2008




Kitchen cabinets installed in 2007               Floor tile installed in 2007




                                 16
         The Authority‘s planned renovations are comprehensive and go far beyond the
         replacement of fixtures and equipment. An architect‘s rendering shows how the
         plan would transform the development‘s appearance.




          Architect‘s rendering of Forrest Road green community


Inadequate Planning
Incomplete

         The Authority‘s planning appeared flawed from the outset. It elected to apply for
         funds to increase the energy efficiency and water conservation for the
         development although it had recently completed similar work. In addition, it had
         neither established a need for such comprehensive and costly renovations nor
         performed a cost benefit analysis to justify them. Although HUD requires
         housing authorities to perform a physical needs assessment every 5 years, the
         Authority had not completed one since December 2001. Without an analysis, the
         Authority had no basis for asserting that the planned costs were reasonable in
         relation to the anticipated results as required by the NOFA.

         When we inquired about the lack of such an analysis, the master developer
         attempted to justify the plan based on an earlier analysis for a project in Little
         Rock, AR. He later provided an additional preliminary analysis to justify the
         geothermal system, but that analysis was based on energy consumption for a
         1,000-square-foot house. The 68 Forrest Road units range in size from 394 to 737
         square feet. Since the entire basis for the planned renovations was energy
         efficiency and water conservation, the only acceptable analysis would necessarily
         have compared the total renovation cost per Forrest Road unit with expected and
         supportable energy savings/water conservation outcomes.

         Following the completion of the energy performance contract, the Forrest Road
         units appeared to be fairly energy efficient. The master developer calculated that
         the average utility consumption for the 68 units was only about $90 per month
         based on actual consumption for 2009. Assuming that all of the planned

                                                 17
         renovations were completed, the master developer opined that energy savings
         could range from 50 to 75 percent. Assuming that such efficiency would result,
         the $111,980 cost to renovate each unit would take much longer than the HUD-
         specified 15 years to recover. It would take about 207 years to recover all of the
         costs, assuming the 50 percent savings rate, and 138 years to recover at 75
         percent. Even if the renovated units required no utilities, it would take over 100
         years to recover the renovation costs.

         The Authority was in the process of developing firm renovation plans. As of
         April 23, 2010, it did not have a definite scope of work completed and had
         changed some plans based on our inquiries. For example, the original plans
         called for replacing recently installed energy-efficient windows with higher
         efficiency windows. After we questioned the necessity of replacing the windows,
         the developer stated that the Authority might reconsider and not replace the
         windows. When asked what would be done with the current windows if they
         were replaced, he stated that one idea was to use them as walls in a community
         greenhouse. Other material he provided indicated that the Authority was
         considering the installation of windmills to generate electricity. Windmills were
         not in the plan the Authority submitted to HUD.


Conclusion


         The Authority‘s planned renovation of the Forrest Road development is unwise
         and should not be allowed to proceed. As a result of flawed planning, the
         Authority‘s grant application contained serious errors and omissions, rendering its
         plan ineligible for funding. Its plan did not represent a true need and did not
         propose reasonable costs in comparison to anticipated results as required by the
         NOFA. The Authority‘s projected development costs exceeded the maximum
         allowed for the area, and even those costs were understated because they failed to
         consider the cost of recent improvements the Authority planned to destroy or
         remove in the renovation process.

         The unnecessary destruction or replacement of such recently purchased,
         serviceable improvements would be both wasteful and contrary to long-standing
         Federal policies. The Authority should have used more care in its planning
         process. It should have submitted an accurate application proposing necessary
         and reasonable renovations to this development or selected a development with
         deferred maintenance needs with more potential for energy savings.




                                          18
Recommendations



        We recommend that the Deputy Assistant Secretary for Public Housing Investments

        2A.    Rescind the Authority‘s $7.6 million Recovery Act competitive grant.




                                        19
                         SCOPE AND METHODOLOGY

Our objectives were to (1) evaluate the Authority‘s capacity to administer additional capital
funds received under the Recovery Act and (2) determine whether the Authority followed
Federal procurement regulations. We expanded our objectives to include an assessment of the
eligibility of the Authority‘s planned green renovation of 68 elderly public housing units using a
$7.6 million Public Housing Capital Fund Competitive (Recovery Act Funded) grant when we
learned that the Authority planned to prematurely replace recently installed improvements.

To accomplish our objectives, we reviewed

           The Recovery Act; Federal financial management and procurement regulations at 24
           CFR 85.20, 85.36, 905, and 968; OMB Circular A-87; pertinent sections of the
           Housing Act of 1937 as amended; HUD Handbook 7485.2; Notice PIH 2009-09; the
           NOFA for the capital fund recovery competition grants; Comprehensive Grant
           Guidebook on capital fund grants; HUD guidance on use of capital funds authorized
           by the Recovery Act; HUD‘s amended annual contributions contract with the
           Authority; and HUD‘s Greensboro Office of Public Housing‘s correspondence and
           files pertaining to the Authority.

           The Authority‘s policies and procedures manuals; planned use of the capital funds
           authorized by the Recovery Act; previous capital fund budgets and reimbursements
           from HUD‘s Line of Credit Control System; all contracts the Authority identified as
           awarded for 2007, 2008, 2009, and Recovery Act capital funds grants; check
           registers; staffing assignments; job descriptions; and organizational charts.

We selected a sample of 16 contracts from a universe of 45 occurring during the audit period.
We included six contracts in the sample because they were included in the citizen‘s complaint.
We selected the remaining 10 contracts nonrandomly to ensure that the sample included capital
fund contracts, non-capital fund contracts, and Recovery Act contracts as well as the various
procurement methods employed by the Authority. We added two contracts during the review
because the vendor files contained additional contracts not in our original universe. Thus, our
final sample consisted of 18 contracts from a universe of 47. We also interviewed the
Authority‘s employees and HUD‘s Greensboro staff involved with oversight of the Authority.

We performed our onsite work from October 2009 through May 2010 at the Authority‘s office
located at 213 Broad Street, Wilson, NC. The audit covered the period January 1, 2007, through
September 30, 2009, and was expanded as determined necessary.

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.


                                                20
                              INTERNAL CONTROLS

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

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

Internal controls relate to management‘s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls
              We determined that the following internal controls were relevant to our audit
              objectives:

                  Controls over the safeguarding of resources against waste, loss, and misuse
                  Controls over compliance with laws and regulations

              We assessed the relevant controls identified above.

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


 Significant Weaknesses


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

                  The Authority lacked the capacity to effectively administer Recovery Act funds
                  (finding 1).
                  The Authority‘s plan for its Recovery Act competitive grant was ineligible
                  (finding 2).




                                               21
                                    APPENDIXES

Appendix A

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

       Recommendation                               Unsupported         Funds to be put
              number           Ineligible 1/                  2/         to better use 3/

                      1C                             $2,328,050                $205,630
                      1D                                 93,989
                      1E          $40,210
                      1G
                      2A        ________              ________                7,614,642
                    Total        $40,210             $2,422,039              $7,820,272


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

2/   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.

3/   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, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. Implementation of recommendation 1C to require the
     Authority to provide support for the eligibility of its contracts will ensure that the
     remaining funds are applied to eligible activities and thus ensure that these funds are put
     to better use. Implementation of recommendation 2A to recapture the Recovery Act
     competitive grant will allow HUD to reallocate the funds to other entities for eligible
     activities and thus ensure that these funds are put to better use.




                                               22
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                               Auditee Comments




                                                            June 16, 2010


             Mr. James D. McKay
             Regional Inspector General for Audit
             Office of Inspector General
             Box 42
             Richard B. Russell Federal Building
             75 Spring Street, SW, Room 330
             Atlanta, GA 30303-3388

             RE:     Wilson Housing Authority – June 8, 2010 Draft Audit Report


             Dear Mr. McKay:

                This is in reply to your June 8, 2010, letter providing a draft audit report of the Wilson Housing
             Authority‘s (WHA) capacity to administer additional capital funds under the American Recovery and
             Reinvestment Act (ARRA). You requested that we provide our response by June 16, 2010.

                We appreciate the opportunity to comment on the draft report. This agency does not agree with the
             overall finding that this agency lacks the capacity to administer the Capital Fund or that the entire ARRA
             grant should be recaptured. We also disagree with several other issues and have noted a good number of
             inaccuracies, which we intend to delineate.

                We note that this review has been under way for a period of approximately nine months. During this
             period, WHA has fully and promptly complied with all requests made by OIG staff to cooperate with this
Comment 1    investigation. Your letter arrived with one day advance notice by telephone, no forecasting of the
             findings contained therein, and allowed this agency only seven (7) days to respond. We believe this was
             very unreasonable, considering the serious allegations that were leveled at WHA – many of which appear
             to be inaccurate. Several of our key personnel were travelling at this time, and it created an extreme
             hardship on them. This agency should have been provided with adequate time to prepare a response
             given the nature and severity of your recommendations. Nevertheless, we have made our best efforts to
             correct the inaccuracies and provide all requested documentation.




                                                       23
   Similarly, the timing of this audit report - following the termination of two employees directly
responsible for many of the allegations, and right before a lawsuit being litigated against WHA by those
same employees - seems more than coincidental. It appears that disgruntled ex-employees went to OIG
to leverage fabricated and exaggerated allegations of mismanagement, as well as cite missing
documentation that was under their direct control and may have been removed by them, in an attempt to
exact revenge and to bolster their case for a personal monetary award.

   Despite these difficult circumstances, the WHA has timely prepared its initial response to you which is
enclosed. If necessary, this response may be supplemented in the future. We respectfully request that
OIG carefully review the attached response and reconsider and amend its findings to reflect the correct
information and legal interpretations contained herein.




                                          24
                                  Table of Contents

                      Wilson Housing Authority Response


                               ITEM                                   PAGE #
Overview
                                                                        2
Finding 1. The Authority Lacked the Capacity to Effectively
Administer Recovery Act Funds                                           5

Finding 2. The Authority's Plan for its Recovery Act Was Ineligible
                                                                        10
Final WHA Conclusion and Response
                                                                        20
Appendix A
Schedule of Questioned Costs and Funds to be Put to Better Use
Reference Draft Report Recommendation 1D and 1E                         21
Exhibits 1 – 5 (unnumbered pages)

Appendix B
Response to Procurement Deficiencies                                    22

Appendix C
Reference Draft Report Recommendation 2A.
                                                                        23
Exhibits 6 - 8 (unnumbered pages)




                                  25
                HUD Office of Inspector General (OIG) Draft Report
             Lacked Capacity to Efficiently Administer Recovery Act Funds


                               Wilson Housing Authority Response

Overview.

The public housing program began over 70 years ago. It has consistently suffered from serious
underfunding since its inception. HUD commissioned a study of the public housing inventory in
1998, conducted by Abt Associates Inc. The study showed a backlog of unmet modernization
needs for the nation's public housing inventory of $20 billion. Annual accrual of additional
capital needs was reported to be $2 billion nationally. Appropriations for the Operating Fund
have consistently fallen below the amounts public housing agencies (PHAs) are eligible for under
HUD's own regulations. This historical lack of funding has seriously compromised the ability of
PHAs to adequately maintain public housing for the 40-year term of the public housing ACC and
subsequent extension of 20 years when Capital Funds are accepted and 10 years when Operating
Funds are accepted. The need for additional funding for long-term viability is well documented.

Congress and HUD, through the ARRA Notification of Funding Availability (NOFA), have
given PHAs around the country a unique and probably a once in a lifetime opportunity to carry
out some additional upgrades to further address the long-term viability issue discussed above by
not only making physical improvements, but also to further national goals to increase energy
conservation and to implement green and sustainable/renewable product improvements in public
housing. This opportunity came unexpectedly and imposed significantly stricter time frames than
is otherwise required in the Public Housing Capital Fund.

In order to sustain the public housing program, WHA has been assertive in securing additional
funding through the Capital Fund Financing Program (CFFP), and the Energy Performance
Contracting Program (EPC) as the Office of Inspector General (OIG) points out. Our Capital
Fund programs as well as these more sophisticated financing techniques along with the millions
of dollars worth of construction work have been extremely successful. The WHA plans to take
advantage of the ARRA funding to enhance the long-term viability of its public housing units.

The WHA owns and operates 781 public housing units in three asset management projects
(AMPs). In the operation of public housing, we must perform a host of property management
functions including, but not limited to:




                                              2




                                    26
                             Develop and maintain waiting lists for prospective residents, interview and
                             determine eligibility of prospective residents, and prepare leases for new
                             residents.

                             Conduct move-in inspections and admit the residents to their units.

                             Assess resident surcharges, enforce the lease provisions and perform evictions as
                             necessary.

                             Pay utility bills.

                             Maintain these units through general, routine and extraordinary maintenance
                             activities over the course of any given year.

                             Conduct annual unit and system inspections, preventive maintenance inspections
                             and housekeeping inspections as well as complete associated work orders to
                             maintain units.

                             Administer a multimillion-dollar Capital Improvement Program.

            Having said all of the above, it is significant to note that HUD has determined that the WHA is a
Comment 2   High Performer under its Public Housing Assessment System (PHAS) with a score of 93 out of
            a total of 100 points. The WHA has been designated a High Performer for every year but one
            since 2000. It is significant to note that despite the shortage of funding from Congress and HUD,
            and dozens of Federal regulations all impacting operations, the WHA has been able to properly
            operate and maintain its public housing portfolio with distinction.

            The WHA also administers approximately 550 Section 8 Housing Choice Vouchers.

            Section 2(a) of the United States Housing Act (USHA) of 1937 establishes the mission of public
            housing to remedy the unsafe housing conditions and acute shortage of decent and safe dwellings
            for low-income families. Section 2 goes on to state that "It is the Policy of the United States . . .
            consistent with the objectives of this title, to vest in public housing agencies that perform well,
            the maximum amount of responsibility and flexibility in program administration. . . .”
            Emphasis added.

            The Office of Management and Budget provides that grantees should be similarly treated through
            OMB Circular A-102 and HUD's implementing regulations at 24 CFR 85.36(b)((11) which
            states:

                                                            3




                                                  27
                            Grantees and sub-grantees alone will be responsible, in accordance with good
                            administrative practice and sound business judgment, for the settlement of all
                            contractual and administrative issues arising out of their procurements. These issues
                            include, but are not limited to source evaluation, protests, disputes, and claims.
                            These standards do not relieve the grantee or sub-grantee of any contractual
                            responsibilities under its contracts. Federal agencies will not substitute their
                            judgment for that of the grantee or sub-grantee unless the matter is primarily a
                            Federal concerns. Violations of law will be referred to local, State, or Federal
                            authority having proper jurisdiction.

            HUD has determined the WHA to be a High Performer under its own evaluation system. The
            WHA has been High Performer every year since 2000, with the exception of 2005, and all years
            during Edward R. Jagnandan‘s tenure as Executive Director. Furthermore, the WHA has an
            annual audit of its operations. Consistent with the Single Audit Act and its Compliance
            Supplement, the Auditor tests for program compliance. All WHA audits have been issued by its
            independent auditor, without significant findings or recommendations.

            As we detail further on in this response, this OIG report is replete with subjective opinions in
Comment 3   which the OIG is substituting its judgment for that of the Wilson Housing Authority and
            otherwise usurping the WHA's inherent statutory authority under Section 2 of the USHA to have
            maximum amount of flexibility in administering the public housing program.

            The administrative record, as determined by HUD, demonstrates that the WHA has the capacity
            to properly administer the Public Housing Capital Fund and its Capital Fund ARRA grants. In
            fact, the OIG itself observes this fact when it states in its report that the Forrest Road Homes
            public housing development is "in excellent condition." In administering these programs, the
            WHA has not violated any statutory requirements. While there may be some limited regulatory
            infractions with respect to our procurement practices, which either require correction or have
            already been corrected, those infractions are more administrative in nature and do not rise to the
            level of lack of capacity as the OIG suggests, particularly given the entire body of WHA‘s work
            and success in administering the public housing and Section 8 Housing Choice Programs as
            discussed above. It also does not rise to the level of warranting withdrawal of the entire ARRA
            grant. We also have disagreements and differences of opinion with regard to the substance and
            magnitude of the issues raised on the Capital Fund ARRA Competitive grant as will be further
            discussed below.




                                                            4




                                                  28
            Finding 1. The Authority Lacked the Capacity to Effectively Administer Recovery
            Act Funds.

                 OIG Assertion: Procurement Requirements Not Followed.

                 OIG Assertion: Cost Estimates Not Prepared.

                 The OIG states that the WHA did not provide independent cost estimates (ICE) for 13 of
                 18 contracts reviewed and thus had no basis for ensuring that contract costs were fair and
                 reasonable. We agree that an ICE is required for most procurements. Note HUD
                 Handbook 7460.8 REV2, paragraphs 5.4A and 5.5D that discuss limited requirements for
                 determining price reasonableness and require that documentation under the small purchase
                 threshold be kept to a minimum.

                 It is true that for some procurements an ICE was not prepared. The WHA, as a part of its
Comment 4        own management assessment of itself, hired the Nelrod Company to perform a review and
                 provide assistance. This deficiency was identified at that time and the WHA has since
                 modified it procedures to require an ICE for each procurement as appropriate. This self-
                 assessment is not indicative of a PHA without the capacity to administer the ARRA grant,
                 but instead demonstrates a strong desire and intent to comply with applicable Federal
                 regulations.

                 We would like to point out that an ICE by itself is not the method by which 24 CFR 86.36
                 provides for determining fair and reasonable contract prices. In fact, we call your attention
                 to HUD Handbook 7460.8 REV 2, paragraph 10.3A.1 that states:

                          While this initial cost estimate may not be sufficient for price reasonableness, it
                          can assist the Contracting Officer in determining the extent to which the offerors
                          understand the PHA‘s requirements. Emphasis added.

                 As such, HUD uses the ICE only as a tool to "assist" the Contracting Officer in
                 determining reasonable costs. Instead, the operative regulatory requirement is a cost or
                 price analysis (see 24 CFR 85.36(f)). If a PHA advertises a given procurement in
                 accordance with its procurement policy and there are two or more offerors, the PHA
                 carries out either a cost or price analysis. Paragraph 10.3B. goes on to state that: ―A
                 comparison of proposed prices received in response to the solicitation to each other is
                 generally sufficient to establish price reasonableness.‖

                 The same paragraph in the HUD PIH Procurement Handbook goes on to provide other
                 methodologies for determining price reasonableness.



                                                          5




                                                29
Comment 5   As to the discussion of using qualifications-based selection (QBS) criteria for architectural
            and engineering contracts, we note that 24 CFR 85.36 provides:

                     Grantees and sub-grantees may use competitive proposal procedures for
                     qualifications-based procurement of architectural/engineering (A/E) professional
                     services whereby competitors' qualifications are evaluated and the most qualified
                     competitor is selected, subject to negotiation of fair and reasonable compensation.

            The HUD PIH Procurement Handbook 7460.8 REV 2 contains similar but more detailed
            language describing this procedure. This methodology, where no price competition is
            permitted, is also present in Federal contracting, see applicable Federal Acquisition
            Regulations.

            While it is true that North Carolina State law requires PHAs to use QBS in the selection of
            A/E contracts, ARRA specifically pre-empts State law when using ARRA funds.
            Consistent with ARRA and HUD instructions (Notice PIH 2009-12, Procurement: Item 2.
            State Law and Item 3. Part 85) WHA amended its procurement policy to permit it to use
            the competitive proposals method when contracting for A/E services. In this regard, we
            would point out that HUD procurement regulations at 24 CFR 85.36(b) require PHAs "to
            use their own procurement procedures which reflect applicable state and local laws and
            regulations provided that the procurements applicable Federal law and standards [are]
            identified in this section." Accordingly, the WHA procurement was, in fact, complying
            with ARRA, its own procurement policy and 24 CFR 85.36 when it contracted for A/E
            services with ARRA funds.

            The OIG finding that the Authority had no basis for ensuring that the contract costs were
Comment 6   fair and reasonable is clearly inconsistent with Federal regulations and guidance and is,
            therefore, completely without merit.

            OIG Assertion: Statements Of Work Are Unclear.

            The OIG indicates that the descriptions of the needed services for these services were not
            specific and that costs quoted for the bids indicate that these were not specific. Depending
            on the needs of the individual PHA, some Statements of Work (SOW) need to be less
            specific to permit the contractor to develop its own methodology and approach for
            accomplishing a given task. In addition, having variations in price is also not necessarily
            the result of an unspecific SOW. Market conditions can also cause variations in price.
            Evidence is clear that current market conditions today are extremely volatile in this
            economy. It is noted that the OIG failed to cite specific SOWs and specific language in
            any SOW from a qualified professional (e.g., architect or engineer) that the




                                                     6




                                           30
            SOWs were in fact unclear or that an unclear SOW in fact led to an unreasonable price.
Comment 7   Instead, the OIG conclusion was based on a subjective conclusion based on limited facts.
            Consequently, the OIG failed to provide clear and convincing evidence that the WHA's
            statements are unclear.

            OIG Assertion: Full and Open Competition Not Provided.

            The OIG states that it reviewed a "request for proposals" on a single contract and
            concluded that the authority did not award the contract through full and open competition.
            The OIG goes on to state that the solicitation required the "bidders" to submit certain
            (unspecified) documents, but the WHA awarded contracts without the documents in
            question.

            First, the OIG appears confused as to the procurement method employed by the WHA.
Comment 8   On one hand, it discusses a "request for proposals" which is employed in the competitive
            proposals method but the OIG then discusses "bidders" which is used in the sealed bid
            method. The distinction is important in determining if the PHA complied with Federal
            regulations. In the case of the maintenance contract, the WHA used the competitive
            proposals method, not the sealed bid method.

            Second, the OIG concluded that the WHA failed to issue a public solicitation as required
            by 24 CFR 85.36 and its procurement policy. In fact, WHA did advertise, and received
            seven responses. This is further verifiable evidence that the WHA did conduct full and
            open competition.

            The OIG concludes that because the "bidders" who are actually "offerors" did not submit
            certain undefined documents, there was no full and open competition. In reality, failure to
Comment 9   submit certain documents is considered by HUD to be a "minor informality." See HUD
            PIH Procurement Handbook 7480.8 REV2, paragraph 6.12.D. that says:

                     Minor Informalities. The Contracting Officer may waive minor informalities or
                     allow the bidder to correct them. Minor informalities are matters of form rather
                     than substance. They are insignificant mistakes that can be waived or corrected
                     without prejudice to the other bidders and have little or no effect on price, quantity,
                     quality, delivery, or contractual conditions. Examples include failure to: return the
                     number of signed bids required by the bid package; sign the bid, provided that the
                     unsigned bid is accompanied by other documents indicating the bidder‘s intent to be
                     bound (e.g., a signed cover letter or a bid guarantee); complete one or more
                     certifications; or acknowledge receipt of an amendment or addendum, provided that
                     it is clear from the bid that the bidder received the amendment/addendum and
                     intended to be bound by its terms, or the amendment/addendum had a negligible
                     effect on price, quantity, quality, or delivery. Emphasis added.

                                                      7




                                           31
             We would point out that the WHA undertakes dozens of procurements during the course
Comment 10   of the year. Even if there were some substance to the OIG claim, which the WHA
             disputes, a lapse in a single contract does not make the case that the WHA has failed to
             conduct full and open competition for its procurements.

             The OIG concludes by saying that the Authority did not select the bidder with the most
             demonstrated experience, thus violating its selection process and federal requirements. As
             noted above, WHA used the competitive proposals method of procurement in the selection
             of the maintenance contract. In that regard, we call to our attention to 24 CFR 85.36(d)
             (3) which says:

                      The technique of competitive proposals is normally conducted with more than
                      one source submitting an offer, and either a fixed-price or cost-reimbursement
                      type contract is awarded.
                      Awards will be made to the responsible firm whose proposal is most
                      advantageous to the program, with price and other factors considered.
                      Emphasis Added.

             Under these Federal procurement regulations, the WHA is neither required to select the
             lowest price nor the most experienced. Instead, we may select, in the opinion of the
             authority, the firm that is most advantageous with regard to price and other factors. As
             noted, 24 CFR 85.36(b) (11) vests the authority and discretion with the WHA to make the
             determination as to the most advantageous proposal, not the OIG.

             It should also be noted that the firm retained to provide maintenance services had
             previously been retained by WHA to provide similar services. Consequently, WHA had
             first-hand experience with this firm and confidence in their work. As part of this
             arrangement called for the hiring of former WHA maintenance employees, WHA also
             knew of their work experience, capabilities, and reliability. In short, the unique
             knowledge of and experience with WHA offered by this maintenance provider made it the
             most advantageous maintenance provider for WHA.

             Based on the draft report, the OIG claim that the WHA failed to provide full and open
             competition when undertaking procurement activities with public housing funds is
             completely without foundation or supportive facts.

             OIG Assertion: Improperly Used Recovery Act Funds.

             This claim is not factual.

                                                    8




                                           32
             The provision of management, maintenance and/or community space is an eligible
Comment 11   expense under the Capital Fund. PHAs are required to include all eligible costs in the
             Capital Fund portion of their PHA Plans. The administrative facility was included in the
             WHA's Capital Fund portion of its PHA Plan which plan was subsequently approved by
             HUD. The choice as to whether the PHA opts to construct a new facility or purchase an
             existing facility is a decision of the WHA and is not a statutory or regulatory matter. In
             this case, the WHA determined that purchasing and rehabilitating an existing building in
             downtown Wilson was less expensive. The WHA should be commended by the OIG for
             using a less costly vehicle to provide its administrative space. Recovery Act funds were
             not improperly used.

             OIG Assertion: Unsupported Capital Fund Reimbursement.

             The WHA hired a new CFO, Patricia Ladensack, in October 2009. The finance
Comment 12   department has changed from capital fund expense reimbursement to draw-downs. Ms.
             Ladensack has corrected the payment documentation discrepancies, miscoded expenses
             and incorrect budget line items. As in other cases, the WHA, as a part of its sound
             management practices, identified the problem on its own, prior to the OIG audit, and has
             already corrected the problems.

             OIG Assertion: Other Control Weaknesses.

             As stated earlier, the WHA suffered from the unprofessional work performance by two
             ex-employees with prominent positions on the executive committee. The individuals
             hired as Finance Director and Director of Development proved not only incompetent and
             inept, but have now shown themselves to be vindictive and malicious, out for financial
             gain at the expense of the WHA. Following the staff purge WHA sought the assistance of
             knowledgeable and experienced consultants to fill the void and engaged the Nelrod
Comment 13   Company in March 2009 to assist in evaluating its operational procedures and continued
             employing Casterline Associates PC, a national leader in PHA financial management. It
             had Dave Shaffer of HA Resources, another experienced professional, under contract to
             assist with procurement, CFP and ARRA budgets. Patricia Ladensack, the new CFO, was
             hired in October of 2009, as noted above, and Michael S. Frangos was hired in December
             2009. Mike Frangos attended NAHRO CFP training in March 2010, Lisa Braswell,
             Director of Facilities attended NAHRO procurement training in April 2010. Also the
             entire WHA executive staff, housing, finance and development departments received
             procurement training in June 2010.




                                                     9




                                           33
                   It is evident that the WHA is constantly self-assessing and constantly making revisions to
                   its operations to achieve the highest level of performance. These types of management
                   actions are not indicative of a PHA that lacks capacity to administer a public housing
                   Capital ARRA program but instead are signs of an authority that does in fact have such a
                   capacity.



             Finding 2. The Authority's Plan for its Recovery Act Was Ineligible.

                   The OIG makes a number of points that are itemized below for which the WHA provides
                   its responses.

                   OIG Assertion: Proposed Costs Higher Than HUD's Limits.

Comment 14         The OIG argues that the WHA should have used the Greenville TDC market area rather
                   than the Greensboro market area when submitting its application. The OIG concludes that
                   the WHA used the incorrect TDC Cost Limits and therefore the application was ineligible.

                   This appears to be nothing more than an inadvertent and unintentional technical error of
                   interpretation rather than a fatal flaw in the application. It is significant to note that HUD
                   does not provide PHAs with any determination of which geographic jurisdictions it
                   considers to be in any given TDC market area. Wilson is a classic example where there is
                   no TDC provided by HUD and there are two cities with TDCs that are approximately
                   equidistant from Wilson. See HUD Notice PIH 2010-20. As such, both PHAs and HUD
                   are left to make their own determination as to the appropriate geographic jurisdictions
                   contained in each market area.

                   At this point, no construction has started and the WHA has not used public housing funds
                   in excess of the TDC limits. Moreover, we call your attention to paragraph 3.C.3 of said
                   notice which permits PHAs with ARRA grants to request TDC waivers for the very work
                   that the WHA contemplates under its ARRA grant. Even if we used the correct market
                   area and determined that the costs exceeded that market area, HUD permits us to request a
                   waiver.

                   We also would argue that had the WHA inadvertently used the incorrect market area
                   and/or otherwise exceeded HUD's TDC, this is not a fatal flaw making it ineligible. First,
                   the NOFA makes no such statement.




                                                            10




                                                  34
Comment 15   WHA did prepare a revised TDC worksheet to correct this inadvertent error, and in so
             doing selected Raleigh as the appropriate market area, under advice from Gene Rahuba,
             HUD Engineer, on the basis that when two nearby markets with TDCs are approximately
             equidistant, we should select the one with the highest TDCs. Raleigh‘s city limit is 33
             miles from the subject site, while per the OIG report, Greenville is 35 miles from Wilson.
             Using the Raleigh TDC limits, the submitted budget does not exceed the corrected TDC
             limit.

             Second, the WHA shows its intent to comply but accidentally clicked the alphabetically
             adjacent ―Greensboro‖ rather than the intended ―Greenville‖. The remedy is not recapture
             of the entire grant as recommended by the OIG. Such an approach is clearly overzealous
             and unnecessarily penalizes the residents who would benefit from the ARRA
             improvements. Instead, a more reasonable approach would to be to make those costs in
             excess of TDC, if any, ineligible expenses under the Capital Fund ARRA grant.

             As noted above, no public housing funds have been expended in excess of the TDC limits
             contained in HUD Notice PIH 2010-20 and no such funds will be expended above those
             limits. Since there appears to be a difference of opinion between the OIG and the WHA
             as to the HUD Greensboro Office's interpretation of the correct market area, we will seek
             a written determination from that Office and abide by that determination.

             Based on the above, WHA strongly disagrees that the ARRA competitive grant was
             ineligible on the basis of the TDC market area confusion.

             OIG Assertion: Premature Replacement of Recent Installations.

             The OIG contends that the WHA plans for use of the ARRA grant contain flaws rendering
             the application ineligible for funding.

             In summary, the OIG cites as a basis for this claim, a number of items including the
             following:

                      The WHA completed an energy performance contract and implementation of the
                      current plan would result in the wasteful destruction or removal of at least
                      $411,030 in recently installed improvements.
                      The WHA would remove recently installed items, which would be replaced with
                      "still more green models."
                      The WHA ARRA competitive grant application did not disclose that recent
                      improvements would be destroyed.



                                                    11




                                           35
The WHA has a number of comments that provide a more clear and accurate picture of
the facts.

First, we would like to remind the OIG that the purpose of the ARRA CFRC Category 4
Grant is to further upgrade the property, thereby reducing its energy consumption and
providing a substantial rehabilitation that will ensure its long-term viability. The Forrest
Road Homes site was not selected based on extensive deferred maintenance and the
NOFA has no such requirement. Category 2 of the CFRC competition was geared toward
distressed properties, while Category 4 is geared toward properties that will benefit from
energy conservation measures. As support for this, we call the attention of the OIG the
language of the NOFA, which states, in part:

         Category 4. Creation of an Energy Efficient, Green Community. Unlike the other
         Categories, this Category will be rated and ranked by score. The purpose of Category 4 is
         to facilitate transformational energy efficiency and ‗green‘ retrofits to substantively
         increase energy efficiency and environmental performance of public housing properties
         and thereby reduce energy costs, generate resident and PHA energy savings, and reduce
         Green House Gas emissions attributable to energy consumption. This will be
         accomplished by funding competitive proposals received from eligible PHAs that respond
         to one of the two options available under this category: Option 1 - Substantial
         Rehabilitation or New Construction; and Option 2 – Moderate Rehabilitation. Eligible
         PHAs may submit multiple proposals under one or more of the options provided under
         this section. It is the intention that this funding will help to produce benchmark projects
         demonstrating energy efficiency, healthy, safe living environments; lower utility costs;
         conservation of energy, water, materials and other resources; utilization of renewable
         energy resources where feasible; and to the extent possible, enhancement of the health of
         local and regional ecosystems.

         a. Eligible Activities. These activities include:
         (1) Option 1, Substantial Rehabilitation or New Construction - Funds in this Category may
         be used to pay for any eligible Capital Fund expenses, as defined in 24 CFR Parts 905,
         941 and 968, that help achieve the Category and Option 1 objectives of creating energy
         efficient, green communities through substantial rehabilitation or new construction.
         Specifically, this includes eligible activities under the Capital Fund that enable you to
         provide substantial rehabilitation or new construction to redevelop a public housing
         project including community facilities or other non-dwelling space that are part of the
         project to produce substantially new construction that is green and energy efficient.
         Activities include but are not limited to development of connections to neighborhoods and
         green space; site improvements that provide surface water management techniques that
         capture, retain, infiltrate and/or harvest rainfall; water conservation through the use of
         water-conserving appliances, fixtures and efficient irrigation if required; energy efficiency
         that meets Energy Star standards for new construction, utilizes Energy Star appliances and
         efficient lighting use of materials beneficial to the environment, promotes healthy/safe
         living environments for residents through the use of low or no-volatile organic compounds
         (VOC) paints and adhesives, urea/formaldehyde-free composite wood and green label
         certified floor coverings. . . .


                                           12




                                36
             It should also be noted that in the renovations that were carried out with capital funds over
             the past ten years, there were indeed energy conserving measures taken. However,
             technological advances now allow for even greater energy savings. Also, many of the
Comment 16   issues that cause excessive energy usage were not addressed at all in the prior upgrades. It
             is without question that the building envelope is responsible for the greatest amount of
             energy loss. While the previous renovations appropriately provided new windows, it did
             not seal the attics, provide additional attic insulation, provide for the addition of wall
             insulation, new exterior doors, sealing of all gaps and crevices in the exterior walls, and so
             forth. Likewise, the windows previously installed in the units are energy efficient,
             although more efficient windows are now available. New roof shingles were installed in
             24 of the units, but they unfortunately do not meet the Energy Star requirement of the
             NOFA.

             As the OIG Report also notes, the CFRC Category 4 plan as submitted to HUD also
             includes site improvements, such as the harvesting of rainwater, as well as the installation
             of geothermal systems to provide more energy efficient heating and cooling.

             The OIG Report states that ―HUD‘s rules prohibited it (the CFRC Plan) from being
Comment 15   modified to render it eligible.‖ We are not aware of what these ―rules‖ are. Please
             provide specific citation.

             The OIG Report states that the Plan will result in the waste of $411, 030 in recent
Comment 17   improvements. No detail was provided by the OIG of how this amount was calculated.
             We have provided the OIG with our analysis of previous improvements with capital
             funding, and showing which improvements are to be retained, which ones are likely to be
             recycled and which ones will neither be retained nor recycled. This analysis shows that
             based on the planning through that time (March, ‘10), 94% of the cost of the previous
             renovations will be retained, and only 6% will not be recycled or retained, with those
             items being: Roof Shingles; Floor tiles; Soffits; and Dryer Vents. A narrative was
             provided that explained that these changes are needed in order to either meet the Green
             requirements of the NOFA (e.g., roof shingles and soffits) or as a result of the substantial
             renovations (e.g., the moving of dryer vents due to enlargement of the very small units).
             By our estimate, as provided to the OIG, the value of the ―lost items‖ is only $67,138 (see
             Appendix C, Exhibit 8). As explained in our prior communication, the soffits need to be
             changed to support the conversion of the attic to ―semi-conditioned space,‖ a key element
             of sealing the building envelope. Floor tiles are being replaced not because they have
             exceeded their useful life, but because the concrete floors will be broken up to replace the
             cast iron piping that is under the slabs. Shingles will be replaced not because of their age,
             but rather because the expansion of the units will necessitate compromising the roof




                                                     13




                                            37
             system, and also because the shingles are not Energy Star rated, which is a goal of the
             CFRC program (see memo May 3, 2010, included herein as Appendix C, Exhibit 7).

             The OIG Report states that the ―Authority‘s grant application did not disclose the cost of
             recent improvements it would destroy in the renovation process or the cost involved in
Comment 18   removing serviceable equipment and storing it, and perhaps eventually installing it
             elsewhere.‖ This is true. However, the NOFA does not require or even request that such
             items be discussed in the application.

             In regard to premature replacement and life-cycle costing analysis, the OIG inquired as to
Comment 19   why the application did not comply with PIH Notice 09-43, released in October 2009.
             First, the application was submitted five months previous to the release of this notice, and
             in fact the PIH Notice referenced was issued after the CFRC awards were made. Second,
             when we inquired of HUD Washington as to the applicability of this Notice, we were
Comment 20   informed by the Office of Public Housing Improvements that the Notice does not apply—
             rather, the CFRC NOFA is the governing document for this program, and no such
             requirements are included in the NOFA. See attached memo e-mailed to Jerica Hamilton
             HUD OIG dated May 3, 2010 (attached herein as Appendix C, Exhibit 6).

             The following are 2 lists of improvements. The first list includes energy and water saving
             work items under the cited Energy Performance Contract. The second includes work
             proposed under this contract. You will note that the scope of energy improvements that
             are proposed under the ARRA grant dwarf the work under the Energy Performance
             Contract by a significant factor. Thus, it would be more appropriate to say, ―a limited
             amount of similar work was undertaken‖, rather than to say that the authority ―had
             recently completed similar work.‖ As noted above, the WHA is achieving the purposes of
             ARRA and the NOFA under Category 4, to the maximum extent practical.

                 Prior Renovations Scope vis-à-vis water and energy conservation:

                      a)   Toilets at 1.6 GPF
                      b)   Faucets at 2.0 GPM
                      c)   Showerheads at 2.5 GPM
                      d)   Roof Shingles (non Energy Star)

                 Current Improvements Scope of Work vis-à-vis water and energy conservation, as
                 well as a healthy living environment:

                      a)   Toilets at 1.1 GPF



                                                     14




                                            38
                       b)   Faucets at 1.0 GPM in bathroom and 1.5 GPM in kitchen
Comment 21             c)   Showerheads at 1.75 GPM
                       d)   Roof Shingles (Energy Star Rated) or Standing Seam Metal Roofing
                       e)   Rain Gardens and Bio-swales to capture rainwater
                       f)   Pervious pathways (50% of area)
                       g)   Sealing of Attic, with increased insulation
                       h)   Insulation of Walls, with addition of fiber cement siding
                       i)   Installation of geothermal heating and cooling system
                       j)   Installation of high energy-efficient doors
                       k)   Energy Star lighting package
                       l)   Energy Star appliances
                       m)   Landscaping to maximize passive solar benefits, and reduce water consumption
                       n)   Sealing of all wall, floor and joint penetrations
                       o)   Compact fluorescent lighting for apartment entrances and porches, and an
                            energy-saving LED exterior lighting or induction system for pole lights and wall
                            packs
                       p)   Individual retail electric meters for each unit
                       q)   Use of zero VOC interior paint and primer
                       r)   Urea/formaldehyde-free cabinets
                       s)   Energy Star-labeled bathroom fans that exhaust directly to the outdoors and are
                            connected to a light switch and are equipped with a humidistat sensor or time, or
                            operate continuously
                       t)   Power vented fans or range hoods that exhaust to the exterior.

             The OIG concludes that the work proposed by the WHA under the ARRA grant was "neither
             necessary nor reasonable given the excellent condition of the development and the excessive
             costs."

             The entire body of facts as outlined in this response present the opposite and a very different
             conclusion. Specifically, the work proposed by the WHA under the ARRA grant is:

                       Consistent with the USHA and ARRA and applicable HUD regulations.
                       Consistent with HUD's NOFA inviting PHAs to apply for ARRA grants, specifically
                       Category 4 of that NOFA.
                       The costs are or will be reasonable and within applicable HUD cost guidelines.

             OIG Assertion: Development is in Excellent Condition.

             The OIG states that the Forrest Road Homes development is well maintained by the authority
             and residents, both inside and out and, with recent renovations, has no deferred maintenance
             needs.



                                                       15




                                             39
             The OIG seems to conclude that the development is ineligible for a CFRC Grant simply
             from this vague, erroneous and generalized interpretation of eligible expenses under the
             Capital Fund Program and the CFRC NOFA.

             The WHA has a couple of issues with this conclusion.

             On the one hand the OIG concludes that the WHA maintains its units in "Excellent
Comment 22   Condition" but in the same breath concludes that the WHA does not have the capacity to
             administer an ARRA Capital Fund grant. This conclusion of the OIG is mutually
             inconsistent with the facts and its own findings.

             Section 9(d) (1) of the USHA states that the Capital Fund is available for carrying out the
             following activities:

                      "(A) The development, financing, and modernization of public housing projects,
                      including the redesign, reconstruction, and reconfiguration of public housing sites
                      and buildings (including accessibility improvements) and the development of mixed-
                      finance projects;
                      (B) Vacancy reduction;
                      (C) Addressing deferred maintenance needs and replacement of obsolete utility
                      systems and dwelling equipment;
                      (D) Management improvements, including the establishment of initial operation of
                      computer centers in and around public housing through a Neighborhood Networks
                      initiative, for the purpose of enhancing the self-sufficiency, employability, and
                      economic self-reliance of public housing residents by providing them with onsite
                      computer access and training:
                      (F) Demolition and replacement;
                      (G) Resident relocation;
                      (H) Capital expenditures to facilitate programs to improve the empowerment and
                      economic self-sufficiency of public housing residents and to improve resident
                      participation;
                      (I) Capital expenditures to improve the security and safety of residents; and,
                      (J) Homeownership activities, including programs under section 32."

             As one can see, deferred maintenance is not the only eligible activity for which Capital
Comment 23   Funds can be used. Moreover, the USHA and HUD regulations at 24 CFR 903, 968 and
             905 vest the individual PHA with the responsibility of determining what work will be
             done subject to HUD approval of its PHA Plan under 24 CFR 903 (see further discussion
             under Inadequate Planning). Every work item discussed in the WHA application and
             contained in the scope of work is eligible under the above statutory provisions cited
             above, 24 CFR 905 and 968.

             Further, the WHA again calls your attention to the language of the NOFA issued by HUD
             upon which the WHA was awarded the grant in question.


                                                     16




                                           40
         Category 4. Creation of an Energy Efficient, Green Community. Unlike the other
         Categories, this Category will be rated and ranked by score. The purpose of Category 4 is
         to facilitate transformational energy efficiency and ‘green‘ retrofits to substantively
         increase energy efficiency and environmental performance of public housing properties
         and thereby reduce energy costs, generate resident and PHA energy savings, and reduce
         Green House Gas emissions attributable to energy consumption. This will be
         accomplished by funding competitive proposals received from eligible PHAs that respond
         to one of the two options available under this category: Option 1 - Substantial
         Rehabilitation or New Construction; and Option 2 - Moderate Rehabilitation. Eligible
         PHAs may submit multiple proposals under one or more of the options provided under
         this section. It is the intention that this funding will help to produce benchmark projects
         demonstrating energy efficiency, healthy, safe living environments; lower utility costs;
         conservation of energy, water, materials and other resources; utilization of renewable
         energy resources where feasible; and to the extent possible, enhancement of the health of
         local and regional ecosystems.

         a. Eligible Activities. These activities include:
         (1) Option 1, Substantial Rehabilitation or New Construction - Funds in this Category may
         be used to pay for any eligible Capital Fund expenses, as defined in 24 CFR Parts 905,
         941 and 968, that help achieve the Category and Option 1 objectives of creating energy
         efficient, green communities through substantial rehabilitation or new construction.
         Specifically, this includes eligible activities under the Capital Fund that enable you to
         provide substantial rehabilitation or new construction to redevelop a public housing
         project including community facilities or other non-dwelling space that are part of the
         project to produce substantially new construction that is green and energy efficient.
         Activities include but are not limited to development of connections to neighborhoods and
         green space; site improvements that provide surface water management techniques that
         capture, retain, infiltrate and/or harvest rainfall; water conservation through the use of
         water-conserving appliances, fixtures and efficient irrigation if required;
         energy efficiency that meets Energy Star standards for new construction, utilizes Energy
         Star appliances and efficient lighting use of materials beneficial to the environment,
         promotes healthy/safe living environments for residents through the use of low or no-
         volatile organic compounds (VOC) paints and adhesives, urea/formaldehyde-free
         composite wood and green label certified floor coverings; use of renewable energy
         resources; and address operations and maintenance of the public housing units.

Nowhere in the above NOFA language are applications limited to properties that only
require deferred maintenance. All of the work items contemplated by the WHA are in full
compliance with the provisions of the NOFA.

As it turns out, the 44 units in 20-6 are in need of improvements due to previously
deferred maintenance. These units have not had new roofing shingles in over 15 years;
the wall-heating units were installed in 1999, are ductless and only serve a portion of each
unit. The vinyl floor tiles were never changed and asbestos-containing mastic has never
been abated in these units. Finally these units only had their bathrooms painted as part of



                                          17




                                41
             the energy upgrades where the bathrooms had been upgraded. We note that the interior
Comment 24   pictures on page 16 of the OIG report are of a fully rehabilitated unit that suffered
             extensive fire damage and unit restoration in 2009, which was funded through an
             insurance claim rather than the Capital Fund. As such, the pictures misrepresent the
             overall condition of the units of Forrest Road Homes. Moreover, the OIG did not provide
             us with a copy of its own report completed by a qualified inspector examining all aspects
             of the property, including those items subject to life cycle replacement.

             All 68 units have deferred maintenance which includes corroding sewer lines within and
             under building slabs, as well as the need for new sewer laterals connecting each unit to the
             main, heating and air-conditioning systems as well as the painting, roofing and asbestos
             abatement needed in 20-6 mentioned earlier. Only the 24 units of 20-3 recently received
             new PTAC units, which are easily warehoused for future use in other developments.
             Further, page 14 of the OIG report fails to note that the WHA is replacing systems that
             have indeed run their useful life-cycles and are in need of replacement, such as through
             the installation of individual upgraded electrical meters and panels, new kitchen cabinets,
             new closet doors, and new high-efficiency water heaters with drain pans. WHA is also
             adding items that have never been installed, such as the addition of gutters and
             downspouts, ducted bathroom exhaust fans, fresh outdoor air intake and humidistat,
             ducted range vent hood, programmable thermostat, and the installation of code compliant
             (AFI and GFI) outlets and electrical circuits.

             In view of the above, the OIG suggestion that the WHA was ineligible because of the
             OIG‘s subjective opinion that the development is in excellent condition is (1) inconsistent
             with its own conclusion that the WHA did not have the capacity to administer the Capital
             Fund and (2) the above-cited statutory and NOFA provisions. The WHA application and
             planned work is, in fact, fully consistent with this language.

             OIG Assertion: Inadequate Planning.

             The OIG erroneously concludes that the WHA's planning appeared flawed from the outset
             as a function of the various activities it undertook to fund public housing improvements,
             in the absence of otherwise adequate appropriations. Further, the OIG asserts that WHA
             has not established the need for such renovations nor performed a physical needs
             assessment as required by HUD.

             Congress and HUD have established a long-term planning requirement for public housing
             agencies. Specifically, Section 5A of the USHA and 24 CFR 903 require PHAs to
             develop and submit 5-year and annual PHA Plans.




                                                     18




                                           42
             The PHA includes a Capital Improvements section. This is the specific Federal
             requirement for planning for PHAs. The WHA is in full compliance with these
             requirements as can be confirmed by the HUD Greensboro Office which is responsible for
             approving the PHA plan for each PHA in its jurisdiction.

             As it relates to the physical needs assessment (PNAs), HUD Headquarters has concluded
             that its Modernizations Standards Handbook, which was issued in 1985 and has not been
Comment 25   materially modified since then, and provides HUD guidance to PHAs for the PNA is
             outdated and obsolete. HUD anticipates issuing a new format for conducting the PNA.
             As a result, HUD directed PHAs "not" to carry out the PNAs until HUD issues a new
             format.

             See attached item 8 in the Recovery Act Capital Fund Formula Frequently Asked
             Questions # 3, Dated July 24, 2009 contained at HUD's website at:

                      http://www.hud.gov/offices/pih/programs/ph/capfund/ocir.cfm

             HUD's response to this issue is as follows:
                      PHAs are required pursuant to paragraph 7(k) of the American Recovery Act (ARRA) Formula
                      Grant Capital Fund (CFP) Amendment to the Consolidated Annual Contributions Contract (the
                      Recovery Act ACC Amendment) to provide a Physical Needs Assessment, as specified by
                      HUD. However, as noted above, HUD is in the process of revising the PNA so that it can better
                      meet the needs of HUD and PHAs. The Recovery Act ACC Amendment indicates that the PNA
                      shall be completed ―as specified by HUD.‖ Therefore, PHAs are advised to not complete the
                      PNA required by the Recovery Act ACC Amendment until the Recovery Act PNA is available.
                      Emphasis added.

             As of the date of the WHA's response to the OIG, HUD has not issued a new PNA
             template for PHA's to use. Finally, we would also bring your attention to the CFRC
             NOFA issued by HUD. With one exception, there is no requirement, specific or
             otherwise, for additional planning beyond what is already provided in statute and
             regulation for which the WHA is in full compliance. That exception is for the conduct of
             an eco-charrette to prepare a Green Development plan after the award of a grant (and not
             before submittal of the grant application). This eco-charrette was conducted and the
             resulting Green Development Plan was submitted to HUD.

             Again, the WHA is following HUD regulations and instructions relative to planning. The
             OIG findings in this regard that the WHA was ineligible are completely without
             foundation in either statute, regulation or the NOFA issued governing the grant which the
             OIG seeks, incorrectly, to have withdrawn.




                                                        19




                                              43
     "Only Acceptable Analysis."

     The OIG Report says that the "only acceptable analysis would necessarily have compared the
     total renovation cost per Forrest Road unit with expected and supportable energy savings/water
     conservation outcomes." Here the OIG concludes that it would take 207 years for the energy
     savings to recoup all of the redevelopment costs (including all the upgrades and other systems
     changes that are not specifically energy related). This OIG-suggested methodology appears to
     be counter to the instructions in PIH Notice 2009-43, and elsewhere in HUD regulations, which
     says that ―[t]he incremental additional costs for the more sustainable choices must be
     recoverable from savings over the expected life of the equipment and the equipment must be
     cost-effective to maintain.‖ Thus, HUD‘s own direction as to the analysis of savings from
     energy upgrades compares the ―incremental additional costs‖ of the equipment to the utility
     savings. To our knowledge and belief, there is no HUD requirement to recoup the total
     renovation cost of a substantial rehabilitation through energy savings. If there is such a
     regulation, please provide the citation.

     "Adding Cost of 'Destroyed' Recent Improvements to the Development Cost."

     HUD's instruction for TDC analysis does not require any such calculation, and in fact, the TDC
     worksheet has nowhere to include such costs. If there are HUD regulations that require such a
     calculation, please provide the citation.

Final WHA Conclusion and Response.

     While we appreciate that the OIG review may have been well intentioned, the draft report
     materially misrepresents the facts, particularly the capacity of the WHA to administer the
     ARRA Competitive Grant.

     The WHA is and has been a high performer under HUD's assessment system for many
     years. It makes mistakes and errors like every other agency, including the OIG. The facts
     are indisputable that the WHA has done an excellent job of administering the public
     housing program, as the OIG points out in its report.

     What we are faced with are (1) some minor administrative issues that either are being or
     have been addressed and (2) a difference of opinion over the administration of the public
     housing program and the scope of work under the WHA's ARRA competitive grant. By
     law and regulation, the WHA, and only the WHA, is vested with the authority for making
     those decisions.

     The administrative record clearly shows that the WHA has the capacity to administer the
     ARRA Competitive Grant and there is no factual basis for HUD to withdraw the grant.




                                             20




                                    44
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority‘s claim that we failed to ‗forecast‘ the findings is not correct. We
            briefed the Authority about the issues in the report throughout the course of the
            review. Specifically, we discussed the issues in finding one with the Authority on
            February 12, 2010, and the issues in finding two on April 23, 2010 and June 4,
            2010.

Comment 2   The Authority‘s claimed status as a High Performer is not based on an assessment
            by HUD. It is based on a self assessment of its operations conducted in 2007
            under HUD‘s Public Housing Assessment System (PHAS). HUD has not
            performed a confirmatory review to determine the validity of the Authority‘s
            assessment.

Comment 3   We agree that the Authority has a right to exercise flexibility in administering its
            public housing programs; however, it must still follow the applicable
            requirements. It is subject to HUD oversight and audit by the OIG as provided for
            in the Housing Act, applicable regulations, and its annual contribution contracts.
            The Authority‘s internal control systems have not allowed management or staff in
            the normal course of performing their assigned duties to prevent or detect
            violations of program requirements.

Comment 4   The Authority indicated that it modified its procurement procedures to require
            cost estimates on the advice of its consultant. However, the Authority was
            apparently not following the modified procedures because it awarded two
            contracts without obtaining independent cost estimates after the consultant‘s
            March 2009 review.

Comment 5   We did not question the Authority‘s use of a qualifications-based selection
            method to procure the architect and engineering contract. We questioned the
            Authority‘s ability to determine price reasonableness for the contract deliverables
            without an independent cost estimate, or other documented price source, for use in
            evaluating the proposed prices.

Comment 6   None of the procurement criteria presented by the Authority contradicts the
            finding. The Authority‘s statement that independent cost estimates are only a tool
            avoids the fact that they are required by the regulations. The Authority states that
            the operative requirement is a cost or price analysis but does not explain how that
            either negates the requirement for the independent cost estimate or how it could
            perform an adequate analysis without first having an independent cost estimate.
            Further, it did not explain how the cited criteria specifically applied to the 13
            contracts listed in Appendix D of the report. The files for these contracts
            contained neither an independent cost estimate nor documentation supporting an
            Authority determination of fair and reasonable price.




                                             45
Comment 7     Although some statements of work need to be less specific to allow the contractor
              to develop its own methodology and approach, the Authority should provide
              sufficient information to afford vendors the opportunity to provide a reasonable
              response. For example, the entire statement of work provided to potential offerors
              for the file assessment contract states, ―The Wilson Housing Authority is
              requesting a proposal to perform assessment of needs for internal (inside the file)
              and external file management and develop a written File Sense Plan to re-organize
              the internal and external files used by the Executive Director and Executive
              Secretary, and review the Plan with the WHA staff who will implement it.‖ The
              Authority admitted that two offerors misunderstood the statement of work and
              priced a file assessment for the entire authority rather than just the administrator‘s
              files. While the Authority is correct in stating that market conditions can also
              cause a variation in price, it did not provide an adequate alternative explanation as
              to why quotes for several of its contracts showed so much variation.

Comment 8     The Authority is correct in stating that the proper term should be offeror when
              discussing requests for proposals; however, it used the terms offeror and bidder
              interchangeably in its request for proposals. We adjusted our use of these terms
              in the finding where necessary.

Comment 9     The failure to obtain and review documents on which a proposal is required to be
              evaluated is not a minor informality. The initial proposal evaluation must be
              based on the documents submitted, not other personal knowledge of the offeror
              (HUD Handbook 7460.8 Revision 2 section 7.2K). According to the request for
              proposal for the subject contract, three of the rating factors were based on
              evaluation of documentation supporting the offeror‘s qualifications. Since the
              offeror failed to submit the required documents, the only proper course of action
              would have been to disqualify the offeror as provided for in the request for
              proposal.

Comment 10 The Authority‘s interpretation that full and open competition deficiencies were
           limited to the one maintenance services contract is not correct. We included the
           discussion of this contract in the finding as an example because it was the largest
           contract. Appendix D of this report cites five procurement actions that did not
           represent full and open competition. Specifically, these included the contracts for
           information technology service, the asset management plan consulting, the
           maintenance operation evaluation, and the file assessments. The winning
           proposal for the information technology service was dated after the deadline in the
           request for proposal, the score sheets for the asset management plan consulting
           proposals were dated more than one week after the selection of the vendor, two
           change orders issued for the maintenance evaluation did not relate to the original
           scope of work, and the selected vendor for the file assessment contract was
           contacted four days prior to the other vendors. In addition, the request for
           proposal for the file assessment requested a specific product that was a registered
           trademark of the winning bidder. The regulations consider that specifying only a



                                               46
                brand name product instead of allowing an equal product to be offered is
                restrictive of competition (24CFR85.36(c)(vi)).

Comment 11 We did not dispute that the use of capital funds for an administrative building is
           an eligible expense. We questioned the purchase because the Authority did not
           spend the funds as outlined in the annual PHA Plan that the HUD field office
           approved. In addition, purchasing a building requires additional steps the
           Authority did not follow. Therefore, the purchase became an ineligible use under
           the Recovery Act.

Comment 12 The Authority submitted additional documentation with its comments to resolve
           the report recommendations related to unsupported costs. In our opinion, this
           material was not sufficient to justify cost eligibility; however, we will provide it
           to the HUD Greensboro field office for further review.

Comment 13 Recent procurement training should serve to improve internal controls within the
           Authority. However, the training was not obtained immediately after the
           procurement assessment in March 2009; it was obtained after we discussed the
           need for training with the Authority during our review.

Comment 14 We agree that HUD‘s guidance regarding the determination of total development
           cost limits for areas without such assigned limits lack specificity. However, in
           such cases, we believe the selection of a total development cost area must have a
           reasonable basis. We can find no justification for using the higher total
           development cost limits for Raleigh over those for Greenville. Wilson is 35.7
           miles from Greenville and 48.4 miles from Raleigh, not 33 miles from Raleigh as
           claimed by the Authority. However, more importantly, any reasonable analysis
           shows Wilson and Greenville are much more similar to each other than either is to
           Raleigh. Raleigh is a large metropolitan area while Wilson and Greenville are
           small cities in rural counties. Populations, average incomes, average home
           values, and average home construction costs are similar for Wilson and
           Greenville, markedly higher for Raleigh. In addition, although the Authority‘s
           consultant stated that he considered Wilson to be part of the Raleigh housing
           market, HUD‘s most recent market analysis of the Raleigh housing market does
           not include Wilson8.

Comment 15 The NOFA provided for the correction of errors during the application process,
           not after grant award. Similarly, applicants were afforded the opportunity to
           request a waiver of total development costs during the application process, not
           after. HUD would have considered the application for a waiver and accepted or
           rejected it. As stated in the NOFA, HUD‘s rejection of the waiver would have
           resulted in rejection of the entire application. Since the Authority neither
           requested a waiver nor disclosed the error to HUD during the application process,
           HUD was unaware of the excessive amount requested and unknowingly based its

8
 Comprehensive Market Analysis Reports, Analysis of the Raleigh North Carolina Housing Market as of August 1,
2004, page 3. Economic Research, U.S. Dept. of Housing and Urban Development

                                                     47
              grant award decision on erroneous information. It would be unfair to other
              applicants if some applicants were afforded the opportunity to correct or change
              their applications contrary to the NOFA provisions. As stated on page 93 of the
              NOFA, ―HUD will not fund incomplete applications or does not cure its technical
              deficiencies.‖

Comment 16 The Authority did not support that its plan to replace the recently installed energy
           efficient windows with still more efficient models would be either a reasonable or
           necessary use of Federal funds. The Authority‘s comments cited other needs
           addressed by its plan which were not included in its previous energy conservation
           efforts for the development. It cited new attic and wall insulation, doors, and
           sealing gaps and crevices in exterior walls. We agree that such improvements
           might both increase energy efficiency and be cost effective. The Authority could
           have addressed such needs if it had applied for grant funds under the NOFA
           category of moderate rehabilitation instead of substantial rehabilitation. Such
           improvements might have further increased the energy efficiently of the
           development at moderate cost without the unnecessary destruction of the recently
           installed, and yet unpaid for, energy improvements.

Comment 17 We do not agree with the Authority‘s estimated costs for recent improvements.
           The amount cited by the Authority is limited to the costs of shingles, soffits,
           flooring, and dryer vents. It did not include the costs associated with bathroom
           and kitchen renovations. During the review we requested the Authority provide
           us with a cost breakdown of the previous work performed. The director of
           development was unable to provide us this information but supplied us with
           invoices and payment schedules requiring us to determine the amounts ourselves.

Comment 18 The Authority‘s comments attempt to justify its actions by stating that the NOFA
           did not require it to disclose to HUD the cost of recent energy saving
           improvements that would be destroyed or removed in the planned green
           renovation process. However, we believe the Authority failed to comply with a
           key requirement of the NOFA by withholding this information. The NOFA, on
           page 70, required that the Authority propose reasonable costs in relation to
           anticipated results. The Authority included nothing in its budget to indicate that it
           had analyzed the costs in terms of the anticipated results. The destruction or
           removal of recently installed energy saving improvements would impact both the
           costs and the resulting energy savings. It is reasonable to conclude that the
           incremental energy savings from implementing the project would be less than
           what would normally be expected since recent energy savings improvements were
           already in place. The Authority has yet to perform such an analysis.

Comment 19 We changed our reference from PIH Notice 09-43 issued in October 2009 to PIH
           Notice 09-09 issued in March 2009 since the Authority correctly stated that PIH
           Notice 09-43 was issued after the competitive grant application was submitted.




                                              48
Comment 20 The Authority‘s claim that some of the public housing requirements we cite do
           not apply because the NOFA is the governing document is not correct. The
           NOFA made clear that that all other applicable public housing requirements
           applied. Page 108 of the NOFA contains the following statement, ―Grantees must
           administer the grant in accordance with all requirements of this NOFA and all
           requirements applicable to public housing, including the 1937 ACT, the Recovery
           Act, HUD regulations, the ACC, including all amendments, and all other Federal
           statutory, Executive Order, and regulatory requirements as such requirements
           may be amended from time to time.‖

Comment 21 The Authority‘s comments indicate that it intends to replace the recently installed
           2.0 GPM kitchen faucets with models requiring 1.5 GPM. If done, this would
           represent an additional unnecessary expense since, according to page 75 of the
           NOFA, the existing 2.0 GPM faucets installed during the recent renovations
           already meet the green renovation standard for substantial rehabilitation. As with
           other aspects of its plans, the Authority has provided no analysis to support the
           faucet replacement and, since any incremental savings would necessarily be
           reduced, we do not believe that these or other replacements of recent installations
           can be justified.

Comment 22 Our conclusion that the Authority lacked capacity to administer Recovery Act
           funds was based largely on the deficiencies disclosed in Finding 1 plus the
           planning issues of finding 2. We gave the Authority credit for maintaining the
           Forrest Road units; however, capacity to administer the Recovery Act grants is
           much more encompassing than unit maintenance.

Comment 23 The Authority‘s claim that all the work items in its application were eligible is not
           supported. The finding clearly shows that some of the Authority‘s planned
           activities were ineligible under the provisions of the regulations cited in the
           NOFA. Thus, the Authority did not accurately represent its planned activities and
           inappropriately certified in its application that the items were eligible (The NOFA
           required the Authority to certify that the funds would only be used to pay for
           eligible capital fund activities and expenses as defined by the regulations).

              The application upon which HUD awarded the grant contained incomplete
              information, serious errors, and an inappropriate certification that the activities
              were eligible. In accordance with the NOFA provisions, the appropriate remedy
              is for HUD to recapture the grant. HUD should do this as soon as possible and
              redistribute the funds to the next eligible applicant in accordance with its usual
              procedures.

Comment 24 The Authority stated that our photographs misrepresented the condition of the
           units because all the photographs are of a fully rehabilitated fire damaged unit.
           This statement is not true. Only one of the photographs was of one of the six fully
           rehabilitated fire damaged units on Jefferson Street. During our work, we
           observed the exteriors of all the Forrest Road units and the interiors of six units.

                                               49
             All the units appeared to be in excellent condition both inside and out and we
             believe our photographs are representative of their appearance. The Authority‘s
             plan to destroy or remove the renovations made to the six fire damaged units
             gives further credence to our argument that the Authority has failed to support the
             need for the planned substantial rehabilitation. The Authority‘s argument that the
             renovations to these units were paid for by the insurance company, not the capital
             fund, does not appear to be relevant.

             The Authority attempted to justify the substantial rehabilitation on the basis of
             specific claimed deferred maintenance needs, such as sewer lines, applicable to
             some Forrest Road units. However, we could not locate support for these claims
             in the Authority‘s most recent HUD PHA Plan. If these are valid needs, the
             Authority should include them in its next PHA Plan so that they can be approved
             by HUD and addressed through the annual capital fund allocation.

Comment 25 The Authority‘s correct contention that PHAs were advised by HUD on July 24,
           2009, not to complete a physical needs assessment for Recovery Act funds until
           HUD issued a new format failed to explain why the Authority had not completed
           a physical needs assessment since December 2001.




                                             50
Appendix C
                                       CRITERIA


24 CFR 85.20(b)(2)   ―Grantees and subgrantees must maintain records which adequately
                     identify the source and application of funds provided for financially-
                     assisted activities. These records must contain information pertaining to
                     grant or subgrant awards and authorizations, obligations, unobligated
                     balances, assets, liabilities, outlays or expenditures, and income.‖

24 CFR 85.20(b)(6)   ―Accounting records must be supported by such source documentation as
                     cancelled checks, paid bills, payrolls, time and attendance records,
                     contract and subgrant award documents, etc.‖

24 CFR 85.36(b)(9)   ―Grantees and subgrantees will maintain records sufficient to detail the
                     significant history of a 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.‖

24 CFR 85.36(c)(1)   ―All procurement transactions will be conducted in a manner providing
                     full and open competition consistent with the standards of §85.36. Some
                     of the situations considered to be restrictive or competition include but are
                     not limited to: (i) Placing unreasonable requirements on firms in order for
                     them to qualify to do business, (ii) Requiring unnecessary experience and
                     excessive bonding, (iii) Noncompetitive pricing practices between firms or
                     between affiliated companies, (iv) Noncompetitive awards to consultants
                     that are on retainer contracts, (v) Organizational conflicts of interest, (vi)
                     Specifying only a brand name product instead of allowing an equal
                     product to be offered and describing the performance of other relevant
                     requirement of the procurement, and (vii) Any arbitrary action in the
                     procurement process.‖

24 CFR 85.36(c)(3)   ―Grantees will have written selection procedures for procurement
                     transactions. These procedures will ensure that all solicitations: (i)
                     Incorporate a clear and accurate description of the technical requirements
                     for the material, product, or service to be procured. Such description may
                     include a statement of the qualitative nature of the material, product or
                     service to be procured, and when necessary, shall set forth those minimum
                     essential characteristics and standards to which it must conform if it is to
                     satisfy its intended use. Detailed product specifications should be avoided
                     if at all possible. When it is impractical or uneconomical to make a clear
                     and accurate description of the technical requirements, a brand name or
                     equal description may be used as a means to define the performance or
                     other salient requirements of a procurement. …‖

                                               51
24 CFR 85.36(d)(2)(ii)(A) ―The invitation for bids will be publicly advertised and bids shall be
                     solicited from an adequate number of known suppliers, providing them
                     sufficient time prior to the date set for opening the bids.‖

24 CFR 85.36(d)(3)(i) ―Requests for proposals will be publicized and identify all evaluation
                      factors and their relative importance. Any response to publicized requests
                      for proposals shall be honored to the maximum extent practical.‖

24 CFR 85.36(f)(1)    ―Grantees and subgrantees must perform a cost or price analysis in
                      connection with every procurement action including contract
                      modifications. The method and degree of analysis is dependent on the
                      facts surrounding the particular procurement situation, but as a starting
                      point, grantees must make independent estimates before receiving bids or
                      proposals. …‖

24 CFR 905.10(k)      ―Eligible expenses include the following:…Addressing deferred
                      maintenance needs and the replacement of obsolete utility systems and
                      dwelling equipment;…‖

42 U.S.C. (United States Code)
1437g(d)(1)           ―The Secretary shall establish a Capital Fund for the purpose of making
                      assistance available to public housing agencies to carry out capital and
                      management activities, including … (c) addressing deferred maintenance
                      needs and the replacement of obsolete utility systems and dwelling
                      equipment.‖

Handbook 7485.2       The public Housing Modernization Standards Handbook Section 1.4:
                      ―PREMATURE REPLACEMENT. Serviceable building components
                      (such as roofing), equipment (such as furnaces or domestic hot water
                      heaters), appliances (such as ranges and refrigerators) or materials (such as
                      paving) shall not be replaced prematurely (such as 100 percent
                      replacement) except under special circumstances where energy
                      conservation opportunities make it eligible (15-year or less simple
                      payback) and where ongoing maintenance and operating costs will not be
                      adversely affected. It is assumed that replacements will be made gradually
                      over a period of time when they become necessary. Serviceable and
                      functional building components, systems, equipment or materials that
                      do not present a safety or health hazard shall not be replaced
                      prematurely…‖

   Notice PIH
   2009-12 (HA)       Replacement Reserves – Account 1490. ―Under section 9 of the 1937 Act,
                      PHAs [public housing agency] no longer have the statutory authority to
                      accumulate ANY Capital Fund grants in a replacement reserve…‖




                                               52
Notice PIH
2009-09 (HA)          ―PURCHASING COST EFFECTIVE ENERGY EFFICIENT
                      EQUIPMENT/PRODUCTS PHAs [public housing agency] should
                      purchase energy star equipment such as appliances when economically
                      feasible. The incremental additional costs for the more energy efficient
                      equipment will be recoverable from energy savings over the expected life
                      of the equipment and the equipment must be cost effective to maintain. If
                      energy savings are insufficient to pay for the additional cost of purchasing
                      energy star-labeled equipment, the upgraded equipment should not be
                      purchased unless there are compelling circumstances such as energy being
                      in short supply or emergency conditions that must be considered when
                      making the selection.

                      There are several ways to calculate the effective cost of equipment when
                      energy savings are accrued over a specific amount of time. Utility costs
                      have a large impact in calculating the effective cost of equipment. Energy
                      STAR products provide specific information about savings that can be
                      obtained by reduced energy use.

                      A PHA should purchase energy star-labeled products such as windows and
                      ensure that any new buildings are constructed according to energy STAR
                      standards, unless the PHA‘s cost analysis (required by 24 CFR Part 85 and
                      24 CFR Part 941) finds incremental cost of the energy star products or
                      building yields a negative life-cycle cost savings and exceeds HUD‘s
                      Total Development Cost (TDC) limits.‖

OMB Circular A87      ―Part C. Basic Guidelines (1) Factors affecting allowability of costs. To
                      be allowable under Federal awards, costs must meet the following general
                      criteria: (a) Be necessary and reasonable for proper and efficient
                      performance and administration of Federal awards.‖

NOFA for the Capital Fund Recovery Competition Grants

Category Specific
Threshold Requirements
Page 69             ―Applicants must comply with all Category Specific Threshold
                    Requirements, whether applying under Option 1 or Option 2, in this
                    section in order to be considered for funding. …‖

Eligible Activities
Page 70               ―(i) PHAs must submit in their application a budget for the activities it
                      will implement under this grant, indicating committed sources and
                      projected uses. The budget must propose reasonable costs in relation to
                      anticipated results.‖



                                               53
Soft Cost Limits
(Developer‘s Fees)
Page 71            ―Your projected soft costs must be reasonable and comparable to industry
                    standards. Upon awards, soft costs will be subject to HUD‘s Cost Control
                    and Safe Harbor Standards. These standards provide specific limitations
                    on such costs as developer‘s fees (between 9 and 12 percent) …‖

TDC Waivers
Page 71              ―(v)…Applicants must comply the the applicable Total Development
                     Costs (TDC) and Housing Cost Cap (HCC) limits…If a request to exceed
                     TDC/HCC is denied, the application will be denied.‖

Performance
Measures
Page 115             ―…The recipient PHA must obtain prior HUD approval to deviate from its
                     application in a significant way…‖




                                             54
Appendix D

                                      PROCUREMENT DEFICIENCIES




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                                                                                                                                                                                 H
Building maintenance                                  $1,955,967         $1,757,358         $198,609                                                             x
Real Estate Assessment Center public housing
inspections 1                                            $22,493           $21,811                  $0       x               x                                                   x
Information technology services 1                        $14,029           $15,423                  $0                                                           x               x
2009 maintenance operation review 1                       $5,466             $7,866                 $0       x
Salary study 2                                            $2,400                 $0                 $0       x
Asset management plan                                     $6,800             $6,800                 $0       x                                                   x
2008 maintenance operational evaluation                  $11,700           $11,700                  $0       x                                                   x
Staff development1                                        $2,190             $2,270                 $0       x                                x                                  x
Energy performance technical consulting1,3               $48,000           $33,569                  $0       x                                x                                  x
Recovery Act consulting 3                                 $14,500            $7,479            $7,021        x
                                                     Based on
Architect services                                delivery orders         $320,064     Not defined           x

Accounting services - 2007 yearend closeout4       Not defined                                               x

                                              3                           $176,537     Not defined
Accounting services - 2008 yearend closeout            $100,000                                                                               x                                  x

Accounting services - 2009 yearend closeout3             $50,000                                             x               x                x                                  x
File assessment                                           $2,999             $2,999                 $0       x               x                                   x
Procurement review                                        $4,384             $4,384                 $0       x
 Total                                                               $2,368,260            $205,630


 1
  These contracts were completed, but a different amount was paid than the contracted amount.
 2
  This contract was terminated before completion.
 3
  These amounts are not-to-exceed (NTE) amounts.
 4
  The 2007 yearend closeout contract did not specify terms regarding an NTE amount or period of time.




                                                                                      55