oversight

The Housing Authority of the County of Salt Lake, UT, Properly Expended Its Recovery Act Capital Grant Funds, But Did Not Properly Obligate All Of The Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-09-24.

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

                                                                 Issue Date
                                                                     September 24, 2010
                                                                 
                                                                 Audit Report Number
                                                                              2010-DE-1007




TO:         Carol Ann Roman, Director, Denver Office of Public Housing, 8APH

            //signed//
FROM:       Ronald J. Hosking, Regional Inspector General for Audit, 8AGA


SUBJECT: The Housing Authority of the County of Salt Lake, UT, Properly Expended Its
           Recovery Act Capital Grant Funds, But Did Not Properly Obligate All Of
           The Funds


                                   HIGHLIGHTS

 What We Audited and Why

             We reviewed the Housing Authority of the County of Salt Lake’s (Authority)
             Public Housing Capital Fund Stimulus (formula) Recovery Act Funded grant
             (grant) based on a risk assessment we completed and the results of a monitoring
             review performed by the Denver Office of Public Housing.

             The objective was to determine whether the Authority properly obligated and
             expended its formula grant funds.

 What We Found
             The Authority did not properly obligate more than $500,000 of its grant funds.
             The Authority obligated the funds without executing contracts for the planned
             improvements. However, it generally expended more than $600,000 of its
             formula grant funds properly.
What We Recommend
           We recommend that the Director of the Denver Office of Public Housing recapture
           the $560,726 in grant funds that were not properly obligated by the deadline.

           The Denver Office of Public Housing officials concurred with the
           recommendation and provided a management decision on September 10, 2010.

Auditee’s Response
           We provided the draft report to Authority officials on September 8, 2010 and
           received their written response on September 10, 2010. The Authority officials
           indicated they concur with the finding and recommendation and that they are
           working with HUD to resolve the recommendation.

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




                                            2
                           TABLE OF CONTENTS

Background and Objective                                                 4

Results of Audit
      Finding: Grant Funds Were Not Properly Obligated by the Deadline   5

Scope and Methodology                                                    7

Internal Controls                                                        8

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




                                           3
                      BACKGROUND AND OBJECTIVE

The Housing Authority of the County of Salt Lake, UT (Authority), was established in 1970 for
the purpose of providing affordable housing to individuals living in Salt Lake County. The
Authority is responsible for 3,205 housing units under 11 housing programs. The Authority
owns 626 public housing units, of which 619 are available for lease to low-income and elderly
individuals. The Authority subsidizes 2,422 Section 8 units and operates 159 units not subject to
U. S. Department of Housing and Urban Development (HUD) requirements.

The mission of the Authority is to provide and develop quality affordable housing opportunities
for individuals and families while promoting self-sufficiency, empowerment and neighborhood
revitalization.

The American Recovery and Reinvestment Act of 2009 (Recovery Act), signed into law on
February 17, 2009, provided $4 billion for the Public Housing Capital Fund. The funding was
for capital and management activities for public housing agencies as authorized under Section 9
of the U. S. Housing Act of 1937 as amended. The Recovery Act required that $3 billion of
these funds be distributed as grants by the same formula used for Public Housing Capital Fund
amounts made available in fiscal year 2008. The remaining $1 billion was for competitively
awarded grants. The Authority received a formula grant of $1,179,395 on March 18, 2009.

The objective of our review was to determine whether the Authority properly obligated and
expended its formula grant funds.




                                                4
                               RESULTS OF AUDIT

Finding: Grant Funds Were Not Properly Obligated by the Deadline
The Authority obligated funds without executing contracts by the March 17, 2010 deadline. This
condition occurred because Authority officials misinterpreted the grant requirements. As a
result, the Authority will have more than $500,000 of its grant funds recaptured by HUD.


 The Authority Obligated Funds
 Without Contracts


              The Authority obligated funds without executing contracts for the planned
              improvements. The HUD Office of Public and Indian Housing’s Notice PIH
              2009-12 (HA) required that the entire amount of the formula grant be obligated by
              March 17, 2010. The definition of obligation is contract execution for contract
              labor, materials, or services or start and continuation of physical work by force
              account labor. Force account labor means the workers are employed directly by
              the Authority.

              The Authority was not using force account labor, so it was required to have
              contracts executed for all grant funds by the deadline. Authority accounting
              records showed that as of April 2010, the Authority had executed contracts and
              made other purchases resulting in the expenditure of $624,765 of the grant funds.
              The Authority did not have the required executed contracts for the remaining
              $554,630. However, it obligated the full amount of the grant in the HUD
              reporting system.

 Authority Officials
 Misinterpreted the Grant
 Requirements

              Authority officials misinterpreted the grant requirements. They considered the
              Authority to be the general contractor under the force account labor requirements.
              Authority officials thought that since they had started work on all of the projects
              to be funded by the grant funds, the remaining portions were continuations of the
              projects and the full grant amount was obligated. However, the completed work
              was performed through contracts, not force account labor.




                                               5
HUD Is Required To Recapture
the Funds

           HUD is required to recapture the funds that were not properly obligated. The
           notice required that at the one-year date, all unobligated funds would be
           unilaterally recaptured. An extension of the deadline is not permitted. Therefore,
           HUD has to recapture the $554,630 not obligated by the deadline.

HUD’s Immediate Action


           We discussed this finding with HUD Denver Office of Public Housing officials
           during the review. They immediately started working with Authority officials on
           this issue and determined that two expenditures without contracts also occurred
           after the deadline. HUD officials determined that $560,726 is the actual amount
           of funds to be recaptured. We changed the recommendation accordingly.

Recommendations

           We recommend that the Director of the Denver Office of Public Housing

           1A. Recapture the $560,726 in grant funds that were not properly obligated by the
               deadline.




                                            6
                         SCOPE AND METHODOLOGY

Our review period was March 1, 2009 through April 30, 2010. We performed our onsite review
work from May through June 2010, at the Authority office at 3595 South Main Street, Salt Lake
City, UT.

To accomplish our review objective, we identified and reviewed applicable sections of the Recovery
Act, HUD regulations, HUD PIH notices, and Authority policies related to the Recovery Act Public
Housing Capital Fund formula grant.

To determine whether the Authority properly obligated and expended the formula grant funds,
we reviewed the files for all 11 of the Authority’s grant contracts and associated grant records.
We also reviewed obligation records, accounting reports, and available policies and procedures.

As of April 2010, the Authority had executed contracts and made other purchases resulting in the
expenditure of $624,765, or about 52 percent, of the grant funds. We reviewed all the
expenditures for the contracted grant work. We used a computer generated accounting report to
select a sample of grant expenditures for expenses not associated with the contracts. We selected
11 of these 93 expenditures to get an overview of the types of miscellaneous expenses and
determine whether they were allowable expenses. We reviewed source documents for
transactions reviewed and did not base our conclusions on computer generated data.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                                7
                              INTERNAL CONTROLS

Internal control is a process adapted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to:

      Effectiveness and efficiency of operations
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls 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 review
               objective:

                     Controls to ensure that the grant funds were obligated and expended as
                      required.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

 Significant Deficiency
               Based on our review, we believe that the following item is a significant deficiency:

                     Controls over obligating grant funds with properly executed contracts within
                      the required deadline.




                                                 8
Separate Communication of
Minor Deficiencies
           Minor internal control and compliance issues were reported to the Authority in a
           separate memorandum, dated September 24, 2010.




                                            9
                                   APPENDIXES

Appendix A

                SCHEDULE OF QUESTIONED COSTS

                             Recommendation            Ineligible 1/
                                    number
                                           1A             $560,726


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. The Authority did not meet the required deadline for obligating
     grant funds and is no longer eligible to use the funds. HUD is required to recapture the
     funds.




                                            10
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         11
                        OIG Evaluation of Auditee Comments

Comment 1   Authority officials concurred with the finding and recommendation and are
            working with HUD officials to resolve the concern reported in Finding 1.




                                           12