oversight

Fall River Housing Authority, Fall River, MA, Did Not Always Administer Its Housing Choice Voucher Program in Accordance with HUD Regulations and Its Annual Contributions Contracts

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-09.

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

                                                                 Issue Date
                                                                      September 9, 2011
                                                                 
                                                                 Audit Report Number
                                                                     2011-BO-1011




TO:        Robert P. Cwieka, Acting Director, Office of Public Housing, Boston Hub,
             1APH


FROM:
           John A. Dvorak, Regional Inspector General for Audit, Boston Region 1,1AGA


SUBJECT: Fall River Housing Authority, Fall River, MA, Did Not Always Administer Its
         Housing Choice Voucher Program in Accordance With HUD Regulations and Its
         Annual Contributions Contracts


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Choice Voucher program at the Fall River Housing
             Authority as part of our annual audit plan. The overall objective of the audit was
             to determine whether the Authority efficiently and effectively administered its
             Voucher program in compliance with its annual contributions contracts and U.S.
             Department of Housing and Urban Development (HUD) regulations. Our specific
             subobjectives were to determine whether (1) the Authority performed its housing
             quality standards inspections in a timely manner and adequately monitored its
             contract inspectors, (2) housing units met Voucher program housing quality
             standards and rents were properly abated if necessary, (3) the Authority complied
             with HUD procurement regulations and its own procurement policy, and (4) the
             Authority ensured that travel incurred for its Federal programs was in accordance
             with HUD regulations.
What We Found


           The Authority generally administered the Voucher program efficiently and
           effectively and in compliance with its annual contributions contract and HUD
           regulations. However, it did not always perform its housing quality standards
           inspections in a timely manner, adequately monitor the results of its contract
           inspectors, and properly abate rents if necessary. Thirty-eight housing quality
           standards inspections were late and clearly outside the timeframes required by
           HUD under the Authority’s third-party inspection contract. As a result, the
           Authority did not earn a portion of the $7,453 in paid administrative fees, did not
           always comply with HUD procurement regulations and its own procurement
           policy, and did not ensure that travel incurred for Federal programs was in
           accordance with HUD regulations.


What We Recommend


           We recommend that the Director of the Office of Public Housing, Boston hub,
           require the Authority to (1) repay a portion of the unearned $7,453 in administrative
           fees paid by HUD and document the results of the remaining 17 housing quality
           standards inspections to determine whether rents needed to be abated;(2) update
           delegation and procurement policy to include duties assign and delegated,
           maintain a Voucher program contract register, develop procedures to ensure that a
           cost benefit analysis is conducted and documented, and document the method for
           conducting technical evaluations of bid responses and proposals; and (3) revise its
           travel policy and obtain approval of the policy from the Authority’s board of
           commissioners.

           For each recommendation without a management decision in the body of the
           report, 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 provided the Authority a draft report on August 29, 2011, and held an exit
           conference with officials on September 1, 2011. The Authority provided written
           comments on September 7, 2011, generally agreed with our findings and
           recommendations, and has taken corrective actions that should eliminate the
           conditions noted in this report. 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 Objectives                                                                  4

Results of Audit
     Finding 1: The Authority Did Not Always Perform Its Housing Quality Standards         5
                 Inspections in a Timely Manner, Monitor the Results of Its Third-Party
                 Inspectors, and Properly Abate Rents if Necessary
     Finding 2: The Authority Failed To Fully Comply With HUD Procurement Regulations      8
                and Its Own Procurement Policy
     Finding 3: The Authority’s Travel Policy Did Not Ensure That Only Valid, Necessary,
                                                                                           12
                and Reasonable Travel Costs Were Incurred
                                                                                           14
Scope and Methodology

Internal Controls                                                                          15

Appendixes
   A. Schedule of Questioned Costs                                                         17
   B. Auditee Comments and OIG’s Evaluation                                                18




                                           3
                         BACKGROUND AND OBJECTIVES

The United States Housing Act of 1937 established the Federal framework for government-
owned affordable housing. The Act also authorized public housing as the Nation’s primary
vehicle for providing jobs and building and providing subsidized housing through the U.S.
Department of Housing and Urban Development (HUD). HUD disperses funds to public
housing agencies under annual contributions contracts to provide subsidy payments or housing
assistance payments for participating low-income families.

In addition, the Act was amended by the Quality Housing and Work Responsibility Act of 1998
to create the Section 8 Housing Choice Voucher tenant-based program. The Voucher program is
funded by HUD and allows public housing authorities to pay HUD subsidies directly to housing
owners on behalf of the assisted family.

The Voucher program is administered by the Fall River Housing Authority for the City of Fall
River, MA. HUD contracts with the Authority to administer 2,089 housing choice voucher units
through annual contributions contracts.1 The Authority received $28.5 million in Voucher
program funds during the period April 1, 2009, through March 31, 2011, and earned
administrative fees of approximately $4.2 million during the same period. The annual
contributions contracts require the Authority to follow appropriation laws, HUD requirements
including public housing notices, and the Authority’s administrative plan.

The principal staff member of the Authority is its executive director, who is hired and appointed
by the Authority’s board of commissioners. The executive director is directly responsible for
carrying out the policies established by the commissioners and is delegated the responsibility for
hiring, training, and supervising the remainder of the Authority’s staff to manage the day-to-day
operations of the Authority and ensure compliance with Federal and State laws and directives for
the programs managed.

Our overall audit objective was to determine whether the Authority effectively and efficiently
administered its Voucher program in compliance with its annual contributions contracts and
HUD regulations. Our specific audit objectives were to determine whether (1) the Authority
adequately performed its inspections a timely manner and monitored the results of the third-party
inspections, (2) units met Voucher program housing quality standards and rents were properly
abated if necessary, (3) the Authority followed HUD procurement regulations and its own
procurement practices, and (4) the Authority ensured that travel incurred for its Federal programs
was in accordance with HUD regulations.




1
 As of March 31, 2011, the Authority administered 2,089 vouchers, including 1,887 Section 8 vouchers, 146
mobility vouchers, and 56 enhanced vouchers.


                                                       4
                                 RESULTS OF AUDIT

Finding 1: The Authority Did Not Always Perform Its Housing Quality
           Standards Inspections in a Timely Manner, Monitor the
           Results of Its Third-Party Inspectors, and Properly Abate
           Rents if Necessary

The Authority did not always perform its required Voucher program housing quality standards
inspections in a timely manner. Thirty-eight inspections were late and clearly outside the
timeframes required by HUD under the third-party inspection contract. These conditions
occurred because the Authority did not establish sufficiently detailed procedures to deal with
contingencies in conjunction with its normal quality control program and did not aggressively
enforce the conditions of its inspection contract. As a result, it did not earn a portion of the
$7,453 in administrative fees paid by HUD and properly abate rents if necessary.


The Authority’s Third-Party
Inspector Failed To Perform 38
Inspections


               The Authority did not always perform its Section 8 Voucher program inspections
               in a timely manner, which was needed to ensure that housing quality standards
               were met. We identified that 38 inspections were late and clearly outside of the
               timeframes required by HUD under the third party inspection contract. Our
               review disclosed that the third-party inspector was hired by the Authority to
               conduct initial, annual, and special inspections outside the Fall River area but
               within the State of Massachusetts. The contract was for a period of 2 years
               starting February 19, 2009, and ending February 16, 2011. The Authority was
               informed by the inspectors that it had major software problems, which resulted in
               inspections not being performed. As a result, 38 inspections were not performed
               in a timely manner. The time between third-party inspections ranged from 12 to
               19 months.

               This condition occurred because the Authority had not established sufficient
               detailed procedures to deal with contingencies in conjunction with its normal
               quality control program and did not aggressively enforce the conditions of its
               inspection contract. Our review of e-mails disclosed that the Authority made
               many attempts to contact the original third-party contractor regarding its failure to
               perform its inspection services. All e-mails had the same central theme, that its
               inspector was not performing its annual inspections. We were also informed that
               Authority staff made many telephone calls to the contractor but to no avail. The
               Authority was informed by the original third-party inspector that it had major

                                                 5
             software problems, which resulted in inspections not being performed. As a result
             of the 38 units that were not inspected in a timely manner, the Authority housed
             17 families in units that did not meet HUD’s standards for decent, safe, and
             sanitary housing and failed to earn a portion of the administrative fees paid by not
             conducting the required inspections on the 38 units. The Authority recognized
             that a problem existed, and the Authority took corrective actions by hiring a new
             inspection company.


Results of 38 Inspections Were
Not Timely


             For the 38 inspections that were late, the Authority’s new third-party contract
             inspectors failed 23 units and passed 12 units, 2 units still needed to be scheduled,
             and there was 1 vacant unit. Of the 23 failed units, 6 units passed reinspections,
             whereas the remaining 17 failed units’ results had not been determined as of our
             audit fieldwork cutoff date of June 30, 2011. We were informed by the Authority
             that for other than emergencies, the owner has 30 days to correct deficiencies.



 Administrative Fees of $7,453
 Were Not Earned


             Timely corrective action by the Authority was not taken to ensure that its units
             were inspected and met housing quality standards. Paragraph 20-6 of the
             Financial Management Housing Choice Voucher Program Guidebook states that
             under certain conditions, HUD may impose penalties against public housing
             agencies’ administrative fees. One such condition is when as there is failure to
             take corrective action when there has been evidence of intentional program abuse
             or unintentional administrative errors by the agency, owners, or families housed.
             The Authority’s failure to ensure that its units met housing quality standards and
             its untimely corrective action were conditions that warrant administrative
             penalties such as the refund of the administrative fees.

             The Authority did not earn a portion of the administrative fees of $7,453 paid by
             HUD. We determined this amount by taking the number of months beyond 1 year
             of the date of the last inspection and when the late inspection was conducted and
             multiplying the number of months late by the $89.80 monthly administrative fee
             paid by HUD. In addition, there were two units for which housing quality
             standards inspections had not been scheduled; therefore, we used June 30, 2011,
             as our cutoff date.




                                               6
        Conclusion


          Thirty-eight inspections were late and clearly outside the timeframes required by
          HUD under the third-party inspection contract. The time between third-party
          inspections ranged from 12 to 19 months. In addition, the Authority did not
          aggressively enforce or pursue the conditions of its inspection contract.
          Although, the Authority made attempts to resolve its inspection problems, its lack
          of timely action result in its failure to adequately monitor its inspection contractor
          and implement an effective quality control program.


Recommendations



          We recommend that the Director of the Office of Public Housing require the
          Authority to

          1A. Repay a portion of the unsupported $7,453 in administrative fees to its
              Voucher program from non-Federal funds.

          1B. Document the results of the remaining 17 housing quality standards
              inspections for which the Authority needs to determine whether the owners
              have made the necessary repairs or the units need to be abated.

          1C. Develop and implement policies and procedures to address the roles and
              responsibilities regarding its quality control inspection program with its
              newly hired inspection contractor.




                                            7
                                 RESULTS OF AUDIT

Finding 2: The Authority Failed to Fully Comply with HUD
           Procurement Regulations and Its Own Procurement Policy
The audit identified several instances in which the Authority’s procurement practices did not
comply with HUD regulations and its own procurement policy. Specifically, the Authority failed
to

          Update the delegation of procurement documentation and the Authority’s
           procurement policy to include specific procedures to be performed and to whom
           procurement duties were to be assigned and delegated;
          Maintain a Voucher program contract register that included the effective date of the
           contract, contract terms, the amount, and other details pertinent to the services;
          Develop procedures to provide for timely identification, cancellation, and substitution
           of contracts in the event that a breach of contract occurred for failure to live up to the
           contract’s terms;
          Develop procedures to ensure that a cost benefit analysis was conducted and
           documented; and
          Adequately document the method for conducting technical evaluations of bid
           responses and proposals.

   These deficiencies occurred because the Authority’s contracting officer (executive director)
   did not adequately fulfill his responsibility to establish and maintain effective management
   controls over procurement. As a result, HUD had little assurance that the Authority’s
   procurement process was fair and equitable and resulted in the best quality of services being
   obtained or at the lowest possible cost.




  Delegation of Procurement and
  Procurement Policy Were Out
  of Date

              As required by 24 CFR (Code of Federal Regulations) 85.36(b) (2), delegation of
              procurement responsibilities, the Authority’s executive director did not
              adequately delegate his procurement authority and procurement responsibilities to
              persons to whom procurement and contracting responsibilities had been assigned.
              The Authority’s procurement process was not adequately defined due to the
              implementation of its central office cost center and the hiring of a procurement
              officer. The procurement responsibilities of the Voucher program versus the cost
              center (main offices) were not defined. For the first outside contract inspector,
              the Voucher program procurement duties were not carried out by the procurement

                                                 8
                 officer. Duties were carried out by several personnel, including the deputy
                 director and the coordinator for Voucher program housing assistance, although
                 these individuals had not been delegated these responsibilities. In addition, the
                 Authority did not update its procurement policy to account for personnel and
                 organizational changes to deal with how procurement and monitoring duties were
                 assigned, delegated, and performed. The executive director agreed that updated
                 delegation forms and procurement policy would be presented and approved at the
                 next meeting of the board of commissioners.



    The Voucher Program
    Contract Register Was
    Inadequate

                 The Authority failed to maintain a contract register for Voucher program
                 contracts that provided current, accurate, and complete contract information as
                 required by 24 CFR 85.36(b)(2).2 At a minimum, the register should show the
                 effective date of the contract, contract terms, the amount, and other details
                 pertinent to the services procured.


    The Voucher Program
    Contract Monitoring Was
    Inadequate

                HUD Handbook 7460.8, paragraph 2.5, states: “The signature of the Contracting
                Officer on PHA [public housing agency] contracts is a legal commitment and
                requires continuing performance by the PHA under the terms and conditions of the
                contract. Performance includes such duties as monitoring contractor performance
                and acceptance or rejection of contractors’ requests for changes in performance,
                specifications, or price.” Of the two leased housing inspection contracts and one
                lease proposal reviewed, one of the three was in breach of contract, but procedures
                to cancel and rebid this contract by the procurement staff did not occur until the
                contract expired and several of the contracted inspections were severely past due.




2
 Although the operation of the Voucher program is exempt from 24 CFR 85.36, procurement activities within the
Voucher program are governed by applicable State and local law, which includes Federal regulations such as 24
CFR 85.36. Since the Authority has acknowledged that it would also follow Federal procurement rules, we have
applied these rules to its contracting of leased housing services.

                                                       9
Inadequate Cost Benefit
Analysis



           The Authority did not adequately document the method for conducting a technical
           evaluation of proposed services as required by 24 CFR 85.36(d) (3). Regarding
           outside inspection contracts, the Authority needed to base its decision to enter into
           such contracts on more substantial documentation. Documentation obtained
           should have included evidence of the ability to perform, such as inspection
           capacity, data dependability, filing and storage capability, and the method of
           service delivery. Documentation of such ability should have been acquired
           directly from the vendor for evaluation before contract award.


Technical Evaluations of
Proposals Were Not
Documented


           The Authority did not consistently document in its requests for proposals. It
           could not provide a cost analysis showing data on costs for the inspection
           services, such as whether providing this service in house was prohibitive in
           comparison to outsourced services as required by 24 CFR 85.36(d) (2) (iii), which
           states: “Grantees and sub grantees will have a method for conducting technical
           evaluations of the proposals received and for selecting awardees.”


Conclusion



           We identified several instances in which the Authority’s procurement practices did
           not comply with HUD regulations and its own procurement policy.These
           deficiencies occurred because the Authority’s contracting officer (executive director)
           did not adequately fulfill his responsibility to establish and maintain effective
           management controls over procurement. As a result, HUD had little assurance that
           the Authority’s procurement process was fair and equitable and that the process
           resulted in the best quality of services being obtained or at the lowest possible cost.
           The Authority’s executive director was correcting these deficiencies by submitting
           delegation paperwork to place his procurement powers and responsibilities with the
           proper individuals, and new procurement procedures were being implemented. The
           executive director agreed that the Authority’s procurement procedures did not
           always reflect its own policy and applicable Federal laws and standards.




                                             10
Recommendations



          We recommend that the Director of the Office of Public Housing require the
          Authority to:

          2A. Update delegation of procurement documentation and the procurement
              policy to include specific procedures to be performed and to whom
              procurement duties are to be assigned and delegated.

          2B. Maintain a Voucher program contract register that includes the effective
              date of the contract, contract terms, the amount, and other details pertinent
              to the services procured.

          2C. Develop procedures to provide for timely identification, cancellation, and
              substitution of contracts.

          2D. Develop procedures to assure that a cost benefit analysis is conducted and
              documented.

          2E. Adequately document the method for conducting technical evaluations of
              bid responses and proposals.                            




                                          11
                                RESULTS OF AUDIT

Finding 3: The Authority’s Travel Policy Did Not Ensure Valid,
           Necessary, and Reasonable Travel Costs
The Authority’s travel policy did not adequately address some of the basic travel requirements.
The policy did not adequately address items such as travel authorizations, methods of payment,
expense reporting (including when receipts were necessary), or typical eligible travel expenses
applicable to various travel locations. This condition occurred because the Authority did not
develop an adequate travel policy. As a result, the Authority could not ensure that travel
expenses incurred by its employees and charged to its various programs were always valid,
necessary, and reasonable.




 The Authority’s Travel Policy
 Did Not Address Basic Travel
 Requirements


              The Authority’s travel policy was a half-page document which was general in
              nature. As such, it did not address in detail the responsibilities of the Authority or
              the traveler(s). The policy also did not address items such as travel authorizations;
              methods of payment; expense reporting (including when receipts are necessary); and
              eligible travel expenses to include air travel, ground travel, and rail travel or the
              authorized per diem rates for each given location of travel.

              The Authority did require travelers to submit detailed local travel vouchers for
              mileage. The majority of travel at the Authority was for local travel. In these
              instances, employees submitted a detailed day-by-day travel voucher for their
              travel between properties. These local travel vouchers were approved by
              management. However, management did not require employees traveling
              overnight to submit a consolidated detailed expense travel vouchers. Without a
              detailed expense report upon completion of travel, the Authority could not assure
              HUD that related travel expenses were valid and necessary costs charged for
              administration of its programs.




                                                12
    Management Had Taken Steps
    To Revise Its Travel Policy

                 Authority management agreed that its travel policy needed revision. The
                 executive director said that the revised policy would address in detail the
                 responsibilities of the Authority and those of the travelers. He also informed the
                 Authority’s board of commissioners in August 2011 that the travel policy needed
                 to be revised and indicated that he would present to the board the revised travel
                 policy no later than September 2011.


    Conclusion


                 The Authority’s travel policy did not adequately address basic travel
                 requirements, such as travel authorizations, methods of payment, expense
                 reporting (including when receipts were necessary), typical eligible travel
                 expenses applicable to various travel locations, or submission of detailed
                 expenditure travel vouchers. This condition occurred because the Authority did
                 not develop an adequate travel policy. Without an adequate travel policy, the
                 Authority could not ensure that travel expenses incurred by its employees and
                 charged to its various programs were always valid, necessary, and reasonable.

    Recommendations



                 We recommend that the Director of the Office of Public Housing require the
                 Authority to

                 3A. Prepare and obtain board approval of a new travel policy. The policy should
                     address the responsibilities of the Authority, as well as, the traveler.

                                 




                                                 13
                         SCOPE AND METHODOLOGY

We conducted the audit between April and July 2011.Our fieldwork was conducted at the
Authority’s main office located at 85 Morgan Street and the Voucher program office located at
180 Morgan Street, Fall River, MA. Our audit covered the period April 1, 2009, to March 31,
2011, and was extended when necessary to meet our objectives. To accomplish our audit
objectives, we

      Interviewed the Authority’s executive director, deputy executive director, coordinator of
       housing assistance, director of finance, and fee accountant to determine policies and
       procedures to be tested;

      Reviewed the financial statements, general ledgers, tenant files, rent reasonableness data,
       and cost allocation plans as part of our testing for control weaknesses;

      Reviewed program requirements, including Federal laws and regulations, Office of
       Management and Budget circulars, the consolidated annual contributions contracts
       between the Authority and HUD, and the Authority’s administrative plan, to determine the
       Authority’s compliance with applicable HUD procedures;

      For the period April 2009 to March 2011, reviewed 100 percent of Voucher program
       contracts awarded to determine whether the Authority followed its contract procedures;
       and

      For the period April 2009 through March 2011, reviewed the Authority’s management,
       accounting, and computer controls over cost allocations, interprogram fund transfers,
       mobility, abatements, procurement, and travel to determine whether the Authority had
       controls in place to safeguard its assets.

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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                 14
                              INTERNAL CONTROLS

Internal control is a process adopted 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 audit
               objectives:

                             Controls over tenant eligibility, calculating housing assistance
                              payments, tenant payments, and utility allowances;

                             Controls over rent reasonableness;

                             Controls over housing quality standards inspections;
                             Controls over expenditures to ensure that they are eligible, necessary,
                              and reasonable;
                             Controls over accounting for cost allocations and interprogram
                              receivables and payables;

                             Controls over procurements;

                             Controls over travel expense vouchers;

                             Controls over voucher use (eligibility, waiting lists, and use); and

                             Controls over the Voucher program administrative plan.




                                                15
           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 Deficiencies


           Based on our review, we believe that the following items are significant deficiencies:

              Inadequate controls over housing quality standards, specifically monitoring the
               results of the third-party inspections and whether units met Voucher program
               housing quality standards and rents were properly abated if necessary (see
               finding 1).

              Inadequate procurement documentation to support its procurement practices (see
               finding 2).

               Lack of policies and procedures regarding payment of travel expenses (see
               finding 3).




                                            16
                                       APPENDIXES

Appendix A

                   SCHEDULE OF QUESTIONED COSTS


               Recommendation number                                 Unsupported 1/

                       1A                                            $7,453

1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program or
activity when we cannot determine eligibility at the time of the audit. Unsupported costs require
a decision by HUD program officials. This decision, in addition to obtaining supporting
documentation, might involve a legal interpretation or clarification of departmental policies and
procedures. In this case, the Authority did not earn a portion of the administrative fees of $7,453
paid by HUD.




                                                17
Appendix B


        AUDITEE COMMENTS AND OIG’S EVALUATION

                        OIG Evaluation of Auditee Comments


Ref to OIG Evaluation                Auditee Comments




Comment 1




Comment 1




                                       18
Ref to OIG Evaluation   Auditee Comments




Comment 1




                         19
                        OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed with our recommendations and will work with the office of
            Public Housing to implement the required corrective action for all the
            recommendations in the report.




                                           20