oversight

The Springfield Metropolitan Housing Authority, Springfield, OH, Did Not Administer Its Grant in Accordance With Recovery Act and HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-30.

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

                                                                Issue Date
                                                                         September 30, 2011
                                                                 
                                                                Audit Report Number
                                                                         2011-CH-1015




TO:         Shawn Sweet, Director of Public Housing Hub, 5DPH

            //signed//
FROM:       Kelly Anderson, Regional Inspector General for Audit, 5AGA

SUBJECT: The Springfield Metropolitan Housing Authority, Springfield, OH, Did Not
           Administer Its Grant in Accordance With Recovery Act and HUD
           Requirements


                                   HIGHLIGHTS

 What We Audited and Why

            We audited the Springfield Metropolitan Housing Authority’s American Recovery
            and Reinvestment Act of 2009 Public Housing Capital Fund Stimulus (formula)
            Recovery Act Funded grant. The audit was part of the activities in our fiscal year
            2011 annual audit plan. We selected the Authority for audit based on the Office of
            Inspector General’s (OIG) commitment to ensure the proper use of Recovery Act
            grant funds. Our objective was to determine whether the Authority administered
            its capital grant in accordance with Recovery Act and U.S. Department of Housing
            and Urban Development (HUD) requirements.

 What We Found

             The Authority did not administer its Capital Fund grant in accordance with
             Recovery Act and HUD requirements. Specifically, it did not (1) properly
             obligate $152,000 in Recovery Act grant funds for eligible management
             improvement costs, and (2) adequately monitor its contractors for the enforcement
             of labor standards. The problems occurred because the Authority lacked adequate
             procedures and controls regarding the administration of its grant funds to ensure
             that obligations and expenditures met HUD and the Recovery Act requirements.
           Additionally, it lacked adequate procedures and controls to ensure that it complied
           with HUD’s and its own requirements for the administration of contracts. As a
           result, it improperly obligated $152,000 in formula grant funds contrary to HUD’s
           requirements and its reporting of Recovery Act funded activities on
           FederalReporting.gov was inaccurate.

What We Recommend

           We recommend that the Director of HUD’s Cleveland Office of Public Housing
           require the Authority to (1) implement adequate procedures and controls
           regarding the administration of its Recovery Act grant funds, (2) provide
           supporting documentation or reimburse HUD $110,580 for wages paid to its
           contractors, (3) review all payments to its contractors’ employees to determine
           whether wage restitution is owed and provide the review results to HUD for
           review and approval. If wage restitution is required, the Authority should make
           the restitution from non-Federal funds, and (4) implement adequate procedures
           and controls regarding its contracting process to ensure that its contractors’
           employees are paid the appropriate Federal prevailing wage rates. These
           procedures and controls would include but not be limited to reviewing
           contractors’ weekly certified payrolls, maintaining full documentation such as
           weekly payrolls and copies of wage determinations, and making any applicable
           changes or modifications needed to comply with Davis-Bacon Act.

           We also recommend that the Director of HUD’s Cleveland Office of Public
           Housing recapture $152,000 in Recovery Act capital funds that was improperly
           obligated for ineligible management improvement expenses for transmission to
           the U.S. Treasury. As of September 27, 2011, HUD is in the process of
           recapturing the funds. Therefore, a management decision has been reached
           regarding this recommendation.

           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 provided our review results and supporting schedules to the Director of
           HUD’s Cleveland Office of Public Housing and the Authority’s two acting
           executive directors during the audit. We also provided our discussion draft audit
           report to the Authority’s acting executive directors, its board vice-chairperson,
           and HUD’s staff during the audit. We held an exit conference with the
           Authority’s acting executive directors on September 22, 2011. We asked the
           Authority’s acting executive directors to provide comments on our discussion

                                            2
draft audit report by September 26, 2011. The Authority’s acting executive
directors provided written comments, dated September 23, 2011. The complete
text of the auditee’s response, along with our evaluation of that response, can be
found in appendix B of this report. A complete copy of the Authority’s comments
was provided to the Director of HUD’s Cleveland Office of Public Housing.




                                3
                           TABLE OF CONTENTS

Background and Objective                                                            5

Results of Audit
      Finding 1: The Authority Did Not Properly Obligate $152,000 in Recovery Act   6
                 Grant Funds for Eligible Management Improvement Costs
      Finding 2: The Authority Did Not Adequately Monitor Its Contractors for the   8
                 Enforcement of Labor Standards

Scope and Methodology                                                               11

Internal Controls                                                                   12

Appendixes
   A. Schedule of Questioned Costs                                                  14
   B. Auditee Comments and OIG’s Evaluation                                         15
   C. Federal Requirements                                                          21




                                            4
                        BACKGROUND AND OBJECTIVE

The Springfield Metropolitan Housing Authority is an Ohio public housing agency created by the
City of Springfield in 1965 under the laws of the State of Ohio. The Authority’s five-member
board of commissioners, with four current members, is appointed by the Springfield City
Commission, Clark County Commissioners, and Springfield Court of Common Pleas to serve a 5-
year term. The board’s responsibilities include overseeing the operations of the Authority and
reviewing and approving its policies. The board appoints the executive director; the position was
vacant as of July 31, 2011. The board has assigned two acting executive directors until the position
is filled. The executive director is responsible for general supervision over the administration of the
Authority’s business and is charged with the management of its housing projects.

The Public Housing Capital Fund Stimulus (formula) Recovery Act Funded grant is administered
by the U.S. Department of Housing and Urban Development’s (HUD) Office of Public Housing.
The grant funds are available for capital and management activities, including the development,
financing, and modernization of public housing projects.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act. The
Recovery Act provided an additional $4 billion to public housing agencies to carry out capital and
management activities, including the modernization and development of public housing. The
Recovery Act required that $3 billion of these funds be distributed as formula grants and the
remaining $1 billion be distributed through a competitive process. The Recovery Act required
public housing agencies to (1) obligate 100 percent of the funds within 1 year of the date on which
funds became available to the agency for obligation, (2) expend 60 percent of the funds within 2
years, and (3) expend 100 percent of the funds within 3 years of the date on which funds became
available to the agency.

In March 2009, the Authority received a $1.5 million formula grant for its Capital Fund activities. It
had obligated 100 percent of its grant funds and expended 88 percent as of August 31, 2011. The
Authority awarded four contracts using its Recovery Act funds. The contracts were to perform
reroofing on two of its developments, modernize one building, and modernize equipment.

Our objective was to determine whether the Authority administered its capital grant in
accordance with Recovery Act and U.S. Department of Housing and Urban Development (HUD)
requirements.




                                                   5
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Properly Obligate $152,000 in
Recovery Act Grant Funds for Eligible Management Improvement Costs
The Authority did not properly obligate Recovery Act grant funds. Specifically, it improperly
obligated $152,000 in grant funds for management improvement costs such as a renewal contract
for police services, computer equipment for the Authority’s operations, and computer and server
contracts. This condition occurred because the Authority lacked adequate procedures and
controls to ensure that it complied with requirements under the Recovery Act. As a result, it
improperly obligated $152,000 in formula grant funds contrary to HUD’s requirements and its
reporting of Recovery Act funded activities on FederalReporting.gov was inaccurate.



 The Authority Inappropriately
 Obligated $152,000 for
 Management Improvement
 Costs

              HUD approved the Authority’s plan to use $152,000 of its Recovery Act capital
              grant funds for management improvement costs. According to the Authority’s
              plan, it would use the funds for training, security, communication, and data
              improvements. In March 2010, the Authority submitted its first voucher to draw
              funds from the management improvement line item to HUD for review and
              approval. HUD requested that the Authority provide supporting documentation
              for the requested funds. In reviewing the Authority’s documentation, HUD
              determined that it wanted to use the grant funds to obtain computer supplies,
              renew its computer systems support contract, and purchase a new laptop computer
              and computer supplies and parts for its server. However, these expenses were not
              eligible under HUD’s and Recovery Act guidelines.

              In April 2010, the Authority submitted another voucher to HUD for approval,
              seeking reimbursement for a renewal contract for police services. However when
              the Authority entered the voucher request into HUD’s Line of Credit Control
              System, the voucher was flagged for a review by HUD. As a result, the Authority
              cancelled the voucher. Notice PIH 2009-12 prohibits the use of management
              improvement funds for operations or rental assistance. Further, on the Recovery
              Act’s Web site under Frequently Asked Questions, it states that (1) funds not
              obligated within the 1-year obligation deadline will be recaptured, (2) funds
              cannot be used to cover operational expenses, and (3) a public housing authority’s
              ongoing operation expenses are ineligible management improvement costs.




                                               6
Conclusion


             The Authority did not properly obligate Recovery Act grant funds. Specifically, it
             improperly obligated $152,000 in grant funds for management improvement costs
             such as a renewal contract for police services, computer equipment for the
             Authority’s operations, and computer and server contracts. This condition
             occurred because the Authority lacked adequate procedures and controls to ensure
             that it complied with requirements under Recovery Act. The Authority did not
             thoroughly review the Recovery Act guidance to determine eligible management
             improvement activities. As a result, it improperly obligated $152,000 in formula
             grant funds contrary to HUD’s requirements and its reporting of Recovery Act
             funded activities on FederalReporting.gov was inaccurate. As of September 27,
             2011, HUD determined that the Authority’s funds obligated for management
             improvement costs should be recaptured.


Recommendations


             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Authority to

              1A. Implement adequate procedures and controls regarding the administration
                  of its Recovery Act grant funds.

              We also recommend that the Director of HUD’s Cleveland Office of Public
              Housing

              1B. Recapture $152,000 in Recovery Act capital funds that was improperly
                  obligated for ineligible management improvement expenses for
                  transmission to the U.S. Treasury.




                                             7
                                RESULTS OF AUDIT

Finding 2: The Authority Did Not Properly Monitor Its Contractors for
the Enforcement of Labor Standards
The Authority was unable to provide sufficient documentation to support (1) its monitoring of
contractors to ensure that they performed in accordance with their contracts and (2) that its
contractors’ employees were paid the appropriate Federal prevailing wage rates. This condition
occurred because the Authority lacked adequate procedures and controls to ensure that its
modernization contractor had proper oversight of its contractors. Additionally, the Authority
lacked an adequate contract administration system. As a result, the Authority and HUD lacked
assurance that $110,580 in Recovery Act funds was used for eligible expenses and contractors
paid employees the appropriate Federal prevailing wage rates.



 The Authority Did Not Ensure
 That Its Contractors Complied
 With the Davis-Bacon Act

              The Authority allowed contractors to submit inaccurate and incomplete certified
              payroll reports for its two reroofing projects. For instance, one contractor’s
              reports lacked employees’ addresses and Social Security numbers. Additionally,
              based on the Authority’s modernization contractor’s record of interviews with 16
              employees on site for the two contractors, we determined that

                  o Five employees were not included on the contractors’ submitted payroll
                    reports.
                  o One contractor’s name was illegible, thus preventing verification of its
                    validity.
                  o Seven of the employee interviews were conducted on a day on which the
                    contractors’ payroll reports did not show any hours worked for these seven
                    employees.
                  o Eight employees’ wage rates were identified as “contracted rate”;
                    however, the contractors and the Authority did not maintain complete or
                    supporting payroll records for the wage rates.

              Additionally for one of the two contractors, the contractor’s employee payroll
              records did not include all employees as required. For instance, according to an
              internal email, the Authority’s modernization contractor suggested that there were
              approximately 25 subcontractors on the crew. However, the Authority’s weekly
              payroll report did not contain more than eight subcontractors.




                                               8
             HUD’s Contractor’s Guide to Prevailing Wage Requirements for Federally
             Assisted Construction Projects, section 2, requires an employee’s payroll records
             to contain the employee’s name, address, and Social Security number. Further,
             for a project to comply with the Davis-Bacon Act, every contractor (including
             every subcontractor) must keep a complete set of its own payroll and other basic
             records, such as time cards, tax records, and evidence of fringe benefit payments,
             for at least 3 years after the project is completed. The guide also states that the
             contract administrator must compare the information on the interview forms to the
             corresponding payrolls to ensure that workers are properly listed on the payrolls
             regarding days worked, work classification, and rate of pay.

The Authority Lacked
Adequate Procedures and
Controls for Enforcement of
Labor Standards

             The Authority lacked adequate procedures and controls for the enforcement of labor
             standards. It used a contractor to oversee the activities under its Recovery Act
             funds; however, the contractor failed to properly monitor its contractors for the
             enforcement of labor standards. Additionally, the Authority did not maintain an
             effective contract management system to ensure that contractors performed in
             accordance with their contracts. HUD Handbook 1344.1, REV-1, Labor Standards
             Enforcement Handbook, requires public housing agencies to monitor enforcement of
             labor standards for the payment of prevailing wage rates in all construction contracts
             over $2,000 involving Federal funds.


Conclusion


             The Authority did not properly monitor its contractors for the enforcement of
             labor standards. This condition occurred because the Authority lacked adequate
             procedures and controls to ensure that its modernization contractor properly
             monitored contractors for the enforcement of labor standards. Additionally, it did
             not maintain an adequate contract administration system. Based on our analysis,
             the Authority and HUD lacked assurance that $110,580 in Recovery Act funds
             was used for eligible expenses and contractors paid their employees the
             appropriate Federal prevailing wage rates.


Recommendations


             We recommend that the Director of HUD’s Cleveland Office of Public Housing
             require the Authority to

                                               9
2A. Provide supporting documentation or reimburse HUD $110,580 from non-
    Federal funds for wages paid to its contractors.

2B. Review all payments to its contractors’ employees to determine whether
    wage restitution is owed and provide the review results to HUD for review
    and approval. If wage restitution is required, the Authority should make the
    restitution from non-Federal funds.

2C. Implement adequate procedures and controls regarding its contracting
    process to ensure that its contractors’ employees are paid the appropriate
    Federal prevailing wage rates, These procedures and controls would include
    but not be limited to reviewing contractors’ weekly certified payrolls,
    maintaining full documentation such as weekly payrolls and copies of wage
    determinations, and making any applicable changes or modifications needed
    to comply with Davis-Bacon Act.




                                10
                        SCOPE AND METHODOLOGY

We performed onsite audit work between April and July 2011 at the Authority’s office located at
101 West High Street, Springfield, OH. The audit covered the period March 18, 2009, through
February 28, 2011, but was expanded as determined necessary.

To accomplish our objectives, we reviewed

      Applicable laws and regulations; HUD’s program requirements at 24 CFR (Code of Federal
       Regulations) Parts 5, 85, 135, 905, and 982 and 29 CFR 3.4; HUD Notice PIH 2009-12;
       HUD Handbook 1344.1, REV-1; HUD Handbook 7460.8, REV-2; Recovery Act Web site’s
       Frequently Asked Questions, and HUD guidebook, Making Davis-Bacon Work, A
       Practical Guide for States, Indian Tribes, and Local Agencies, June 2006.

      The Authority’s accounting records, bank statements, cancelled checks, contract files,
       policies and procedures, board meeting minutes for April 2009 through March 2011,
       organization chart, program annual contributions contract with HUD, and 5-year and annual
       plans.

      Contractors’ accounting records, payroll bank statements, invoices, payroll calculations,
       contracts, contract change orders, and material and supply receipts.

      HUD’s files for the Authority.

      Manufactured product Web sites and representatives for “buy American” compliance and
       energy efficiency requirements.

We also interviewed the Authority’s employees and contractors, along with HUD staff.

We reviewed the Authority’s four Recovery Act grant contract files. The four contract file
documentation reviews included two reroofing contracts, one building modernization contract,
and one equipment modernization replacement contract. We reviewed the respective contracts,
materials, invoices, payroll invoices, and payroll reports for the four contracts reviewed.

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.




                                                11
                              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
               objective:

                     Effectiveness and efficiency of operations – Policies and procedures that the
                      audited entity has implemented to provide reasonable assurance that a
                      program meets its objectives, while considering cost effectiveness and
                      efficiency.

                     Reliability of financial reporting – Policies and procedures that management
                      has implemented to provide reasonable assurance regarding the reliability of
                      financial reporting and the preparation of financial statements in accordance
                      with generally accepted accounting principles.

                     Compliance with applicable laws and regulations – Policies and procedures
                      that management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

               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.


                                                 12
Significant Deficiencies

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

                   The Authority did not properly obligate $152,000 in Recovery Act grant
                    funds for eligible management improvement costs (see finding 1).

                   The Authority did not properly monitor its contractors for enforcement of
                    labor standards (see finding 2).




                                              13
                                      APPENDIXES

Appendix A

                  SCHEDULE OF QUESTIONED COSTS


                   Recommendation
                       number               Ineligible 1/      Unsupported 2/
                         1B                  $152,000
                         2A                                       $110,580

                          Total              $152,000             $110,580


1/   Ineligible costs are costs charged to a HUD-financed or HUD-insured program or activity
     that the auditor believes are not allowable by law; contract; or Federal, State, or local policies
     or regulations.

2/   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.




                                                14
Appendix B

        AUDITEE COMMENTS AND OIG’s EVALUATION

Ref to OIG Evaluation                            Auditee Comments


               
                     Springfield Metropolitan Housing Authority
                            101 West High Street       Phone: (937) 325‐7331  

                  SMHA      Springfield, Ohio 45502    FAX:    (937) 325‐3657         Email: spgfldhousing@smhaohio.org




              September 23, 2011


              Ms. Kelly Anderson
              Regional Inspector General for Audit-Region V
              Ralph H. Metcalf Federal Building
              77 West Jackson Blvd., Suite 2646
              Chicago, IL 60604

              RE:    Springfield Metropolitan Housing Authority OH021 – Draft Report
                     Response

              Dear Ms. Anderson:

              This letter is in response to the Draft Audit dated September 16, 2011 relating
              to your Department’s review of Springfield Metropolitan Housing Authority’s
              (SMHA) American Recovery and Reinvestment Act, Public and Indian
              Housing Capital Fund Stimulus (formula) grant.

              On behalf of SMHA’s Board of Commissioners and staff, we would like to
              thank you and your team, for the time and effort dedicated to this review. We
              appreciate the collaborative approach with which the report was prepared.

              We have reviewed the draft report in detail and agree that $152,000 in
              Recovery Act capital funds were improperly obligated for ineligible
              management improvement expenses.




                                                       15
Ref to OIG Evaluation                     Auditee Comments

              ARRA Grant Administration and Labor Monitoring, Finding #2

              The following is the response for Finding #2, Davis-Bacon Act. We
              respectfully disagree with the auditors findings in part or in whole. Our
              responses are included herein.

               Summary Comments: IN 2009 SMHA received an ARRA or Stimulus
               Grant in the approximate amount of $1,500,000. The funds were used
               primarily to fund the modernization or improvements to existing buildings.
               The PHA entered into four larger construction projects requiring labor
               monitoring. Three of the contracts totaled approximately $880,000 with the
               contract in question to Nesser Roofing in the amount of approximately
               $200,000. The only contract with labor issues was the Nesser Roofing
Comment 1      contract. During the OIG review it was discovered that Nesser Roofing was
               out of business, in receivership. According to SMHA contact with Nesser
               Roofing, all the records were destroyed in a fire. Access to Nesser payroll
               records would have afforded the OIG Auditor possibly the answer to his
               questions regarding the workers on the roofing project which were 100%
               subcontractors. No employees were employed on this project. At this time we
               are unable to secure any further documentation from the contractor. It should
               be noted that in the attached Pre-Construction Meeting outline and notes, the
               contractors were informed of the requirement to keep labor reports
               maintained for a period of three years. (In addition, Contractors were issued
               the HUD labor guidebook, “Contractor’s Guide to Davis-Bacon” at the Pre-
               Construction Meetings).

              PHA Labor Guidance changes in 2006:
              PHAs were informed in 2006 that less stringent oversight and paper recordings
              were to be required in the future. The PHA labor monitoring guidance, the
              2006 HUD issued “Streamlining of Davis-Bacon” reduced the required
Comment 2     number of onsite interviews and checking of the payrolls submitted. Please
              see the attached HUD guidance, “Making Davis-Bacon Work, A Practical
              Guide for States and Indian Tribes and Local Agencies”, pages 10 and 11,
              items #6 and #7.
              This includes Workers Compensation Certificate, as well as all subcontractors
              being covered under Nesser Roofing Certificate of Liability Insurance.




                                             16
Ref to OIG Evaluation                     Auditee Comments

              The following is our current and brief responses to the items listed in
                   finding #2:

                 Page 8, paragraph #1 last sentence: As a result,…..
                 Response: Nesser Roofing did not have any employees. Rather, Nesser
                 Roofing did subcontract the roofing labor work with subcontractors. Each
Comment 3        person working on the project was a subcontractor. SMHA required the
                 usual insurance requirements of all contractors working on our projects.
                 This includes Workers Compensation Certificate, as well as all
                 subcontractors being covered under Nesser Roofing Certificate of Liability
                 Insurance.

                 Page 8, last paragraph:
                 The internal memo or email noted by the OIG Auditor was our way to
Comment 4        advise the contractor of additional workers on the job and that the PHA
                 needed labor documentation of other subcontractors observed on the
                 project. The number noted was a general number.

                 Page 10, 2B.: As there were no indications of employees on the job, then
Comment 5        employee restitution is a non-issue. It is our understanding that PHAs are
                 not required to receive copies of subcontractors’ contracts, contract
                 adjustments, and or change orders. The payrolls examined indicated the
                 subcontractors were paid more than the minimum per the issued wage
                 decision. Listing the subcontractor’s name and the hours worked is all that
                 is required on the weekly payrolls for subcontractors. This was at the
                 direction and instruction at labor training conferences and calls to HUD for
                 clarification.

             PHA Action Plan for improving Labor Monitoring:
             During the next several months staff will be trained both internally and by
Comment 6    attending contract monitoring and Davis-Bacon labor seminars for better
             compliance and oversight of the projects. The labor monitoring duties have
             been or will be reassigned to PHA staff. Staff will include Director of
             Modernization, the Construction Manager and the Procurement Officer.




                                             17
Ref to OIG Evaluation                     Auditee Comments

                 In closing it is unreasonable that SMHA would be required to repay HUD
                 for any employee restitution:
                 1. The contractor is no longer in business and the contractor’s records are
                 unavailable.
Comment 7
                 2. Stating that $110,580 of a contract that totaled approximately $200,000
                 was mismanaged would indicate that 95% of the labor was fraudulent
                 which is not correct. Materials in most contracts usually equal 60% of the
                 total contract. If this finding stands SMHA will need more documentation
                 of how the $110,580 was arrived.
                 3. The owner received a product that conformed to the specifications and
                 was approved by the architect and the owner.

             We hope the FO and the OIG find that our comments and interpretations have
             merit and this finding can be removed from the OIG audit report. If you
             require additional information from us, please call (937) 325-7331, extension
             202 or 212.



             Sincerely,


               //signed//
             Anita M. Perrin
             Interim Executive Director



             CC: Johnetta Jaudon, SMHA Vice-Chair




                                            18
                        OIG’s Evaluation of Auditee Comments

Comment 1   HUD Handbook 1344.1 states that each agency is responsible to HUD for
            ensuring compliance with Federal labor standards requirements as follows:
            maintaining full documentation attesting to all administrative and enforcement
            activities with respect to Federal labor standards, such documentation to be made
            freely available for HUD review. Such documentation shall include all weekly
            payrolls, copies of wage determinations, on-site inspection reports and employee
            interviews, and any other records utilized in enforcement administration. In
            addition, the HUD guidebook requires local contracting agencies that administer
            HUD program to agree to administer and enforce Davis-Bacon requirements as a
            condition for receiving program assistance.

Comment 2   We agree that the HUD guidance streamlined procedures, policies, and paperwork
            in regards to Davis-Bacon. However, as mentioned in the guidance, the key labor
            objectives are to apply Davis-Bacon requirements properly, support contractor
            compliance with labor standards, monitor contractor performance, investigate
            probable violations and complaints of underpayments, and pursue debarment and
            other available sanctions against repeat labor standards violators.

Comment 3   Section 1606 of the Recovery Act requires the payment of Davis-Bacon Act (40
            U.S.C. (United States Code) 31) wage rates to “laborers and mechanics employed
            by contractors and subcontractors on projects funded directly by or assisted in
            whole or part by and through the Federal Government” pursuant to the Recovery
            Act.

Comment 4   We concede that the Authority identified additional workers observed on the work
            site. Its internal documentation specifically requested additional documentation
            from the contractor to support and ensure compliance with applicable
            requirements. However, the Authority was unable to provide documentation at
            the time of our review of the resolution. As previously mentioned, according to
            HUD’s requirements, the Authority should investigate all probable violations, and
            maintain full documentation of Federal labor standards administration and
            enforcement activities.

Comment 5   The Authority was unable to provide complete and accurate documentation to
            support its assertion that the payrolls it examined indicated the subcontractors
            were paid more than the minimum per the issued wage decision. HUD’s
            Contractor’s Guide to Prevailing Wage Requirements for Federally Assisted
            Construction Projects, section 2, requires an employee’s payroll records to contain
            the employee’s name, address, and Social Security number. Additionally, see
            comment 3.

Comment 6   We commend the Authority for taking necessary actions to ensure its staff
            receives training on Davis-Bacon.



                                            19
                        OIG’s Evaluation of Auditee Comments

Comment 7   HUD requirements established that authorities are responsible for the
            administration and the enforcement of labor standards in Federally-funded or
            assisted projects. Since the Authority did not adequately monitor its contractors
            for compliance with Davis-Bacon, it is the Authority’s responsibility to make
            employees whole. Therefore, the Authority should determine whether contractors
            are owed wage restitutions. At the time of our review, the Authority was unable
            to provide complete and accurate documentation to support its payment of wages
            to its contractors.




                                            20
Appendix C

                            FEDERAL REQUIREMENTS

Notice PIH 2009-12, issued March 18, 2009, states that management improvements cannot be
used for operations or rental assistance activities such as staff training, resident assistance, and
maintenance staff salaries unless they are applied to force account work on a capital project.

Frequently Asked Questions # 2, as of March 15, 2009. Eligible Use of Funds: Answer 14:
Recovery Act funds cannot be used to cover operational expenses.
Answer 17: A public housing authority’s ongoing operation expenses are ineligible management
improvements costs.

The Authority’s consolidated annual contributions contract, effective March 18, 2009, states that
this grant (Recovery Act) is conditioned on the acceptance of the Authority to comply with the
reporting requirements of the Recovery Act and the following requirements: The Authority must
obligate 100 percent of the grant within 1 year of the effective date. At the 1-year date, any
unobligated funds will be recaptured.

Section 1606 of the Recovery Act requires the payment of Davis-Bacon Act (40 U.S.C. (United
States Code) 31) wage rates to “laborers and mechanics employed by contractors and
subcontractors on projects funded directly by or assisted in whole or part by and through the
Federal Government” pursuant to the Recovery Act.

29 CFR 3.4(a) and (b); Submission of weekly statements and the preservation and inspection of
weekly payroll records.

   (a) Each weekly statement required under section 3.3 shall be delivered by the contractor or
       subcontractor, within seven days after the regular payment date of the payroll period, to a
       representative of a Federal or State agency in charge at the site of the building or work,
       or, if there is no representative of a Federal or State agency at the site of the building or
       work, the statement shall be mailed by the contractor or subcontractor, with such
       examination and check as may be made, such statement, or a copy thereof, shall be
       available, or shall be transmitted together with a report of any violations, in accordance
       with applicable procedures prescribed by the United States Department of Labor.
   (b) Each contractor or subcontractor shall preserve his weekly payroll records for a period of
       three years from date of completion of the contract. The payroll records shall set out
       accurately and completely the name and address of each laborer and mechanic, his
       correct classification, rate of pay, daily and weekly number of hours worked, deductions
       made, and actual wages paid. Such payroll records shall be made available at all times
       for inspection by the contracting officer or his authorized representatives of the
       Department of Labor.

HUD Handbook 1344.1, REV-1, chapter 9, section 2, states that detailed reports of each labor
standards compliance review will be prepared covering labor standards enforcement staffing,

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project inspection activities, weekly payroll review, complaint responsiveness, preconstruction
conferences, violations resolution, and records maintenance. Such reports will be made available
to the headquarters Office of Labor Relations upon request. All findings resulting from
compliance reviews must be closed, and documentation to that effect must be maintained in
compliance review files.

Chapter 3, paragraph 3-3, of the handbook states that payrolls must be retained for 3 years by the
public housing agency, Indian housing authority, local or State housing and community
development agency, coinsuring lender, or HUD, whichever is applicable, following completion
of the project and then may be destroyed unless an investigation, disputed compliance action, or
appeal remains outstanding. Clearance shall be obtained from HUD field office labor relations
staff before such destruction. Contractors and subcontractors must retain their basic payroll
records (payroll register, individual earning cards, etc.) for the same 3-year period.

24 CFR 85.36 requires grantees and subgrantees to meet the following standards:

(1) Reflect State and local laws and regulations provided the procurements conform to applicable
Federal law.
(2) Maintain a contract administration system to ensure that contractors perform in accordance
with the terms, conditions, and specifications in their contracts or purchase orders.
(3) Maintain a written code of standards of conduct for its employees engaged in the award and
administration of contracts including a conflict of interest, real or apparent.
(4) Provide for a review of proposed procurements to avoid the purchase of duplicate or
unnecessary items.

HUD guidebook, Making Davis-Bacon Work, A Practical Guide for States, Indian Tribes, and
Local Agencies, June 2006, states Key Labor Standards Objectives:
1. Apply Davis-Bacon requirements properly. Make certain that labor standards, including
   Davis-Bacon prevailing wage rates, are applied where required. Ensure that any exceptions
   or exceptions are identified.
2. Through education and advice, support contractor compliance with labor standards. Provide
   basic training and technical support to contractors to ensure they understand their obligations
   under prevailing wage reporting requirements.
3. Monitor contractor performance. Perform reviews of certified payroll submissions and other
   information to help ensure contractor compliance with labor standards provisions and the
   payment of prevailing wages to workers.
4. Investigate probable violations and complaints of underpayment. Thoroughly explore any
   evidence of violations, especially allegations of underpayment.
5. Pursue debarment and other available sanctions against repeat labor standards violators.
   Carry-out a no-tolerance policy toward contractors who violate prevailing wage laws.




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