Issue Date
September 30, 2011
Audit Report Number
2011-CH-1018
TO:
Willie Garrett, Director, Office of Public Housing Hub, 5FPH
//signed//
FROM: Kelly Anderson, Regional Inspector General for Audit, 5AGA
SUBJECT: The Pontiac Housing Commission, Pontiac, MI, Did Not Adequately Administer
Its American Recovery and Reinvestment Act Capital Fund Grant
HIGHLIGHTS
What We Audited and Why
We audited the Pontiac Housing Commission’s Public Housing Capital Fund
Stimulus (formula) Recovery Act Funded grant. The audit was part of the
activities in our fiscal year 2010 annual audit plan. We selected the Commission
for review as part of the Office of Inspector’s General’s commitment to ensure the
proper use of Recovery Act funds. Our objective was to determine whether the
Commission properly obligated and expended its formula grant and related
procurements complied with U.S. Department of Housing and Urban
Development (HUD) and Recovery Act requirements.
What We Found
The Commission’s Recovery Act obligations and expenses were not properly
supported, and its related procurements did not comply with HUD’s and its own
requirements. Specifically, the Commission did not (1) ensure that its contractors
complied with the Davis-Bacon Act, (2) comply with Federal and its contract
administration requirements, and (3) properly administer and account for vacant
unit turnovers by its force account.
1
Further, the Commission created a conflict-of-interest relationship when it
awarded a carpet installation contract to an employee. This condition occurred
because the Commission lacked adequate procedures and controls to ensure that it
complied with HUD’s and its own procurement and contract administration
requirements. As a result, the Commission used more than $148,000 in Recovery
Act grant funds contrary to its annual contributions contract with HUD and its
own procurement requirements, and HUD lacked assurance that the Commission
effectively managed its grant.
What We Recommend
We recommend that the Director of HUD’s Detroit Office of Public Housing
require the Commission to obtain certified weekly payrolls from the 8 contractors
identified and determine whether the contractors paid the correct wage rates to
their employees. If the contractors failed to pay the correct wages owed to their
employees, the Commission should pay wage restitution to these employees.
HUD should also require the Commission to (1) pay wage restitution of $4,357 to
its two contractors’ employees and submit proof that the employees received the
wage restitution, (2) develop written procedures for the enforcement of labor
standards to ensure compliance with its own requirements regarding the
enforcement of labor standards, (3) maintain a system of contract administration
to ensure that its contractors perform in accordance with their contracts, (4) obtain
missing contract administration documents and retain them in the contract files,
(5) pay wage restitution of $66,210 to its force account staff and provide proof
that the payments were made, (6) identify the specific units assigned to each
maintenance staff member for phase II unit turnover work and to the contractor
for phase III unit turnover work and provide support, and (7) reimburse HUD
$38,027 from non-Federal funds for transmission to the U.S. Treasury for the
inappropriate use of grant funds.
We also recommend that the Director of HUD’s Detroit Office of Public Housing
(1) prohibit the use of force account labor for any future unit turnover work until
the Commission can demonstrate that it has the capacity to perform the work (2)
follow established procedures for addressing public housing authorities
designated as substandard physical, including but not limited to, amending the
Commission’s existing memorandum of agreement with HUD to incorporate the
recommendations cited in this audit report, and (3) recapture all funds that the
Commission obligated for unit turnovers by its force account. This amount
includes the work item for cycle painting and carpet removal work by its force
account for $24,149, the $15,933 of improper obligations due to the
Commission’s conflict-of-interest relationship that has not been spent and repairs
to its sidewalk, driveway, and brickwork for transmission to the U.S Treasury.
For each recommendation in the body of the report without a management
decision, please respond and provide status reports in accordance with HUD
2
Handbook 2000.06, REV-3. Also, please furnish us copies of any correspondence
or directives issued because of the audit.
Auditee’s Response
We provided our discussion draft audit report to the Commission’s executive
director, its board president, and HUD’s staff during the audit. We asked the
Commission’s executive director to provide comments to our discussion draft
report by September 30, 2011.
The Commission’s executive director provided written comments, dated
September 28, 2011, that generally agreed with our findings and
recommendations. We held an exit conference with the Commission on
September 27, 2011. The complete text of the auditee’s response, except for the
10 pages of documentation that was not necessary for understanding the director’s
comments along with our evaluation of that response, can be found in appendix B
of this audit report. We provided the Director of HUD’s Detroit Office of Public
Housing with a complete copy of the Commission’s written comments plus the 10
pages of documentation.
3
TABLE OF CONTENTS
Background and Objective 5
Results of Audit
Finding 1: The Commission Did Not Ensure That Its Contractors Complied
With the Davis-Bacon Act 8
Finding 2: The Commission Did Not Comply With HUD’s and Its Own
Contract Administration Requirements 12
Finding 3: The Commission Did Not Properly Administer and Account for
Vacant Unit Turnovers Performed by Its Force Account 17
Scope and Methodology 21
Internal Controls 23
Appendixes
A. Schedule of Questioned Costs 25
B. Auditee Comments and OIG’s Evaluation 26
C. Federal and Commission Requirements 28
4
BACKGROUND AND OBJECTIVE
The Pontiac Housing Commission, which was established in 1950, administers Federal- and
State-funded rental assistance programs for low-income families, the elderly, and disabled
persons in the Pontiac, Oakland County, MI, area. The Commission also administers the Section
8 Housing Choice Voucher program and various home ownership and resident service programs,
providing assistance to more than 1,100 families under the State of Michigan Public Housing Act
of 1933.
As of August 18, 2010, the U.S. Department of Housing and Urban Development (HUD) had
contracted with the Commission to administer 452 public housing units in three developments
and administer a Section 8 Housing Choice Voucher program for up to 770 units for low- and
moderate-income families. The Commission’s board of commissioners is appointed by the
mayor. The commissioners govern the Commission and delegate direct responsibility for the
administration of the Commission’s day-to-day operations to its executive director. The books
and records of the Commission are located at 132 Franklin Boulevard, Pontiac, MI.
The Commission annually receives capital funds administered by HUD’s Office of Public and
Indian Housing. Capital funds may be used for development, financing, and modernization of
public housing developments and for management improvements. The Quality Housing and
Responsibility Act of 1998 converted HUD’s Comprehensive Grant and Comprehensive
Housing Assistance programs to the Public Housing Capital Fund program.
On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009, which included $4 billion in capital funds to carry out activities of HUD programs, as
authorized under Section 9 of the United States Housing Act of 1937. The Act required that $3
billion of these funds be distributed as Public Housing Capital Fund Stimulus (formula)
Recovery Act Funded grants and the remainder be distributed through a competitive grant
process.
On March 18, 2009, HUD executed an amendment to the Commission’s annual contributions
contract to provide $663,116 in Public Housing Capital Fund Stimulus (formula) Recovery Act
Funded grant for the following:
5
Cost category Amount
Management improvements $30,1161
Administration $66,312
Fees and costs $11,205
Site improvement $34,117
Dwelling structures $509,876
Dwelling equipment-
Nonexpendable $8,126
Nondwelling structures $3,365
Total $663,116
The Recovery Act required public housing authorities to obligate 100 percent of the funds within
1 year of the date on which the funds became available to the agency for obligation and expend
60 percent within 2 years and 100 percent within 3 years of such date. The Commission
obligated its funds in a timely manner and had expended $539,850 of the funds as of August 31,
2010. Therefore, the Commission also met the 60 percent expenditure time requirements. Any
funds that are unexpended by the 3-year date of March 17, 2012, will be recaptured.
Obligation and expenditures Due date
100 percent obligation March 17, 2010
60 percent expended March 17, 2011
100 percent expended March 17, 2012
Further, the Recovery Act required the Commission to report quarterly regarding the use of
Recovery Act funding and the number of jobs created in accordance with guidance issued by the
Office of Management and Budget (OMB). Section 1512 of the Recovery Act requires
recipients and subrecipients to report on the nature of projects undertaken with Recovery Act
funds and the number of jobs created and retained. This information must be submitted to
FederalReporting.gov, a system created and managed by OMB and the Recovery Accountability
and Transparency Board. Once data have been submitted to FederalReporting.gov and reviewed
by the funding or awarding agency, the reports are made available to the public via the
Recovery.gov Web site. The Commission complied with this provision and reported quarterly
during our audit period.
1
In May 2010, the Detroit Public Housing Office completed a review of the Commission’s obligations and
determined that it inappropriately obligated the $30,116 of management improvement costs to its force account to
perform security monitoring. HUD required the Commission to repay the inappropriate obligation from non-federal
funds.
6
In 2008, HUD designated the Commission as substandard physical based on poor physical
inspection reports on its two housing projects, Woodland Heights and Carriage Circle. As a
result, the Commission was put on a zero threshold for all Recovery Act obligations. HUD also
executed a memorandum of agreement (agreement) with the Commission dated June 2, 2009 to
address its deficiencies. The Commission completed the agreement in June 2010. However, in
2010, the Commission was again designated as substandard physical based on its poor physical
inspection reports. In December 2010, the Commission’s agreement was renewed and expires
on December 31, 2011.
Our objective was to determine whether the Commission administered its grant in accordance
with Recovery Act and HUD requirements.
7
RESULTS OF AUDIT
Finding 1: The Commission Did Not Ensure That Its Contractors
Complied With the Davis-Bacon Act
The Commission did not ensure that its contractors complied with the Davis-Bacon Act. It was
unable to provide sufficient and complete payroll documentation for 8 contractors, and 2
contractors’ employees were not paid the appropriate Federal prevailing wage rates. This
condition occurred because the Commission lacked adequate procedures and controls to ensure
that it properly monitored its contractors for compliance with the Davis-Bacon Act. As a result,
HUD and the Commission lacked assurance that the eight contracts paid their employees the
appropriate Federal prevailing wage rates, and two contractors’ employees were underpaid by
more than $4,300 for construction work funded under the Recovery Act.
The Commission Did Not
Ensure That Its Contractors
Complied With the Davis-
Bacon Act
The Commission used its Recovery Act capital funds to award 14 construction
contracts totaling more than $458,000 for the following services:
No. Recovery Act-funded contract Amount
1 Upgrade elevator mechanicals $151,584
2 Replace and rekey unit door locks 9,023
3 Replace hot water pumps & shutoff valves 55,280
4 Roof repair 2,500
5 Repair sidewalks, driveway, and brickwork 21,351
6 Tile 1st and 5th floors at Carriage Circle 23,123
7 Replace rooftop heaters at highrises, C wing 10,000
8 Access control system 19,331
9 Security system upgrades 32,249
10 Elevator refurbishment interior 51,831
11 Carpet and tile installation for unit turnovers 21,404
12 Unit turnover work - phase I 23,013
13 Unit turnover work - phase III 28,861
14 Install fencing at Carriage Circle 9,200
Total $458,750
However, the Commission did not ensure that its contractors complied with the
Davis-Bacon Act. It was unable to provide sufficient and complete payroll
documentation for 11 of the 14 Recovery Act-funded contracts, which represented
8 of the 11 contractors, to ensure that its contractors paid employees the
appropriate prevailing wage rates in accordance with the Act. HUD Handbook
1344.1, REV-1, requires public housing agencies to monitor enforcement of labor
8
standards for the payment of prevailing wage rates in all construction contracts
over $2,000 involving Federal funds. The amounts awarded for the contracts
ranged from $2,500 to more than $151,000.
For the remaining three contracts, two contractors did not pay their employees the
appropriate Federal labor standards prevailing wage rates as follows:
For its contract to replace hot water pumps and shutoff valves at two of its
highrise buildings, the Commission incorrectly used the U.S. Department of
Labor’s residential wage decision instead of the heavy construction wage
decision for Oakland County. According to the U.S. Department of Labor, the
residential construction wage decision applies to single-family housing and
multifamily housing up to four stories. However, both of the Commission’s
highrise buildings had more than four stories. Therefore, the appropriate
wage decision classification should have been the heavy construction
classification, and the correct wage rate was $54.81 per hour, including fringe
benefits, a difference of $13.48 per hour from the residential construction
wage rates.
We determined from the contractor’s weekly payroll records provided for the
weeks ending October 2, October 9, October 16, and October 30, 2009, that
two employees worked a total of 112 hours each for a combined total of 224
hours. Therefore, both employees were owed restitution of $1,510 (112 hours
* $13.48 per hour) for a total of $3,020.
For its fencing contract, the Commission obtained and received certified
weekly payroll documentation from its contractor during our review. In
reviewing the contractor’s payroll documentation, we determined that it paid
three employees for 20 hours of work at the rates of $11 per hour, $13 per
hour, and $15.50 per hour, respectively, not considering overtime pay. The
Commission or the contractor was unable to provide documentation to
identify the appropriate classification for the fence installers to determine if
the contractors’ employees were paid the appropriate Federal prevailing wage
rates. Therefore, based on documentation provided by HUD’s Detroit Office
of Labor Relations, we determined that the appropriate classification for a
fence installer was “construction laborer.” According to the U.S. Department
of Labor the appropriate wage rate for a construction laborer was $20.09 per
hour plus the fringe benefits rate per hour of $13.17 for a total of $33.26 per
hour.
Using the contractor’s payroll documentation, we determined that its three
employees worked 20 hours each over 2 days, which included 4 overtime
hours per worker, for a total of 60 hours. The employees should have been
paid $731.72 for the 20 hours each employee worked. Therefore, total wage
restitution was calculated as $1,337.
9
Conclusion
The Commission did not adequately monitor contractors for the enforcement of
labor standards. This condition occurred because the Commission lacked
adequate procedures and controls to ensure that it properly monitored its
contractors for compliance with the Davis-Bacon Act. The Commission’s
financial reporting manager was not aware of his responsibilities in regard to the
enforcement of labor standards. The Commission required each contractor to sign
a two-page document, entitled “HUD Economic Stimulus Funding Contracting
Requirements,” in addition to its executed contracts. The document clearly stated
that the contractors were responsible for the payment of prevailing wage rates to
all laborers and mechanics on Federal Government construction contracts over
$2,000. As an aid to the contractor, the Commission specified the applicable
wage determination for the contract and the applicable trades and wage rates.
However, as mentioned previously, for one contractor, the Commission provided
the inappropriate wage determination. As a result, HUD and the Commission
lacked assurance that the eight contractors paid their employees the appropriate
Federal prevailing wage rates, and two contractors’ employees were underpaid by
more than $4,300 for construction work funded under the Recovery Act.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public Housing
require the Commission to
1A. Obtain certified weekly payrolls from the 8 contractors identified in this
finding and determine whether the contractors paid the correct wage rates
to their employees. If the contractors failed to pay the correct wages owed
to their employees, the Commission should pay the wage restitution to
those employees. The Commission should provide documentation
indicating payment of the employee wage restitution to HUD’s Detroit
Office of Labor Relations for review and approval.
1B. Pay $4,357 in wage restitution to the two contractors identified in this
finding and submit proof that the employees received the restitution to
HUD’s Detroit Office of Labor Relations for review.
1C. Develop written procedures for the enforcement of labor standards to
ensure compliance with HUD’s labor standards enforcement requirements
and its own procurement requirements.
10
1D. Provide training on HUD’s requirements regarding labor standards
enforcement to all of its employees that are involved in the process.
11
Finding 2: The Commission Did Not Comply With HUD’s and Its Own
Contract Administration Requirements
The Commission failed to comply with Federal requirements and its own contract administration
requirements. Specifically, it did not maintain a system of contract administration, and its
contract files did not contain (1) necessary justifications and approvals for change orders or the
payment of preagreement costs and (2) documentation to support that it performed progress
inspections of construction projects. Further, the Commission did not ensure that contractors
completed contracted work in a timely manner. The problems occurred because the Commission
lacked adequate procedures and controls for administering contracts and designating
responsibilities among its staff to ensure that contractors performed in accordance with their
contracts. As a result, HUD and the Commission lacked assurance that the Commission properly
expended its Recovery Act capital grant funds.
The Commission Did Not Comply
With HUD’s and Its Own Contract
Administration Requirements
The Commission did not maintain a system of contract administration as required
by HUD and its own policies. In reviewing all 14 of the Commission’s Recovery
Act-funded contracts and related procurement files, we determined that the
Commission did not
Issue notices to proceed before the work began for 13 of its 14 contracts;
Maintain contractors’ requests for final inspections and documentation of
its final inspections before the final payments were made to the
contractors;
Receive required certified weekly payrolls from the awarded contractors
for 11 of its contracts (see finding 1);
Ensure that an adequate notarized certificate and release was received
from each construction contractor and subcontractor to ensure that the
work was in full compliance with the construction contract documentation
and that all materials, supplies, and equipment had been paid in full by the
contractors for all 14 of its contracts; and
Ensure that it obtained warranties from manufacturers and contractors on
equipment and systems, warranty inspections were performed during the
warranty period, and any defects relating to manufacturer or contractor
warranties were promptly reported to the contractors, in writing, before the
warranty period expired.
12
The Commission Did Not Ensure
That Its Contract Files Contained
Adequate Documentation
The Commission’s contract files did not contain necessary justifications for
change orders, evidence that the Commission performed progress inspections in
accordance with HUD’s requirements, or required approval from HUD for using
Recovery Act capital funds for preagreement costs. Specifically, the
Commission’s contract for unit turnovers, which was originally for cycle painting
of the Commission’s 30 vacant and occupied units, did not identify the specific 30
units for the scope of work. Also, the Commission’s contract files did not contain
written correspondence to the contractor that identified the specific 30 units. On
February 22, 2010, the Commission amended the contract to include unit turnover
renovations for three housing units plus tub liner repairs and the removal of debris
in another five housing units. However, the specific units for tub liner repairs and
debris removal were not identified in the Commission’s contract files. The costs
of these additions totaled more than $7,900, thus increasing the total for its unit
turnovers contract from $20,950 to $28,861 (see finding 1). The Commission did
not perform an independent cost estimate to determine the reasonableness of the
change order amount.
The Commission was unable to provide us a list of the phase III units that
received painting and tub liner repairs until we inquired about the specific units
where the contract work was performed. We performed an onsite walk-through
inspection in September 2010 and determined that the Commission substituted
one housing unit for another in the contract change order. Also, the
Commission’s contract files did not document any progress inspections to justify
the contractor’s first invoice, dated March 16, 2010, for $14,430 and the final
invoice, dated April 13, 2010, for $14,430. The contractor identified the same
contract renovation work on 2 units plus an unspecified location of painting of
hallways in 10 units on both invoices. Further, the contractor’s two invoices did
not show that the original scope of work (painting 30 units) and the change order
work for renovation work on the third unit had been completed. We did not
locate documentation in the Commission’s contract file to explain these
discrepancies.
For the Commission’s tile replacement contract, the contract file did not contain
documentation to determine whether the Commission performed progress
inspections to justify the contractor’s first invoice, dated September 1, 2009, for
$11,380 and the second and final invoice, dated October 27, 2009, for $11,743.
When we conducted a walk-through inspection in September 2010, the
Commission’s property management coordinator and financial reporting manager
disclosed that the Commission allowed a change in the work location in one of its
housing units. Initially, the scope of work was to replace tile for housing units on
the second and fifth floors; however, the first floor was substituted for the second
floor. This change was not documented in the Commission’s contract file.
Additionally, we interviewed a representative of the contractor who confirmed
13
that the change was made and verified that the contract file contained no record of
this change. Additionally, the contractor did not report the change on the two
invoices that it submitted to the Commission for payment.
For the Commission’s contract to perform elevator upgrades, the amount of the
awarded contract was $41,584 more than the original bid proposal of $110,000 for
the replacement of elevator door operators for eight elevators. The difference of
$41,584 was added to the contract to cover unforeseen and outstanding elevator
repairs not covered by the Commission’s maintenance service agreement.
Therefore, the contract increased to $151,584 ($110,000 + $41,584) (see finding
1). The $41,584 included outstanding repairs before and after the contract was
executed.
The Commission was unable to provide documentation to determine whether
HUD approved this increase. Additionally, there was no correspondence in the
Commission’s contract file indicating a change order for the additional $41,584.
According to OMB Circular A-87, any preagreement costs require HUD’s written
approval. Of the $41,584 in outstanding repairs, HUD identified three invoices
for repairs totaling $19,341 that were incurred before the contract date of April
20, 2009. HUD’s Detroit Office of Public Housing also identified this issue in its
Recovery Act monitoring report, dated December 10, 2010, and referred this issue
to HUD headquarters for a final determination on eligibility. As of September 6,
2011, HUD had determined that the $41,584 was ineligible.
The Commission Did Not
Ensure That Contractors
Performed in a Timely Manner
For three contracts, the Commission did not ensure the contractors performed the
work specified in their contracts in a timely manner. Additionally, the
Commission’s contract files did not contain documentation to determine whether
the contractors requested extensions to the completion dates identified in their
contracts and whether the Commission approved the extended timeframes. In
reviewing the Commission’s contract files for these three contracts, we
determined the following:
The Commission executed a contract on September 21, 2009, in the amount of
$11,205 for a physical needs assessment as required by its amended annual
contributions contract with HUD. The contractor’s preliminary report was
supposed to be completed in 30 days. However the Commission did not receive
the physical needs assessment report until February 2011. The Commission used
its Recovery Act funds to pay for the assessment. However, HUD advised public
housing authorities not to budget any Recovery Act funds for physical needs
assessments.2
2
July 24, 2009, Frequently Asked Questions on HUD’s Office of Capital Improvements Web site.
14
The Commission executed a contract on January 29, 2010 in the amount of
$21,351, for sidewalk and driveway repairs and brickwork. According to the
contract, the contracted work was supposed to be completed in 2 months. The
Commission made two payments to the contractor totaling $17,500.
However, as of March 10, 2011, the work had not been completed.
The Commission executed a contract on February 25, 2010, for carpet and tile
installation for 32 efficiency and 24 1-bedroom units. The amount of the
contract was $21,404, and the term was 4 months. The contractor submitted
one invoice in the amount of $9,322 for contract work on 18 units only in July
2010. No other payments had been made on this contract (see finding 3).
Conclusion
The Commission failed to comply with Federal requirements and its own contract
administration procedures. The problems occurred because the Commission
lacked adequate procedures and controls for administering contracts and
designating responsibilities among its staff to ensure that contractors performed in
accordance with their contracts. As a result, HUD and the Commission lacked
assurance that the Commission properly expended its Recovery Act capital funds.
Recommendations
We recommend that the Director of HUD’s Detroit Office of Public Housing
require the Commission to
2A. Develop written procurement procedures to ensure that contracts include a
statement of work that includes the scope and location of the work to be
performed.
2B. Maintain a system of contract administration to ensure that contractors
perform in accordance with their contracts. These systems should include
but not limited to policies and procedures for obtaining certified weekly
payrolls; inspecting supplies, services, or construction work; obtaining a
notarized certificate and release from each construction contractor and
subcontractor; and obtaining warranties from manufacturers and
contractors on equipment and systems.
2C. Obtain missing contract administration documents and retain them in the
contract files in an organized manner.
15
2D. Implement adequate procedures and controls to ensure that it complies
with HUD’s requirements. These procedures and controls would include
the development and training of its staff on HUD and Federal contract
administration requirements.
2E. Reimburse HUD $17,500 from non-Federal funds for contract work
involving repairs to the Commission’s sidewalks and driveways and
brickwork that were not completed for HUD to recapture and transmit to
the U.S. Treasury.
2F. Reimburse HUD $11,205 for the physical needs assessment paid with its
Recovery Act funds for HUD to recapture and transmit to the U.S.
Treasury. However, the Commission could pay for the activity with its
2010 capital funds.
We also recommend that the Director of Public Housing, Detroit Office to
2G. Recapture the remaining $3,851 that the Commission obligated but had
not expended for repairs to its sidewalk, driveway, and brickwork for
transmission to the U.S Treasury.
2H. Follow established procedures for addressing public housing authorities
designated as substandard physical, including but not limited to amending
the Commission’s existing memorandum of agreement with HUD to
incorporate the recommendations cited in this audit report.
16
Finding 3: The Commission Did Not Properly Administer and Account for Vacant
Unit Turnovers Performed by Its Force Account
The Commission did not properly administer and account for vacant unit turnovers by its force
account. It was unable to (1) provide adequate documentation to support more than $55,000
spent on force account unit turnovers and (2) ensure that it paid its force account staff the
appropriate Federal prevailing wage rates under the Davis-Bacon Act. This condition occurred
because the Commission lacked adequate procedures and controls to ensure that it applied
Federal prevailing wage rates to its force labor account for vacant unit turnovers and did not
comply with HUD’s and its own procurement requirements. Further, the executive director was
unaware that Federal prevailing wage rates applied to force account labor. As a result, HUD
could not be assured that the Commission properly expended its Recovery Act funds.
HUD Allowed the Commission To
Use Its Force Account for Unit
Turnover Work Using Recovery
Act Funds
HUD’s Detroit Office of Public Housing approved the Commission to use its
maintenance staff to obligate more than $24,000 in June 2009 for cycle painting
and carpet removal work for vacant and occupied units. However, the
Commission did not identify the units involved in the scope of work.
In January 2010, the Commission was again allowed to use its force account for
other unit turnover work, which consisted of cleaning, pest control, carpet
removal, wall preparation, painting, stripping and waxing floors, and carpet
installation. Therefore, it obligated more than $55,000 for its force account to
prepare 34 efficiency and 1-bedroom units for occupancy. However, the
Commission did not disclose to HUD in its cost proposal to use force account
labor that it did not have the expertise for carpet installation work.
According to HUD regulations at 24 CFR (Code of Federal Regulations) 968.120,
a public housing agency may undertake activities using force account labor only
when specifically approved by HUD, except that no prior HUD approval is
required when the public housing agency is designated as both an overall high
performer and moderate high performer under HUD’s Public Housing
Management Assessment Program.
The Commission Could Not
Support Force Account Labor
for Unit Turnover Work
17
In February 2010, HUD’s Office of Labor Relations performed a review of the
Commission’s use of its labor force account for vacant unit turnovers during fiscal
year 2009. The Commission provided supporting payroll records, wage
restitution calculation worksheets, and a printout of all maintenance work orders
generated during 2009 to support the wages paid for its force account housing unit
turnovers. When we reviewed the Commission’s supporting payroll records that
it provided to HUD’s Office of Labor Relations, we determined that the
documentation was not sufficient. In particular, the documentation only identified
that 19 units were completed by its force account instead of the 34 units that were
identified in the scope of work. Further, six of the housing units that were
identified as being turned over by its force account, were also identified in the
scope of work for one of the Commission’s contractors.
Additionally, the printout of the maintenance work orders for the 19 units was
based on estimates provided in the Commission’s proposal to HUD for the use of
its force account labor to perform unit turnovers instead of actual maintenance
work orders to properly account for actual force account labor and material costs.
In addition, the maintenance employees usually reported the location of unit
turnover work on biweekly timesheets. Therefore, in reviewing these timesheets,
we noted that the Commission’s force account performed unit turnovers on
additional housing units and during timeframes not previously disclosed to
HUD’s Office of Labor Relations. Since the completed maintenance work orders
were based on time estimates only, we recalculated the wage restitution owed to
each employee based on the actual hours shown on the employees’ timesheets
when unit turnover work was reported. This analysis identified a total of $66,210
in wage restitution owed to six maintenance employees.
The Commission Created a
Conflict-of-Interest
Relationship
The Commission created a conflict-of-interest relationship when it awarded a
$21,404 contract to one of its maintenance employees to perform carpet
installation services for its housing units in February 2010. The maintenance
employee had a carpentry business; however, instead of properly procuring carpet
installation services, the Commission hired the person as a full-time employee.
According to the Commission’s finance director, the Commission hired the carpet
installer as a maintenance employee in July 2009 so it could pay him in a timely
manner due to the delay in obtaining Recovery Act funds from HUD. As of
August 10, 2010, $9,322 in Recovery funds had been expended under this
contract.
18
HUD Performed a Year II
Recovery Act Expenditure
Review of the Commission’s
Recovery Act Grant
While we were conducting our review, HUD’s Detroit Office of Public Housing
Division selected the Commission for a comprehensive review of its
administration of the Recovery Act program in November 2010 and issued a
monitoring report on December 10, 2010, that identified similar issues with the
Commission’s administration of its Recovery Act grant. The monitoring report
initially identified 23 issues involving questioned and unsupported costs and wage
underpayments for the Commission’s force account and contract unit turnover
costs. The Commission’s response to the monitoring report, dated December 22,
2010, resolved 2 of the 23 reported issues; however, 21 were still outstanding.
Conclusion
The Commission did not properly administer and account for vacant unit
turnovers by its force account as required by HUD. This condition occurred
because the Commission’s executive director failed to obtain an understanding of
financial management standard requirements for documenting force account unit
turnover costs and disregarded HUD’s and its own procurement requirements.
Additionally, he was unaware of the applicability of the Davis-Bacon Act for
force account labor until February 2010 during a HUD monitoring visit.
Therefore, the two proposals submitted to HUD to use force account labor did not
include all unit turnover costs. As a result, HUD could not be assured that the
Commission properly expended its Recovery Act funds.
Additionally, due to the Commission’s misinterpretation of Federal requirements,
it elected not to complete the vacant unit turnovers using its force account.
Consequently, the Commission suspended the use of $24,149 of its Recovery Act
funds that was allocated for its force account.
Recommendations
We recommend that the Director of Public Housing, Detroit Office, require the
Commission to
3A. Reimburse wage restitution of $66,210 to its force account staff and
provide proof that the payments were made to HUD’s Office of Labor
Relations.
19
3B. Identify the specific units assigned to each maintenance staff member for
phase II unit turnover work and to the contractor for phase III unit
turnover work and provide support to show when each unit was assigned,
what work was to be done, who worked in the units, and when the work
was performed, showing the days and hours spent in each unit until it was
approved as completed. If the Commission cannot provide satisfactory
records to support unit turnover costs and that duplicate unit turnover
work was not performed, HUD should require that these costs be returned
to HUD.
3C. Reimburse HUD $9,322 from non-Federal funds, due to the conflict-of-
interest relationship, for transmission to the U.S. Treasury for the
inappropriate use of grant funds.
3D. Implement adequate procedures and controls to ensure that the
Commission complies with HUD’s requirements and its policies regarding
conflict of interest.
We also recommend that the Director of Public Housing, Detroit Office, to
3E. Prohibit the use of force account labor for any future unit turnover work
until it can prove to HUD that it has the capacity to perform this work.
3F. Recapture all funds that the Commission obligated for unit turnovers by its
force account for transmission to the U.S. Treasury. This amount includes
the work item for cycle painting and carpet removal work by its force
account for $24,149 and $12,082 that was inappropriately obligated due to
the Commission’s conflict-of-interest relationship that has not been spent.
20
SCOPE AND METHODOLOGY
We performed our onsite audit work at the Commission’s administrative office located at 132
Franklin Boulevard, Pontiac, MI, between September 2010 and January 2011. The audit covered
the period March 18, 2009, through August 31, 2010. The audit period was extended as
necessary.
To accomplish our objectives, we reviewed
The Commission’s contract with HUD; the Recovery Act grant agreement; HUD’s
program requirements at 24 CFR Parts 85, 903, and 968; OMB Circular A-87; HUD
Handbook 7460.8, REV-2; HUD Handbook 1344.1, REV, CHG-1; HUD’s Office of
Public and Indian Housing Notice PIH 2009-12; and applicable laws and regulations.
The Commission’s financial and accounting records; audited annual financial statements
for fiscal years 2008 and 2009; detailed general ledger for the period March 2009 through
August 2010; Line of Credit Control System fund drawdown records; bank statements;
journal vouchers; organizational charts; operating budgets; by-laws; board meeting
minutes; annual public housing agency plans for 2008 through 2010; and annual
statements for the Recovery Act and Capital Fund program years 2007, 2008, and 2009.
The Commission’s maintenance work orders and reports listing all completed
maintenance work orders for the period March 2009 to August 2010 and maintenance
employee payroll timesheets, payroll vouchers, and pay stubs for 2009 for unit turnover
work.
The Commission’s procurement policy, procurement records (bid solicitations, bid
proposals, independent cost estimates, contract awards, and contract correspondence),
invoice payments, and labor standards enforcement records (weekly payroll records,
wage determinations from the U.S. Department of Labor, and employee interview
records).
To select our audit sample, we obtained reports from HUD’s Line of Credit Control System to
identify the amount of each request submitted by the Commission during the audited period.
Each submission represented a drawdown request from the Commission against the specified
year’s Capital Fund grant. We also obtained the expenditure submission for approval requests
for each drawdown request from the Commission. We compiled the amounts of the Capital
Fund program expenditure requests for the audit period, March 18, 2009, through July 31, 2010,
as of August 31, 2010. During this period, the Commission submitted 12 expenditure
submission requests for 53 invoices totaling more than $550,000 and received disbursements for
11 drawdown requests for 52 invoices totaling more than $539,000. For our audit sample, we
selected every fifth invoice for review totaling 10 of the 52 invoices.
21
We analyzed the data and concluded that the data were sufficiently reliable for our purposes of
sample selection. We reviewed whether each selection was supported by proper documentation
and whether each selection was an allowable expense under the grant.
We also interviewed the Commission’s current employees, HUD staff, and a representative from
three contractors. We conducted onsite observations of six selected construction contracts
funded by the Recovery Act at the Carriage Circle and Woodland Heights housing developments
to observe the progress of work.
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(s). We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
22
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 information, 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 controls – Policies and procedures that the audited
entity has implemented to ensure that payments are properly authorized and
that the entity receives the goods and services it has paid for.
Compliance with applicable laws and regulations – Controls that the
audited entity has implemented in its policies and procedures 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.
23
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
The Commission did not ensure that its contractors complied with the
Davis Bacon Act (see finding 1).
The Commission failed to comply with HUD’s and its own contract
administration requirements (see finding 2).
The Commission did not properly administer and account for vacant unit
turnover work by its force account (see finding 3).
24
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation
number Ineligible 1/
1B $4,357
2E 17,500
2F 11,205
2G 3,851
3A 66,210
3C 9,322
3F 36,231
Totals $148,676
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.
25
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
”POINTING TOWARDS PROGRESS” Pontiac Housing Commission
132 Franklin Boulevard
(248) 338-4551
Fax (248) 338-7996
September 28, 2011
Mr. Anthony Smith-Assistant Regional Inspector General for Audit
Detroit Office of Inspector General
Patrick V. McNamara Federal Building
477 Michigan Avenue, Room 1780
Detroit, MI 48226-2592
RE: Exit Conference Briefing AARA Program Final Audit Report
Dear Mr. Smith:
The Pontiac Housing Commission would like to thank you and your staff for a very informative exit conference in
regards to the AARA Program, in which your objective was to determine whether the Commission properly obligated
and expended its formula grant and related procurements complied with U.S Department of Housing and Urban
Development and Recovery Act requirements. The following (3) Audit Findings were outlined in your report:
Commission did not ensure that its contractors complied with the Davis Bacon Act
Commission did not Comply with its own contract administration requirements
Commission did not properly administer and account for vacant unit turnovers performed by its force
account
In response to the discussion draft audit report findings, the Pontiac Housing Commission would like to provide
written comments for inclusion of the OIG’s final report. Time & reporting was of the high importance during the
AARA process, and during this process technical assistance was required and requested from our agency.
Consequently, a few of the audit findings can be directly attributed to technical support provided from the Detroit
Field Office that may have resulted from the numerous changes in the AARA guidance that were made apparent
during the initial stages of the AARA Program.
Furthermore, the Pontiac Housing Commission has been working closely with the Detroit Field Office on many of the
Comment 1 recommendation that will be presented to the Field Office Director, in effort to resolve all audit issues. Currently the
PHC is awaiting a recent AARA Review response from the field office that addressed several of the recommendations
contained in the final OIG report. Provided for you are attachments that relates to (Audit Finding 2E & 2G) and
review responses to the field office regarding the factors contributing to the above audit findings.
We would like to thank you and your staff for sharing your recommendations of the final review and we shall
definitely use this experience as a tool for growth for our agency.
Sincerely,
//signed//
Franklin Hatchett
Executive Director
Cc: Ahmad R. Taylor, Finance Report Manager
Steven Hamersley, Finance Director
26
OIG Evaluation of Auditee Comments
Comment 1 We acknowledge that the Commission has been working with the Detroit Field
office to resolve the audit findings. However, we reviewed the support
documentation that the Commission provided for Recommendations 2E and 2G
regarding the Commission’s contract work involving repairs to their sidewalk and
driveway and brickwork. The Commission granted the contractor an option to
extend the term of this contract because of seasonal scheduling and personal
extenuating circumstances. However, we could not determine based on the
support provided whether the work was completed during the extended period of
July 7, 2011.
Therefore, the recommendations to reimburse HUD $17,500 from non-Federal
funds for contract work involving repairs to the Commission’s sidewalks and
driveways and brickwork that were not completed for HUD to recapture and
transmit to the U.S. Treasury; and for HUD to recapture the remaining $3,851 that
the Commission obligated but had not expended for repairs to its sidewalks,
driveway, and brickwork for transmission to the U.S. Treasury will remain in the
audit report.
27
Appendix C
FEDERAL AND COMMISSION REQUIREMENTS
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. Also, HUD’s Procurement Handbook
7460.8, chapter 10, paragraph 10-9, states that all laborers and mechanics in construction contracts
over $2,000 must be paid wages in accordance with Federal labor standards issued by the U.S.
Department of Labor.
The Commission’s procurement policy, adopted on July 8, 2009, requires it to maintain a system
of contract administration to ensure that contractors perform in accordance with their contracts.
These systems must provide for inspection of supplies, services, or construction, as well as
monitoring of contractor performance, status reporting on major projects including construction
contracts, and similar matters.
The Commission’s policy also prohibits an employee, officer, or agent of the grantee or
subgrantee from participating in the selection, award, or administration of a contract supported
by Federal funds.
The U. S. Department of Labor issues Davis-Bacon Act wage determinations reflecting
prevailing wages and benefits paid by the construction industry within specific localities. These
wage determinations are further classified by the nature of the construction projects, specifically
listed as “schedules,” which include the following: residential, building, highway, and heavy
construction. Residential construction includes the construction, alteration, or repair of single-
family houses and apartment buildings of no more than four stories in height. Heavy
construction includes those projects that are not properly classified as either “building,”
“highway,” or “residential.”
HUD Handbook 7460.8, HUD’s Procurement Handbook for Public Housing Agencies, chapter
10, states the requirements for contract modifications and record keeping for federally funded
contracts. Chapter 11 of this handbook identifies various contract administration requirements
and suggestions for preconstruction conferences, progress meetings, periodic inspections, labor
standards enforcement records, progress payments, time extensions, final inspections, final
payments, and warranty inspections.
Chapter 11 states that the contractor is responsible for completing the work within the time
established in the contract. The public housing agency is responsible for monitoring the
contractor to ensure that work will be completed as scheduled. The public housing agency may
authorize justifiable time extensions without prior HUD review and approval, unless the public
housing agency is subject to prior HUD approval under a HUD established threshold that is less
28
than the requested amount. Such time extensions should be formalized in a written modification
to the contract.
HUD’s regulations at 24 CFR 85.36(2) state that grantees and subgrantees must maintain a
contract administration system which ensures that contractors perform in accordance with the
terms, conditions, and specifications of their contracts or purchase orders.
HUD’s regulations at 24 CFR 85.20 state that accounting records must be supported by source
documentation, such as payroll time and attendance records.
HUD regulations at 24 CFR 85.36(b)(3) prohibit an employee, officer, or agent of the grantee or
subgrantee from participating in the selection, award, or administration of a contract supported
by Federal funds.
HUD’s Procurement Handbook 7460.8, chapter 4, prohibits an employee from having any
interest in a contract awarded by the public housing agency. Chapter 9 of the handbook states
that the scope of work statement in a contract should be clear, specific, and detailed regarding the
task requirements, end results, and deliverables. Chapter 11 states that public housing agencies
are responsible for administration and enforcement of labor standards requirements as provided
in HUD Handbook 1344.1, REV.
Chapter 7 of HUD Handbook 1344.1 states that laborers and mechanics employed by a public
housing agency are subject to the Davis-Bacon Act when performing development work
financed by HUD.
HUD’s Notice PIH 2009-12, Recovery Act Requirements, paragraph VII, defines “force
account” as labor employed directly by the public housing agency and “obligations” involving
force account work as all funds for a group of sequentially related physical work items when the
first item is started before the 1-year obligation deadline.
29
The Pontiac Housing Commission, Pontiac, MI, Did Not Adequately Administer Its American Recovery and Reinvestment Act Capital Fund Grant
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)