Issue Date
April 13, 2010
Audit Report Number
2010-PH-1006
TO: Dennis G. Bellingtier, Director, Office of Public Housing, Pennsylvania State
Office, 3APH
//signed//
FROM: John P. Buck, Regional Inspector General for Audit, Philadelphia Region,
3AGA
SUBJECT: Audit of the Housing Authority of the City of Pottsville, PA’s Recovery Act
Capital Fund Grant
HIGHLIGHTS
What We Audited and Why
We selected the Housing Authority of the City of Pottsville, PA (Authority), for
audit because it was awarded a Public Housing Capital Fund grant of $992,895
under the American Recovery and Reinvestment Act of 2009 (Recovery Act) and
it had obligated and drawn down $477,226 of the grant funds within 6 months of
receiving the grant. Our objective was to determine whether the Authority
administered grant funds provided under the Recovery Act according to Recovery
Act requirements and applicable U.S. Department of Housing and Urban
Development (HUD) rules and regulations.
What We Found
The Authority generally administered grant funds provided under the Recovery
Act according to Recovery Act requirements and applicable HUD rules and
regulations. However, it did not prepare independent cost estimates before
soliciting bids for its grant-funded activities.
What We Recommend
We recommend that HUD require the Authority to develop and implement controls
to ensure that it creates independent cost estimates as required and documents them
in its contract files.
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 discussed the report with the Authority during the audit and at an exit
conference on March 25, 2010. The Authority provided written comments to our
draft report on March 29, 2010. It agreed with the conclusions and
recommendations in the report. The complete text of the Authority’s response
can be found in appendix A of this report.
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TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding: The Authority Generally Administered Grant Funds in Accordance 5
With Applicable Requirements
Scope and Methodology 8
Internal Controls 9
Appendixes
A. Auditee Comments 11
3
BACKGROUND AND OBJECTIVE
The Housing Authority of the City of Pottsville (Authority) was formed in 1960 under the Housing
Authorities Law of the Commonwealth of Pennsylvania. Its primary objective is to provide a
variety of housing assistance programs for the low-income residents of Pottsville, PA. The
Authority is governed by a five-member board of commissioners appointed by the mayor of
Pottsville. The board appoints an executive director to manage the day-to-day operations of the
Authority. The current executive director is Craig S.L. Shields. The Authority’s offices are located
at 410 Laurel Boulevard, Pottsville, PA. During our audit period, the Authority owned and operated
508 public housing units in 8 developments under an annual contributions contract with the U.S.
Department of Housing and Urban Development (HUD).
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act). This legislation included a $4 billion appropriation of capital funds to
carry out capital and management activities for public housing agencies, as authorized under
Section 9 of the United States Housing Act of 1937. The Recovery Act requires that $3 billion
of these funds be distributed as formula funds and the remaining $1 billion be distributed through
a competitive process. On March 18, 2009, HUD awarded the Authority a formula grant of
$992,895.
The Recovery Act imposed additional reporting requirements and more stringent obligation and
expenditure requirements on the grant recipients beyond those applicable to the ongoing Public
Housing Capital Fund program grants. Transparency and accountability were critical priorities
in the funding and implementation of the Recovery Act.
The Authority allocated its grant toward the construction of a storage building for its public housing
tenants, plumbing and lobby renovations, sidewalk improvements, the replacement of air
conditioning/heating units, window replacement, and administrative expenses. Grant funds can be
used to address deferred maintenance needs, including but not limited to
• Replacement of obsolete systems and equipment with energy-efficient systems and
equipment that reduce consumption,
• Work items related to code compliance including abatement of lead-based paint and
implementation of accessibility standards,
• Correction of environmental issues, and
• Rehabilitation and modernization activities that have been delayed or not undertaken
because of insufficient funds.
Our objective was to determine whether the Authority administered grant funds provided under
the Recovery Act according to Recovery Act requirements and applicable HUD rules and
regulations.
4
RESULTS OF AUDIT
Finding: The Authority Generally Administered Grant Funds in
Accordance With Applicable Requirements
Overall, the Authority administered its grant funds in accordance with the requirements of the
Recovery Act and HUD rules and regulations. Specifically, it (1) used grant funds for eligible
activities included in its annual plan or 5-year action plan, (2) obligated and expended grant
funds within established deadlines, (3) received and disbursed grant funds in a timely manner,
(4) effectively monitored and reported on its grant funds, and (5) generally procured goods and
services in accordance with applicable HUD requirements.
The Authority Used Grant
Funds for Eligible Activities
Included in Its Annual
Statement or 5-Year Action
Plan
The Authority selected and funded eligible activities and work items from its
annual plan and 5-year action plan. Under the Recovery Act, HUD’s Office of
Public and Indian Housing (PIH) issued Notice PIH 2009-12, which required the
Authority to use grant funds for eligible activities or work items currently
identified in either its annual statement or 5-year action plan.
The Authority Met Required
Obligation and Expenditure
Deadlines
Under the Recovery Act and HUD Notice PIH 2009-12, the Authority was
required to obligate 100 percent of its $992,895 grant by March 18, 2010. The
Authority obligated 100 percent of its grant by December 7, 2009, well ahead of
the deadline. The Recovery Act and HUD Notice PIH 2009-12 also required the
Authority to expend at least 60 percent of the grant by March 18, 2011. The
Authority expended $769,378, or 77 percent, of its grant by January 31, 2010,
well ahead of the deadline.
5
The Authority Received and
Disbursed Grant Funds in a
Timely Manner
The Authority drew down grant funds from HUD’s automated Line of Credit
Control System only when the payments were due and after it had inspected and
accepted the work. It generally disbursed the funds within 3 working days as
required by HUD Notice PIH 2009-12. The Authority maintained documentation
submitted by contractors/vendors to support payments. The documentation
adequately supported the payments.
The Authority Was Effective in
Monitoring and Reporting
Grant Funds
The Authority effectively monitored, tracked, and reported its grant funds.
Throughout the audit, the Authority demonstrated that its monitoring, tracking,
and reporting were generally reliable and in compliance with Section 1512 of the
Recovery Act. The Authority reported accurate job creation information to the
appropriate Federal reporting Web site.
The Authority Generally
Procured Goods and Services in
Accordance With Applicable
HUD Requirements
The Authority generally followed HUD procurement regulations in 24 CFR (Code
of Federal Regulations) 85.36; HUD Handbook 7460.8, REV-2; and guidance in
HUD Notices PIH 2009-12 and PIH 2009-31. For example, the Authority
• Amended its procurement policy as required by HUD Notice PIH 2009-12
to expedite and facilitate the use of grant funds by making State and local
laws and regulations inapplicable for Recovery Act grants.
• Gave sufficient priority to projects and work items for which contracts,
based on bids, could be awarded within 120 days from February 17, 2009,
as required by HUD Notice PIH 2009-12. It awarded two contracts
totaling $462,320 (47 percent of the grant), based on bids, within the 120-
day timeframe.
• Received an adequate number of bids to ensure that it awarded contracts
competitively as required by 24 CFR 85.36 and HUD Handbook 7460.8,
REV-2.
6
• Complied with HUD guidance for implementing the “buy American”
requirement of the Recovery Act in HUD Notice PIH 2009-31.
However, the Authority did not document independent cost estimates before
soliciting bids. HUD regulations at 24 CFR 85.36 and HUD Handbook 7460.8,
REV-2 require housing authorities to prepare an independent cost estimate before
the solicitation of offers. The independent cost estimate serves as the Authority’s
yardstick for evaluating the reasonableness of the contractor’s proposed costs or
prices. The Authority’s procurement policy reiterates this requirement. The
Authority stated that there were no cost estimates in the contract files because its
architectural consultant provided verbal cost estimates. Although the Authority
lacked written cost estimates for its Recovery Act contracts, there was no effect
on the contract costs because the Authority had obtained a sufficient number of
bids to demonstrate that contracts were awarded competitively.
We discussed this issue with responsible Authority staff members during the
audit, and they confirmed that the Authority also did not obtain written cost
estimates for contracts related to its ongoing Public Housing Capital Fund
program. The Authority’s executive director informed us that the Authority had
since instructed its architectural firm to provide written cost estimates and that it
would maintain the cost estimates in its contract files.
Recommendations
We recommend that the Director of HUD’s Pennsylvania State Office of Public
Housing require the Authority to
1A. Develop and implement controls to ensure that it creates independent cost
estimates as required.
1B. Maintain copies of independent cost estimates in its contract files.
7
SCOPE AND METHODOLOGY
We conducted the audit from October 2009 through March 2010 at the Authority’s offices located
at 410 Laurel Boulevard, Pottsville, PA, and our office located in Philadelphia, PA. The audit
covered the period February through September 2009 but was expanded when necessary to include
other periods.
To complete our audit, we
• Obtained relevant background information;
• Reviewed Public Law 111-5, the American Recovery and Reinvestment Act of 2009,
dated February 17, 2009;
• Reviewed applicable HUD rules, regulations, and guidance;
• Reviewed policies and procedures related to procurement, monitoring/reporting of grant
funds, expenditures, and disbursements;
• Reviewed the Authority’s fiscal years 2007 and 2008 audited financial statements;
• Interviewed relevant Authority staff;
• Interviewed officials from HUD’s Pennsylvania State Office of Public Housing;
• Reviewed relevant monitoring/reporting records, financial records, and procurement
records; and
• Conducted on-site reviews of work items completed or to be completed by the Authority at
various housing developments where the grants funds were being used.
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 audit results
and conclusions based on our audit objective.
8
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 were implemented to
reasonably ensure that procurement activities were conducted in accordance
with applicable requirements.
• Validity and reliability of data - Policies and procedures that were
implemented to reasonably ensure that payments to contractors/vendors were
made in accordance with applicable requirements.
• Compliance with laws and regulations - Policies and procedures that were
implemented to ensure accurate and timely reporting and monitoring of grant
funds in accordance with applicable requirements.
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.
9
Significant Weaknesses
Based on our review, we did not identify any significant weaknesses in the
Authority’s internal controls that would affect its ability to manage and administer
Recovery Act-funded activities.
10
Appendix A
AUDITEE COMMENTS
11
Audit of the Housing Authority of the City of Pottsville, PA's Recovery Act Capital Fund Grant
Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-04-13.
Below is a raw (and likely hideous) rendition of the original report. (PDF)