oversight

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)

                                                                 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