oversight

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)

                                                               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




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                       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.

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             •    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




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