oversight

The Housing Authority of the Sac and Fox Nation of Oklahoma, Shawnee, OK, Did Not Demonstrate the Administrative Capacity To Appropriately Expend Its Recovery Act Funding

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-05-13.

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

                                                                          Issue Date
                                                                                   May 13, 2010
                                                                          Audit Report Number
                                                                                   2010-FW-1003




TO:            Wayne Sims
               Administrator, Southern Plains Office of Native American Programs, 6IPI

               /signed/
FROM:          Gerald R. Kirkland
               Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Housing Authority of the Sac and Fox Nation of Oklahoma, Shawnee, OK,
           Did Not Demonstrate the Administrative Capacity To Appropriately Expend
           Its Recovery Act Funding


                                          HIGHLIGHTS

    What We Audited and Why

                 We audited the Housing Authority of the Sac and Fox Nation of Oklahoma’s
                 (Authority) American Recovery and Reinvestment Act of 2009 (Recovery Act)
                 funds. The objective was to determine whether the Authority had the capacity to
                 use its Recovery Act funds in accordance with U. S. Department of Housing and
                 Urban Development (HUD) requirements. We reviewed the Authority because of
                 concerns identified in a previous audit1 of the Authority.


    What We Found


                 The Authority did not always administer its procurement contracts or acquire
                 property for planned Recovery Act activities in accordance with requirements.

1
     Audit Report 2010-FW-1002, “The Housing Authority of the Sac and Fox Nation of Oklahoma, Shawnee, OK,
     Improperly Spent More Than $800,000 in Contracts and Did Not Always Operate in Accordance With HUD
     Rules and Regulations or Its Own Policies,” dated January 20, 2010
           Specifically, it did not prepare a cost estimate or technical evaluation factors for
           its architectural services contract or acquire two low-rent homes in accordance
           with HUD regulations. Further, it charged Recovery Act expenditures to other
           grants, which resulted in an inaccurate Recovery Act report. Until the Authority
           implements the necessary controls, it lacks the administrative capacity to expend
           its Recovery Act funding in accordance with requirements.

What We Recommend


           We recommend that the Administrator for the Southern Plains Office of Native
           American Programs initiate enforcement actions to require the Authority to follow
           procurement and acquisition requirements; ensure that staff understands and
           complies with procurement and environmental review requirements; and properly
           report Recovery Act activities. Further, the Administrator should increase
           monitoring and oversight of the Authority’s Recovery Act planned activities
           and/or provide technical assistance and enter into a performance agreement with
           the Authority.

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


Auditee’s Response


           We held an exit conference with the Authority on May 5, 2010. The auditee
           comments were due on May 11, 2010. We received the comments on May 12,
           2010. The Authority generally agreed with the report. The Authority provided
           attachments which are available upon request. The attachments were in response
           to our previous audit of the Authority and did not address this report specifically.
           The auditee’s response, along with our evaluation of that response, is located in
           appendix B of this report.




                                             2
                            TABLE OF CONTENTS

Background and Objective                                                            4

Results of Audit
      Finding:   The Authority Did Not Demonstrate the Administrative Capacity To   5
                 Appropriately Expend Its Recovery Act Funding

Scope and Methodology                                                               10

Internal Controls                                                                   11

Follow-up on Prior Audits                                                           13

Appendixes
   A. Schedule of Questioned Costs and Funds To Be Put to Better Use                14
   B. Auditee Comments and OIG’s Evaluation                                         15




                                            3
                        BACKGROUND AND OBJECTIVE

Since November 1965, the Housing Authority of the Sac and Fox Nation of Oklahoma
(Authority) has been the tribally designated housing entity2 for the Sac and Fox Nation of
Oklahoma (Nation). The Nation requested that the U. S. Department of Housing and Urban
Development (HUD) grant the Authority ordinance under Sac and Fox tribal law instead of
Oklahoma State law in 1993. The Assistant Secretary of HUD granted this request. In June
2004, the Nation took over the Authority and its operations as a result of poor management.
However, in September 2007, the Nation reestablished the Authority as the tribally designated
housing entity due to its lack of administrative knowledge as a housing authority.

Five board members with staggered 4-year terms oversee the Authority. The Authority provides
mutual help programs to enable low-income individuals to become homeowners; low-rent
programs to help provide decent, safe, and sanitary housing for low-income individuals;
renovation for homeowners that cannot afford to renovate; and model activities that include
nonresidential development projects that support housing activities.

In 2006, HUD reviewed the Nation for fiscal years 2001 to 2005. HUD had 19 findings and 3
concerns, many of which are still open. The major findings included inadequate internal and
financial management control, which resulted in HUD’s questioning more than $8 million;3
failure to obtain environmental reviews before spending Federal funds on a housing activity;
improper administration of procurement contracts; and noncompliance with maintenance
requirements of the United States Housing Act of 1937 (1937 Act) as amended.

In January 2010, we issued an audit report4 concerning the Authority’s Indian Housing Block
Grant (Block Grant). The major findings included failure to obtain the correct level of
environmental reviews before spending Federal funds on housing activities, which resulted in
our questioning more than $800,000; improper administration of procurement contracts; and
noncompliance with maintenance requirements of the 1937 Act as amended.

Through the same grant formula used for Block Grant funds, HUD approved more than $700,000
in American Recovery and Reinvestment Act (Recovery Act) funds for the Authority to acquire
two homes and develop two homes.

Our audit objective was to determine whether the Authority had the capacity to expend its
Recovery Act funds in accordance with HUD’s regulations.




2
    Under Oklahoma State law
3
    The $8 million amount included funds from fiscal years 2002 through 2005.
4
    Audit Report 2010-FW-1002, “The Housing Authority of the Sac and Fox Nation of Oklahoma, Shawnee, OK,
    Improperly Spent More Than $800,000 in Contracts and Did Not Always Operate in Accordance With HUD
    Rules and Regulations or Its Own Policies,” dated January 20, 2010.


                                                    4
                                     RESULTS OF AUDIT

Finding: The Authority Did Not Demonstrate the Administrative
         Capacity to Appropriately Expend Its Recovery Act Funding
The Authority did not properly administer its procurement contracts or acquire property for
planned Recovery Act funded activities. The Authority planned to acquire two low-rent homes
and develop two low-rent homes with its Recovery Act funds. However, it did not follow HUD
requirements when procuring architectural services, notifying and negotiating with the seller
concerning property acquisitions, and using Block Grant funds to pay for Recovery Act related
expenses. The Authority was either unaware of or did not follow HUD requirements. In
addition, it did not set up its Recovery Act funds in its accounting system until February 2010.
As a result, it did not demonstrate the administrative capacity to expend its Recovery Act funds
in accordance with HUD requirements and put itself at unnecessary risk, which could result in
HUD’s requiring it to return the funds. The Authority needs to improve its administrative
capacity to appropriately expend and report its Recovery Act funding.


    Planned Low-Rent Home
    Acquisition Not in Accordance
    With HUD Requirements


                 The Authority did not follow requirements when it acquired two low-rent homes
                 with its Recovery Act funds. The planned acquisition began with the developer
                 notifying the Authority of two homes that the developer planned to build with the
                 expected prices. The Authority did not provide documentation showing that it
                 sought other properties or attempted to procure either properties or developers.
                 According to an Authority employee, the developer and the Authority had
                 previously worked together so the developer had an understanding of the type of
                 homes the Authority wanted. While the Authority did not consult with the
                 developer on the design or the development stages of the homes, it did not follow
                 HUD requirements5 in the acquisition process.

                 When acquiring property, the Authority must contact the seller in writing about its
                 interest in the property, what it believes to be the fair market value, and what to
                 expect if the parties fail to reach an amicable agreement.6 The Authority did not
                 have documentation to support that it contacted the developer. Since the Authority
                 did not follow this requirement, it was subject to additional requirements that
                 included obtaining appraisals and a negotiation process.7 The Authority did obtain
                 appraisals; however, it did not produce documentation showing that it initiated a

5
     49 CFR (Code of Federal Regulations) Part 24, Subpart B
6
     49 CFR 24.101(b)(1)
7
     49 CFR 24.102(c), (d), and (f)


                                                       5
                  negotiation process. Instead, the Authority paid the price in the original developer’s
                  solicitation. A timeline of activities is as follows.

                            Date                                           Event

                  July 6, 2009       The Authority received a solicitation letter from a development
                                     company proposing to develop two new homes at a turnkey price
                                     for the Authority.
                  July 13, 2009      The development company took out a construction loan to build
                                     one of the homes.8
                  September 14, 2009 The Authority started the environmental review process for each
                                     home.
                  September 29, 2009 The development company obtained a certificate of occupancy
                                     from the City of Shawnee for the completion of each home.
                  November 10, 2009 The Authority received appraisals on both homes that equaled the
                                     original solicitation price quote in the development company’s
                                     July 6, 2009, letter.
                  November 19, 2009 The Authority completed the environmental review process for
                                     each home.
                  November 30, 2009 The Authority signed an unbinding purchase contract with the
                                     development company for each home in the amount of the
                                     appraised value.
                  January 8, 2010    The Authority published a combined notice of finding of no
                                     significant impact and notice of intent to request release of funds
                                     for each home.
                  March 31, 2010     The expected settlement date for the purchase of each home.


                  The Authority did not follow HUD requirements by purchasing homes in this
                  manner.9 It did not allow for formal competition from other developers or develop a
                  cost estimate as required in a typical new development transaction.10 The developer
                  initiated a negotiation price before it started building the homes. The Authority
                  entered into unbinding sales contracts without presenting a written offer to the
                  development company. These contracts may not have been in the best interest of the
                  Authority. The Authority should follow HUD requirements to ensure that it uses its
                  Recovery Act funds appropriately.




8
     The development company took a risk by taking out a loan to build the home without a written guarantee that
     the Authority would purchase the home once completed.
9
     According to an Authority employee, the Authority looked at other homes on the market, which were too
     expensive or too large for the Authority’s needs.
10
     24 CFR 85.36(d)(2) and (f)


                                                         6
     Planned Low-Rent Home
     Development Procurement Not
     in Accordance With HUD
     Requirements

                   In addition to acquiring two homes, the Authority planned to use its Recovery Act
                   funds to build two homes on land it owned in Prague, OK. The Authority
                   acquired three lots in 2003. It contracted with a surveying company to split one
                   of the lots and provide new dimensions for the remaining two lots.

                   After the Authority received the new lot dimensions, it contracted with an
                   architect to develop plans for the two homes. However, when the Authority made
                   its selection for the architect, it did not adequately advertise technical evaluation
                   factors, have a method for assessing technical evaluations, or develop a cost
                   estimate.11 The Authority selected the lowest bidder.

                   In accordance with HUD requirements,12 the Authority should have prepared a
                   cost estimate before it received bids or proposals or performed a cost analysis for
                   the architectural services. In addition, HUD13 and Authority regulations14
                   required it to develop and analyze technical evaluation factors in selecting an
                   architect. While the Authority could consider price as one factor, it should have
                   also compared other factors to determine whether the architect met all of its
                   needs. The Authority did neither; therefore, it did not know whether it received
                   the best price or the most qualified architect for the service. The Authority needs
                   to follow HUD’s and its own procurement policy when procuring the new
                   development of low-rent homes.


     Funding and Other
     Administrative Matters

                   The Authority did not properly account for Federal funding. It planned to use its
                   Line of Credit Control System drawdown reports to report its Recovery Act
                   expenditures as required under the Recovery Act.15 It incorrectly drew down
                   $850 in Recovery Act expenditures as Block Grant funds.16 As a result, it did not
                   correctly report these expenditures in its Recovery Act report due in January
                   2010. The Authority will need to correctly report these expenditures in its next
                   Recovery Act report.


11
      In Office of Inspector General (OIG) audit report 2010-FW-1002, we noted that the Authority also did not
      always prepare the necessary cost estimates when procuring services.
12
      24 CFR 85.36(f)
13
      24 CFR 85.36(d)(3)
14
      Authority Procurement Regulations, section IV(C)
15
      Public law 111-5, section 1512
16
      The Authority also did not properly record Federal funding noted in OIG Audit Report 2010-FW-1002.


                                                          7
                  While the Authority showed initiative in improving its environmental review
                  process, it performed more work than necessary. The Authority performed an
                  environmental review when it purchased the land in Prague, OK, in 2003. The
                  purpose of purchasing the land was to develop homes on it. This purpose had not
                  changed. Therefore, the Authority only needed to confirm that nothing had
                  changed instead of performing the environmental review again. The Authority
                  also published a combined finding of no significant impact statement and notice
                  of intent/request for release of funds for the acquisition of the two new homes,
                  which was not required.17 These actions occurred because the Authority did not
                  fully understand the environmental review process. HUD should provide
                  technical assistance to the Authority to ensure that it complies with the
                  requirements.

                  The Authority had other minor administrative issues that it had inconsistently
                  completed. These issues included not advertising its Indian preference policy18
                  when advertising for architectural services and not checking the General Services
                  Administration’s Excluded Parties List System19 before using advertising
                  companies and a surveying company.


     Conclusion


                  The Authority did not follow HUD requirements when procuring services or
                  acquiring property for its Recovery Act activities. It continued to have
                  deficiencies similar to findings previously reported,20 including a lack of cost
                  estimates, improperly accounting for funds, and not checking the Excluded Parties
                  List System before using contractors. The Authority was either unaware of or did
                  not follow the necessary requirements. As a result, it did not demonstrate that it
                  had the administrative capacity to expend its Recovery Act funds in accordance
                  with HUD requirements.

                  Since the Authority did not demonstrate administrative capacity to expend its
                  Recovery Act funding, HUD should ensure that it obtains the needed technical
                  assistance in procurement, environmental reviews, and financial and reporting
                  controls to aid it in strengthening its internal controls and operations.




17
      24 CFR 58.34(a)(12) and (b) and 58.35(a)(5)
18
      24 CFR 1000.52
19
      24 CFR 1000.44
20
      OIG Audit Report 2010-FW-1002


                                                    8
Recommendations



          We recommend that the Administrator for the Southern Plains Office of Native
          American Programs

          1A. Initiate enforcement actions to require the Authority to

                   Follow HUD requirements when acquiring or procuring new homes,
                   Ensure that its staff has the needed skills to perform its administrative
                   duties, including procurement of goods and services, environmental
                   reviews, and financial operations, and
                   Properly account for and report the use of Recovery Act funds. By doing
                   so, it will put $850 to better use since the Authority inappropriately used
                   Block Grant funds for Recovery Act related activities.

          1B. Increase monitoring and oversight of the Authority’s Recovery Act planned
              activities and/or provide technical assistance and enter into a performance
              agreement with the Authority.




                                           9
                         SCOPE AND METHODOLOGY

Our audit period covered March 2009 through February 2010. To accomplish the audit objective,
we

       Reviewed relevant Federal regulations and Authority policies and procedures;
       Reviewed Indian Housing Plan amendments, Authority Recovery Act activities, and
       Authority Recovery Act reporting;
       Interviewed HUD and Authority staff; and
       Reviewed previous audit work for repeat findings.

We reviewed all Recovery Act related activities that documented the progress the Authority has
made toward the completion of expending its Recovery Act funding. We also reviewed the two
reporting periods the Authority was required to publish on the Recovery.gov Web site.

We performed fieldwork at the Authority’s office in Shawnee, OK, from January through April
2010.

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.




                                               10
                              INTERNAL CONTROLS

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

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

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


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

                      Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that Recovery Act contracts meet their
                      objective.
                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is in
                      compliance with applicable laws and regulations.
                      Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that it obtains, maintains, and fairly
                      discloses valid and reliable data in reports.

              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 did not have adequate controls for acquisition and
                      procurement activities.
                      The Authority did not accurately report Recovery Act funding.


                                                11
                  FOLLOW-UP ON PRIOR AUDITS


Audit Report Number
2010-FW-1002

          We issued an audit report on the Authority’s Block Grants in January 2010 with the
          following recommendations:

                 Support or reimburse $800,547 and put to better use $269,604 for the
                 contracts without appropriate environmental reviews and for the ineligible
                 hotel expenditure;
                 Correct both the deficiencies identified during our inspections and the
                 inaccurate record keeping of funding requested for specific grant years;
                 Implement policies and procedures to ensure that it maintains units, follows
                 up on inspections, and turns around units within the established timeframes;
                 and
                 Continue to work with its accounting firm to determine the correct amount of
                 funding the Nation needs to return to the Authority.

          The recommendations in the previous audit report are in an open status. We noted
          similar findings in this audit listed below.

                 The Authority did not properly perform environmental reviews,
                 The Authority incorrectly accounted for funds from the Block Grant funds
                 and Recovery Act funding,
                 The Authority did not always perform cost estimates before accepting bids,
                 and
                 The Authority did not consistently check the General Services
                 Administration’s Excluded Parties List System before using a contractor.




                                          12
                                               APPENDIXES

Appendix A

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

                                    Recommendation             Funds to be put to
                                        number                   better use 1/


                                             1A                      $850




1/   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. In this instance, it represents the amount the Authority will need to deobligate from
     its Block Grant funds, thereby making the funds available for eligible uses. Further, the Authority will
     accurately report the use of Recovery Act funds.




                                                          13
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                                Auditee Comments

             Housing Authority of the Sac and Fox Nation
             201 N. Harrison· P. O. Box 1252· Shawnee, OK 74801 (800) 831-7515· (405) 275-8200 · FAX (405) 275-8203


             May 10, 2010

             Mr. William Nixon, Assistant Regional Inspector
             Department of Housing and Urban Development
             Office of Inspector General, Region VI
             819 Taylor Street, Suite 13A09
             Fort Worth, TX 76102

             Dear Sir:

Comment 1    Enclosed is the response to the Office of Inspector Generals Stimulus Funding Audit
             of the Housing Authority of the Sac and Fox Nation for 2010.

             The Department of Housing and Urban Development has training scheduled for
             August of this year on environmental, the staff from the Sac and Fox Housing
             Authority will be in attendance to meet the requirement called for in the audit. We
             will use NAIHC training on Procurement.

             In the future, we will make sure that cost estimates will be done before receiving bids
             or proposals on all projects.

             We have adjusted our books to put expenditures of Stimulus funds in proper line item
             budgets.

             With the proper training the staff will perform all environmental in the correct
             manner. We have adjusted our records to now show the correct documentation on the
             environmental's.

             We now check the Excluded Parties List on all projects before using contractors.

             Documentation is provided on the following; Addresses, Enviromnentals

             Sincerely,

             /signed/
             John R. Thorpe, Executive Director


                                                        14
                        OIG Evaluation of Auditee Comments

Comment 1   We commend the Authority for planning to take the necessary corrective actions
            to ensure it follows regulations.




                                           15