The Chattanooga Housing Authority Demonstrated Capacity To Administer Its Recovery Act Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-01-26.

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

                                                           U.S. Department of Housing and Urban Development
                                                           Region 4 Office of Inspector General
                                                           Office of Audit, Box 42
                                                           Richard B. Russell Federal Building
                                                           75 Spring Street, SW, Room 330
                                                           Atlanta, GA 30303-3388
                                                           (404) 331-3369

                                                           MEMORANDUM NO:

January 26, 2010

MEMORANDUM FOR:            Charles T. Barnett, Director, Nashville Program Center, Office of
                            Public Housing, 4LPH

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

SUBJECT:      The Chattanooga Housing Authority Demonstrated Capacity To Administer Its
               Recovery Act Funds


The Chattanooga Housing Authority (Authority) was awarded a $6.35 million capital fund formula
grant and a $4.8 million capital fund competitive grant under the American Recovery and
Reinvestment Act of 2009 (Recovery Act). In accordance with our goal to review funds provided
under the Recovery Act, we conducted a capacity review of the Authority’s operations. The
objective was to determine whether the Authority had the capacity to adequately administer its
capital fund Recovery Act funding according to applicable requirements. Our review did not
result in any reportable conditions or recommendations.

                              METHODOLOGY AND SCOPE

To accomplish our objective, we

       Obtained an understanding of Recovery Act legislation, program guidance, and criteria;

       Reviewed relevant Authority controls including applicable policies and procedures;

       Interviewed U.S. Department of Housing and Urban Development (HUD) and Authority
       Reviewed Authority files and records including organization charts, board minutes,
       annual/5-year plans, capital fund grant documentation, and financial records;
       Analyzed data from HUD’s Line of Credit Control System; and

       Reviewed Authority procurement files and records for capital fund projects. We selected
       the three highest dollar Recovery Act contracts representing 81 percent of the contract
       amounts awarded. We also selected the highest dollar amount contract from each of the
       2007 and 2008 grants, representing 11 percent and 68 percent of the contract amounts
       awarded under those grants, respectively.

Our review generally covered the period January 1, 2007, through August 31, 2009, and we
extended the period as needed to accomplish our objective. We conducted the review from
September through November 2009 at the Authority’s offices located at 801 North Holtzclaw
Avenue, Chattanooga, TN, and our office in Knoxville, TN.


The Recovery Act became law on February 17, 2009. It included a $4 billion appropriation for
the Public Housing Capital Fund, to be used for capital and management activities for public
housing agencies, as authorized under Section 9 of the United States Housing Act of 1937 as
amended. The Recovery Act required that $3 billion of these funds be distributed by the same
formula used for amounts made available in fiscal year 2008, whereas the remaining $1 billion
was to be awarded on a competitive basis. Under the formula program, housing agencies were
required to give priority consideration to the rehabilitation of vacant rental units and prioritize
projects that were already underway or included in the 5-year capital fund plans.

The expected benefits of this program are to preserve and create jobs and enhance the quality,
longevity, and energy efficiency of public housing. The program is expected to meet these
objectives by renovating, retrofitting, and modernizing public housing units and providing
employment for construction workers and skilled laborers. In meeting its objectives, the
program is expected to support economic recovery, reduce greenhouse emissions and consumer
energy costs, and preserve and create public housing that is affordable to lower income families.

The Authority, chartered in 1938 pursuant to the Tennessee Housing Authorities Law, is a public
nonprofit corporation which carries out public housing and urban development programs as its
primary activities. The Authority is governed by a seven-member board of commissioners
appointed by the mayor of Chattanooga to staggered 5-year terms. The executive director serves
as secretary to the board and has responsibility for the administration of the agency, pursuant to
board policy. The mission of the Authority is to promote adequate and affordable housing,
economic opportunity, and a suitable living environment free from discrimination.

On March 18, 2009, HUD awarded the Authority a $6.35 million capital fund formula grant
using funds provided under the Recovery Act.

Additionally, on September 23, 2009, HUD awarded the Authority a $4.8 million competitive
capital fund grant using funds provided under the Recovery Act. This award was for the
construction of new units at the Authority’s Fairmont Apartments development.
During the past 3 years, the Authority has received $12.9 million in capital funds as shown in the
table below. The total Recovery Act grants represent an increase of nearly $7 million over the
Authority’s recent annual capital fund grants.

                                        Capital fund grant
                          Grant              number               Amount
                          2007          TN37P00450107           $4,210,056
                          2008          TN37P00450108           $4,225,352
                          2009          TN37P00450109           $4,357,341
                          Total                                $12,792,749

                      Act-formula       TN37S00450109            $6,351,256
                      competitive      TN00400001209G            $4,877,330
                          Act                                  $11,228,586

                                     RESULTS OF REVIEW

Based upon our limited review, the Authority had the capacity to properly administer its capital
fund Recovery Act grants. The Authority had

          Implemented adequate controls including applicable written policies and procedures,

          Adequately planned for the use of funds,

          Successfully administered past capital fund grants, and

          Complied with specific requirements for capital funds provided under the Recovery Act.

The Authority had written policies and procedures and had updated them to incorporate Recovery
Act requirements. Its annual plan and a revision outlining the planned use of Recovery Act funds
had been reviewed and approved by HUD.

The Authority had successfully administered its past capital fund grants and, at the time of our
review, was in compliance with the requirements for capital funds provided under the Recovery

The Authority had met the requirements for timely obligation and expenditure of capital fund
grants. It had met all guidelines for obligations and expenditures for capital fund grant years
2005 and 2006. In addition, it had successfully met its obligation deadline for grant year 2007
and had expended 98 percent of those funds having an expenditure deadline of September 12,
2011. The grants for years 2008 and 2009 and the Recovery Act were ongoing. In addition,
the Authority was well positioned to meet the Recovery Act requirement that all funds be
obligated within 12 months of grant award and expended within 3 years. As of August 31,
2009, the Authority had obligated 97 percent of the funds and expended 19 percent.

Contracts/activities for which the Authority had expended fiscal years 2007 and 2008 capital
funds and Recovery Act funds were either complete or progressing. Our review of five
contracts awarded with capital funds from the 2007 (one), 2008 (one), and Recovery Act
(three) grants showed that the Authority complied with both Federal procurement requirements
and its own policies and procedures. We also selected the largest Recovery Act capital fund
grant project, Mary Walker Towers, to review for possible premature replacement of dwelling
equipment and/or utility systems. The planned purchase of dwelling equipment and plumbing
renovations for this project did not constitute premature replacement.

Our tests of expenses from the 2007 and 2008 capital fund grants as well as Recovery Act
funds showed that the expenses were eligible and supported by adequate documentation. In
addition, the Authority complied with HUD restrictions for its use of funds for operations
expense (account 1406 – 20 percent), management improvements (account 1408 – 20 percent),
and administrative expenses (account 1410 – 10 percent) for capital fund grant years 2007 and
2008 and the 2009 Recovery Act grants.

In addition to the above, the Authority complied with capital fund requirements for
Recovery Act funds. Specifically,

       The Authority planned to use its grants to supplement expenditures, not supplant
       expenditures from other sources as prohibited by the Recovery Act. It had not
       obligated/expended Recovery Act funds to pay for contracts awarded for previous
       capital fund projects and had not deobligated fiscal year 2007 or 2008 capital
       funds to substitute Recovery Act funds for activities that had already been funded.

       Review of contracts for seven projects confirmed that the Authority’s planned use
       of funds was permitted under the Recovery Act. The plans were also in accordance
       with the Authority’s planned use of Recovery Act funds as represented in its annual
       statement. These contracts represented 89 percent of the total obligations made with
       the Recovery Act funds.

       The Authority complied with the Recovery Act “buy American” requirement. All
       three contracts included a domestic procurement affidavit, affirming that all iron,
       steel, and manufactured goods to be provided for the project would be produced
       in the United States.

                                   AUDITEE RESPONSE

We provided a draft memorandum to the Authority on January 12, 2010. In an email dated January
20, 2010, the Authority concurred with the memorandum and declined the opportunity to provide
written comments. Since the memorandum contained no reportable conditions or
recommendations, the Authority agreed that an exit conference was not necessary.