oversight

The Housing Authority of the City of Shreveport, LA, Mismanaged Its Recovery Act Funds by Entering into Imprudent Contracts to Meet the Obligation Deadline

Published by the Department of Housing and Urban Development, Office of Inspector General on 2010-10-14.

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

                                                                             Issue Date
                                                                                    October 14, 2010
                                                                             Audit Report Number
                                                                                    2011-FW-1001




TO:              Cheryl J. Williams, Director, Office of Public Housing, 6HPH

                 //signed//
FROM:            Gerald R. Kirkland
                 Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT:         The Housing Authority of the City of Shreveport, LA, Mismanaged Its
                 Recovery Act Funds by Entering into Imprudent Contracts to Meet the
                 Obligation Deadline


                                           HIGHLIGHTS

    What We Audited and Why

                 We audited the Housing Authority of the City of Shreveport (Authority) as part of
                 our annual audit plan to review American Recovery and Reinvestment Act of 2009
                 (Recovery Act) funds. We selected the Authority based upon a risk assessment of
                 housing agencies within the U. S. Department of Housing and Urban
                 Development’s (HUD) Region VI jurisdiction 1 that were allocated Public
                 Housing Capital Fund Stimulus funds under the Recovery Act. Our objective was
                 to determine whether obligations the Authority made between January 30 and
                 March 17, 2010, were appropriate, prudent, eligible, and supported and whether
                 procurements were made in accordance with requirements.


What We Found

                 The Authority mismanaged its Recovery Act funds by entering into imprudent
                 contracts to meet the March 17, 2010 obligation deadline. In addition, it could
                 not provide assurance that the contracts were properly awarded or managed. By
                 selecting an activity for expediency purposes instead of prioritizing capital work

1
     Region VI includes the states of New Mexico, Texas, Oklahoma, Arkansas, and Louisiana.
           in its best interest, the Authority inefficiently and ineffectively managed more
           than $1.5 million in Recovery Act funding.

What We Recommend


           We recommend that the Director, Office of Public and Indian Housing, New
           Orleans, LA, (1) require the Authority to deobligate more than $1.1 million in
           Recovery Act funds that it allocated for the Wilkinson Terrace site and (2)
           recapture and rescind the deobligated funds and deposit those funds with the U. S.
           Treasury in accordance with the Recovery Act, as amended. Further, the
           Authority should establish and implement procurement procedures and contract
           administration for Authority staff and board of commissioners members involved
           in the contracting process.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We provided a copy of the draft report to the Authority and HUD on August 26,
           2010, and received written comments on September 8, 2010. We held an exit
           conference with the Authority on September 9, 2010. The Authority and its architect
           provided additional supporting documentation on September 20, 2010.

           The Authority disagreed with our report. The Authority’s response along with
           our evaluation of the response can be found in appendix B of this report. Due to
           the volume of documentation provided, we did not include the attachments
           submitted with the response. The attachments are available for review upon
           request.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                            4

Results of Audit
      Finding:   The Authority Mismanaged Its Recovery Act Funds by Entering into   5
                 Imprudent Contracts to Meet the Obligation Deadline

Scope and Methodology                                                               18

Internal Controls                                                                   19

Appendixes
   A. Schedule of Questioned Costs                                                  21

   B. Auditee Comments and OIG’s Evaluation                                         22




                                            3
                          BACKGROUND AND OBJECTIVE

The Housing Authority of the City of Shreveport (Authority) was established in 1940. A five-
member board of commissioners (board) governs the Authority. The mayor of Shreveport, with
city council confirmation, appoints each commissioner. The Authority is responsible for
managing 668 units in 7 public housing developments and more than 3,300 housing choice
vouchers. The Authority’s main office is located at 2500 Line Avenue, Shreveport, LA.

The Authority receives capital funds annually via a formula grant from the U. S. Department of
Housing and Urban Development (HUD). It may use its capital funds for development,
financing, modernization, and management improvements for its public housing developments.
The Authority received $1.3 and $1.4 million in formula capital funds in 2008 and 2009,
respectively.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of
2009 (Recovery Act) into law. 2 The Recovery Act provided $4 billion for public housing
agencies to carry out capital and management activities, including modernization and
development of public housing. It allocated $3 billion for formula grants and $1 billion for
competitive grants. The Recovery Act required public housing agencies to obligate 100 percent
of the funds within 1 year of the date on which funds became available to the agency for
obligation and expend 60 percent within 2 years and 100 percent within 3 years of such date.

HUD allocated more than $1.7 million to the Authority for its Recovery Act Public Housing
Capital Fund Stimulus grant (formula grant). HUD made the formula grant available to the
Authority on March 18, 2009, resulting in a statutory obligation deadline of March 17, 2010. If
the Authority failed to comply with the obligation deadline, the Recovery Act required HUD to
recapture the remaining unobligated funds awarded to the Authority and reallocate such funds to
agencies that complied with those requirements. 3

HUD required the Authority to use its formula grant on eligible activities already identified in
either its annual statement or 5-year action plan (approved plans). 4 The Authority was also
required to submit a budget identifying work that it would complete with its Recovery Act
formula grant. If the Authority decided to undertake work items not in its approved plans, HUD
required it to revise and/or amend its approved plans.

The audit objective was to determine whether obligations the Authority made between January 30
and March 17, 2010, were appropriate, prudent, eligible, and supported and whether
procurements were made in accordance with requirements.



2
    Public Law 111-5
3
    The Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) amended the
    Recovery Act, requiring recaptured funds to be returned to the Treasury.
4
    The annual statement, annual plan, and 5-year action plan are all components of the Authority’s comprehensive
    plan. The HUD-approved comprehensive plan sets forth all of the Authority’s physical and management
    improvement needs for its public housing developments.

                                                        4
                                        RESULTS OF AUDIT

Finding: The Authority Mismanaged Its Recovery Act Funds by
         Entering into Imprudent Contracts to Meet the Obligation
         Deadline
To avoid losing its Recovery Act formula grant, the Authority hastily entered into imprudent
contracts using faulty procurements to conduct work at one of its developments. After 9 months
with little progress toward achieving its original purpose, the Authority significantly revised the
planned use of its Recovery Act formula grant and entered into procurements that violated
requirements. Specifically, the Authority improperly modified one contract and awarded another
contract in excess of the total bid for unapproved work. Further, it did not amend its
procurement policy as required by HUD. Either the Authority misinterpreted requirements or in
its zeal to obligate the funds violated the requirements. Also, the Authority did not have
procedures in place to ensure compliance with contract requirements and quality workmanship.
By selecting an activity for expediency purposes instead of prioritizing capital work in its best
interest, the Authority inefficiently and ineffectively managed more than $1.5 million.



    The Authority Modified Its
    Activities without Sufficient
    Justification

                   The Authority modified its planned activities without meeting established
                   requirements. The Authority did this to obligate the funds before the March 17,
                   2010 deadline. To receive its Recovery Act formula grant, HUD required the
                   Authority to either select activities already in its approved plans or revise the
                   approved plans. 5 On March 3, 2009, the Authority submitted to HUD the required
                   budgets identifying the activities that would benefit from its Recovery Act formula
                   grant. The Authority budgeted $1.4 million 6 of its $1.7 million grant to activities
                   identified in its 2008 7 approved plans (see table 1).




5
      In Office of Public and Indian Housing (PIH) Notice PIH 2009-12 (HA), HUD required the Authority to
      revise/amend its plans, to the extent required, if it undertook work items that were not in an approved plan. The
      process for revision could trigger public hearing and public notice requirements.
6
      On July 2, 2009, HUD approved the Authority's original Recovery Act budget, which allocated more than $1.3
      million to its dwelling structures account; however, the supporting pages identified more than $1.4 million in
      work.
7
      At the time of the Authority’s original budget submission, its 2008 plans were the most recent HUD approved
      version. The Authority’s 2009 approved plans were very similar to its 2008 approved plans.

                                                           5
                                    General description of                      Total estimated
                                    major work categories                             cost
                       Replacement of flooring in vacant units                           $ 90,000
                       Replacement of kitchen & bath cabinets                              60,000
                       Treatment of mold and mildew in vacant units                       105,000
                       Roof replacement on dwelling units                                 120,000
                       Underpinning leveling and repairs to dwelling
                                                                                            85,000
                       unit foundation
                       Comprehensive modernization of dwelling units
                                                                                           947,579
                       in scattered sites throughout the city (67 percent)
                       Total                                                             $1,407,579
                     Table 1: Excerpt from the Authority’s original budget

                After taking the necessary actions to receive its Recovery Act formula grant in
                March 2009, the Authority’s activities went dormant. According to the executive
                director, the Authority hired him in August 2009. In November 2009, HUD
                conducted reviews of the Authority’s activities and determined that it would provide
                technical assistance to the Authority to ensure that it complied with Recovery Act
                requirements.

                In December 2009, 9 months after being awarded the funds, the Authority began
                taking action to obligate its Recovery Act formula grant. It submitted two budget
                revisions 8 to HUD, significantly changing the activities it would undertake with the
                grant funds. The Authority’s final revised budget focused on minor modernization
                and mold and mildew remediation at its Wilkinson Terrace site (see table 2). While
                the mold and mildew remediation had been identified in its approved plans, the
                minor modernization work had not. Although the Authority submitted a revised
                budget that HUD approved, it failed to amend its approved plans as required.

                                                                               Authorized
                                    Major work categories                    recovery budget
                                                                                 revision
                            Minor modernization, removal and
                            remediation of mold and mildew at
                                                                                    $1,370,130
                            Wilkinson Terrace
                            Testing, planning & contract admin fee                     149,143
                            Relocation of residents                                     42,200
                            Total                                                   $1,561,473
                           Table 2: Excerpt from the Authority’s approved final budget

                The Authority did not provide documentation for why it changed the main focus of
                the work from modernization of scattered sites to mold and mildew remediation and

8
    HUD approved two budget revisions for the Authority. One was undated by the Authority and HUD; the other
    was submitted by the Authority on March 12, 2010, and approved by HUD on April 9, 2010.

                                                      6
                 minor modernization at Wilkinson Terrace. Further, the Authority did not supply
                 support that its board approved the change or that a public notice was not needed for
                 the change. At the exit conference, the executive director explained that the
                 Authority mentioned the modernization in its approved plans and provided the
                 following circled excerpt to support his statement (see table 3). However, the
                 executive director’s explanation was flawed as table 3 shows that the planned
                 modernization work did not include the Wilkinson Terrace site.




                        Table 3: Excerpt from the Authority’s 2009 approved plans. Development number
                                 LA 2-2 is Wilkinson Terrace; LA 2-3 is Hollywood Heights Housing
                                 Development; and LA 2-9 and LA 2-10 are scattered sites.

                 The Authority was at Risk of Losing Its Recovery Act Formula Grant

                 As of February 13, 2010, the Authority had only obligated 19 percent of its
                 Recovery Act formula grant. As a result, on February 17, 2010, HUD informed the
                 Authority that it considered the funds at risk for recapture. HUD reminded the
                 Authority that it had no ability to extend or alter the 100 percent obligation deadline
                 and that it would immediately recapture any unobligated funds. HUD also notified
                 the mayor of Shreveport and the chairman of the Authority’s board of the possibility
                 that the Authority could lose the funding. Further, in an email dated March 3, 2010,
                 HUD’s Assistant Secretary for PIH reminded the Authority of the obligation
                 deadline and HUD’s requirements to recapture any unobligated funds.

                 The Authority Did Not Prioritize its Activities or Provide Notice of Changes

                 The Authority did not prioritize its capital activities as HUD required. 9 Contrary to
                 the requirement, the Authority’s executive director said that he looked at what was
                 in the approved plans and chose the Wilkinson Terrace site to benefit from the
                 funding. 10 However, at the exit conference, the executive director acknowledged

9
     Public Law 111-5, annual contributions contract between the Authority and HUD, and Notice PIH 2009-12
     (HA)
10
     The Authority obligated more than $10,000 per unit benefited.

                                                       7
                  that he was unaware of the original approved plan for modernization at the scattered
                  sites. This did not absolve the Authority from obtaining board approval and
                  informing the public 11 of the significant changes to its planned use of Recovery Act
                  funds.

                  The Authority separated the Wilkinson Terrace work into two phases, resulting in
                  separate procurements and contracts. The phase 1 contract was for mold and
                  mildew remediation and the phase 2 contract was for minor modernization. The
                  Authority’s approved plans for the Wilkinson Terrace site included the following
                  work categories: lawn and ground maintenance program, repair of plaster walls and
                  ceilings, wall furnace replacement, and abatement of mold and mildew in units.
                  Although modernization work was an eligible capital fund activity, the Authority
                  had not identified it as work to be undertaken at Wilkinson Terrace in its approved
                  plans; therefore, HUD did not approve this work. The executive director believed
                  that if an activity was “mentioned” in the Authority’s approved plans it would be an
                  eligible activity under its Recovery Act grant. He also explained that the Authority
                  chose Wilkinson Terrace because it was the easiest thing to do and posed a health
                  concern. Again, the approved plans did not mention modernization work at
                  Wilkinson Terrace.

                  By undertaking unapproved modernization work at the Wilkinson Terrace site
                  without a required board resolution and revised/amended plans, the Authority
                  thwarted the opportunity for residents, local government officials, and other
                  interested parties to express their priorities and concerns.

                  Contract Amounts Far Exceeded Estimates in the Authority’s Approved Plans

                  Demonstrating how far its actions deviated from its approved plans, the contracts to
                  complete work at the Wilkinson Terrace site were almost 450 percent greater than
                  the total amount identified for the site in its approved plans. Although the Authority
                  obligated more than $1.5 million of its $1.7 million grant, its approved plans
                  estimated a total cost of only $287,000 for work at the Wilkinson Terrace site over a
                  5-year period, with only $100,000 specifically related to mold and mildew
                  remediation. Between January 12 and March 16, 2010, the Authority entered into
                  five contracts totaling more than $1.5 million to conduct work at the Wilkinson
                  Terrace site (see table 4).




11
     Under the Recovery Act, the number of days for public notice was reduced to 10 days.

                                                        8
                                                                            Date contract
                                     Description                                                    Amount
                                                                              executed
                   Limited indoor air quality; limited asbestos
                                                                          January 12, 2010          $    60,143
                   inspection; lead inspection
                   Remediation and minor renovations;
                                                                          January 13, 2010               89,000
                   architect/engineering services
                   Relocation                                             February 10, 2010              42,200
                   Minor modernization phase 1 (mold & mildew)            March 8, 2010                 222,460
                       change order                                       March 16, 2010                191,850
                   Minor modernization phase 2                            March 15, 2010                955,820
                   Total:                                                                            $1,561,473
                  Table 4: Recovery Act formula grant contracts for the Wilkinson Terrace site

                  The Authority was unable to provide documentation to justify the substantially
                  increased costs and the change from its original plan. The executive director
                  believed that as long as a dollar amount was included in the approved plans, the
                  Authority could spend any amount on the activity. The example used by the
                  executive director was if they had $1 allocated to an activity that it would be
                  acceptable to spend $1 million on the activity. This rationale undermines the
                  planning and budgeting process. Furthermore, HUD cannot rely upon the accuracy,
                  cost, or scope of the Authority’s plans.

                  More Than 19 Percent of the Units Will Be Vacant After the Recovery Act Spending

                  A priority under the Recovery Act was the rehabilitation of vacant rental units.
                  However, after the Recovery Act spending, more than 19 percent (35 of 184 units)
                  of the Wilkinson Terrace site units will remain vacant and removed from the
                  Authority’s rent roll. In May 2006, HUD approved the Authority’s request to
                  remove 22 units from its rent roll “to deal with a recurring mold and mildew
                  problem.” Four of the 22 units removed in 2006 received remediation and
                  rehabilitation with Recovery Act funds. 12 In 2010, an Authority contractor
                  determined that the remediation required for 35 units 13 was extensive enough to be
                  cost prohibitive. These vacant units were interspersed throughout the complex.

                  In addition, the Authority had considered initiating the process to demolish the
                  Wilkinson Terrace site. If the Authority’s ultimate plan was to demolish the
                  Wilkinson Terrace site within the next few years, the prudency of its decision to
                  move the Recovery Act funds from the scattered sites to the Wilkinson Terrace site
                  should be further questioned.



12
     The Authority provided conflicting information regarding whether work would be completed on two other
     units.
13
     Includes 18 of the 22 units that the Authority requested and HUD approved in 2006 to be removed from the rent
     roll.

                                                         9
     The Authority Did Not Properly
     Award Its Contracts


                   In its scramble to meet the Recovery Act obligation deadline, the Authority failed to
                   follow procurement requirements. Specifically, it improperly modified one contract
                   and awarded another contract in excess of the total bid for unapproved work. The
                   executive director explained that because the timeline was so tight, the Authority
                   either had to spend the money or lose it. As a result, the Authority violated
                   procurement requirements to ensure that it obligated the funds. The timely
                   obligation of funds did not usurp the Authority’s responsibility to comply with
                   procurement requirements or its fiduciary responsibilities.

                   While the Authority’s files were generally in order, its records did not contain cost
                   estimates as required. 14 As previously stated, the amounts in the plans had no
                   relationship to the actual cost. During the audit, the Authority obtained cost
                   estimates from its architect for two of the five contracts. For the other three
                   contracts and the change order, the Authority did not provide cost estimates.

                   The Authority’s Phase 1 Contract Included an Ineligible Change Order

                   As shown in table 4, the Authority inappropriately executed a $191,850 change
                   order 15 on March 16, 2010, that violated procurement regulations and nearly
                   doubled the original $222,460 contract. The Authority was required to obtain
                   prior HUD approval for any contract modifications that changed the scope of the
                   contract or increased the contract by more than the Federal small purchase
                   threshold, 16 currently set at $100,000. The Authority did not seek or receive prior
                   HUD approval for the change order. The following excerpt from the March 8,
                   2010 board meeting minutes provided evidence that the change order came about
                   during the meeting and board members arbitrarily approved it just to obligate 100
                   percent of the funds:

                            “The Secretary17 advised the Chairman that if the Board would pass this
                            Resolution, there would still be some extra funds left (over $100,000.00)
                            that need to be allocated and if the Board doesn’t pass this Resolution
                            today, then another meeting would need to be scheduled before March 17,
                            2010. The Secretary reported that there’s one (1) item that is not listed
                            that needs to be done in every unit and that’s to paint the units.



14
      24 (Code of Federal Regulations) CFR 85.36(f)(1)
15
      The $191,850 change order to paint units consisted of $55,250 for 490 sq. ft. one-bedroom units ($3,250 X 17
      units), $78,200 for 747 sq. ft. two-bedroom units ($3,400 X 23 units), and $58,400 for 867 sq. ft. three-bedroom
      units ($3,650 X 16 units).
16
      HUD Handbook 7460-8, REV-2, Procurement Handbook for Public Housing Agencies.
17
      The executive director serves in the capacity of board secretary.

                                                          10
                           …Commissioner Murphy asked the Secretary, ‘I just want to know if all
                           of [the Recovery Act funding] will be allocated by the 17th?’”

                  Further, it did not appear that the board members understood what they were
                  voting on or that the Authority needed this work.18

                  During the exit conference and in its response to the draft audit report, the
                  Authority explained that the modification was not a change order, but a transfer of
                  a portion of the phase 2 modernization scope of work to the phase 1 mold and
                  mildew contractor based on unit pricing. However, the Authority had no basis to
                  make such an arbitrary transfer, and its records and contract documents showed
                  that the modification was a change order. Further, the bid documents did not
                  inform bidders that the phase 2 scope of work might be split into several
                  contracts. In fact, on March 8, 2010 (the same date as the previously discussed
                  board meeting), the Authority sent the phase 1 contractor a letter informing it of
                  the contract award to the phase 2 contractor.

                  The Authority’s violation of procurement regulations meant to ensure fair and
                  open competition resulted in an ineligible contract amendment. In addition to
                  deobligating these funds, HUD should prohibit the Authority from using any
                  HUD funds for this improper $191,850 change order. Further, the Authority must
                  establish and implement procurement procedures for Authority staff and board
                  members involved in the contracting process.

                  The Authority’s Phase 2 Contract for Unapproved Work Exceeded the Bid
                  Amount

                  Nine days before the deadline for returning any unobligated Recovery Act funds, the
                  board convened the March 8, 2010 board meeting to approve the awarding of a
                  $926,670 modernization contract for phase 2 work. 19 Contrary to this, the board
                  passed a resolution originally awarding a contract for more than $1.1 million,
                  $226,100 more than the bid amount. After some discussion, the board amended the
                  resolution to reduce the contract amount to $955,870 20 and inappropriately awarded
                  the $191,850 change order to the phase 1 contractor as discussed previously.

                  Work for the phase 2 contract included modernization improvements and
                  renovations such as removal of doors, wood cabinets, plumbing fixtures, mechanical
                  equipment, light fixtures, etc., and replacement of these with new materials. As
                  discussed previously, this modernization work was not identified as work to be

18
     At the exit conference, the Authority asserted that the board minutes did not reflect what occurred in the board
     meeting.
19
     The phase 2 contractor had other contracts with the Authority, including a modernization project that the
     Authority funded using 2005-2008 capital funds. The contract had substantial cost overruns and 13 change
     orders. On November 17, 2009, the Authority requested HUD approval to execute a 14th change order and use
     2008 and 2009 capital funds to pay for the overruns. HUD suggested that the Authority not approve the change
     order and that it consult with legal counsel.
20
     Although the resolution was for $955,870, the executed contract award totaled $955,820.

                                                         11
                undertaken in the Authority’s approved plans. Further, the Authority did not adopt a
                board resolution or revise/amend its approved plans as required if it chose to
                undertake these new work items.

                In its meeting, the Authority’s board extensively discussed its primary concern of
                obligating the Recovery Act grant so that it would not lose the funding. The
                Authority’s architect described different scenarios wherein all of the funds could
                be used. The final resolution included the base bid amount of $782,760, three
                alternate bids totaling $143,910, and the installation of 53 toilets for $29,200
                ($551 per toilet). According to HUD guidance 21 the Authority “…should not
                request alternate bids... Instead, when necessary because of limited available
                funding, [the Authority] may specify the most expensive system as the base bid
                and list deductive alternates in inverse priority order. Thus, in the case of limited
                funding, deductive alternates may be taken in numerical order as listed until the
                award can be made within available funds.” In contrast with the guidance, the
                Authority specified the least expensive system as the base bid and listed increased
                alternates without priority.

                Due to the arbitrary actions by the Authority in awarding this contract, it did not
                comply with procurement requirements. Further, the modernization component
                of this procurement did not comply with the HUD requirement that it be either
                already included in its approved plans or that the Authority revise or amend its
                plans and meet any public notice requirements. HUD should require the
                Authority to deobligate this $955,820 contract from its Recovery Act formula
                grant and recapture and rescind the deobligated funds and deposit those funds
                with the U. S. Treasury in accordance with the Recovery Act, as amended.
                Further, the Authority must establish and implement procurement procedures for
                Authority staff and board members involved in the contracting process.

     The Authority Did Not Amend
     Its Procurement Policy as
     Required

                HUD required the Authority to amend its procurement policy to expedite
                and facilitate the use of Recovery Act funds. 22 The Authority’s board
                authorized its staff to amend the procurement policy. However, it did not
                do so. The Authority continued to operate using its policy from July 1997.
                This policy was outdated and omitted significant provisions. For example,
                although the table of contents listed contracting authority and contract
                administration sections, those subject matters were not included in the
                policy provided.




21
      HUD Handbook 7460-8, REV-2
22
      Notice PIH 2009-12 (HA)

                                                 12
 The Authority Did Not Have
 Effective Procedures to Ensure
 Quality Work

                  The Authority did not have written procedures to approve contract work.
                  Due to its poor procurement compliance, the Authority needed to ensure it
                  had controls in place to identify and correct deficiencies by contractors in
                  a timely manner. For the Recovery Act funds, the Authority appeared to
                  rely upon its architect to ensure that its contractor(s) adhered to the
                  contract, including the workmanship. However, upon learning of
                  deficiencies during the audit, the executive director stated that the policy
                  was that the contractor was not done until he signed off on the payment.
                  As stated previously, the Authority’s policy omitted the sections dealing
                  with contract authority and administration. Without effective procedures
                  and adherence to those procedures, the Authority showed a lack of
                  management capability and commitment to effectively and efficiently
                  using Recovery Act funds. The Authority must increase the effectiveness
                  of its contract administration by having and adhering to current written
                  procedures.

                  The contractor submitted an application for payment on June 4, 2010. On
                  June 9, 2010, the Authority’s architect informed it that “…37 units at
                  Wilkinson Terrace have been remediated and achieved acceptable
                  clearance criteria.” During the audit, the Authority gave every indication
                  that these units were complete. On June 10, 2010, we observed nine of the
                  units for adherence to contract terms and workmanship. In addition, the
                  procurement employee provided the listing of the 37 units and a
                  maintenance staff member accompanied us on the visit.

                  The scope of work was divided into four levels of remediation. The phase
                  1 contract only included units requiring level 2 and level 3 remediation.
                  At a minimum, the following definitions applied:

                           Wipe - Surface is to be cleaned and disinfected with an Environmental
                           Protection Agency-approved biocide disinfectant.
                           Brush - Surface is to be scrubbed/brushed with a light- to medium-bristle
                           scrub brush and vacuumed with a high-efficiency particulate air vacuum. 23
                           Encapsulate - Surface is to be encapsulated with an antifungicidal
                           priming agent equivalent to Foster’s 40-20 that has been tinted to match
                           the paint in the housing units (antique white).

                  Level 2 remediation required units to be cleaned and disinfected. Also,
                  painted surfaces from which residue had been removed or cleaned were to
                  be encapsulated. Level 3 remediation called for extensive cleaning,
23
     A high-efficiency particulate air vacuum differs from conventional vacuums in that it contains filters that are
     capable of trapping extremely small, micron-size particles.

                                                          13
disinfection, encapsulation, and plaster repair. All surfaces were to be
wiped and all painted surfaces encapsulated.

Observations of selected units indicated that contractual tasks (1) had not
been completed, (2) had not been adequately completed, or (3) had been
poorly completed with substandard workmanship. Specifically, the
inspected units had what appeared to be pest excrement caked on surfaces
that were to have been cleaned and disinfected. Further, it did not appear
that painted surfaces had been encapsulated as required. In addition, there
were dust and stains on surfaces that were required to be wiped. Many of
the window frames that were required to be wiped and encapsulated were
filled with spider webs, dead insects, rust, and what appeared to be mold.
There were also painted surfaces with bubbling, unsmooth, oversprayed,
and peeling paint. Pictures 1 through 4 show some of the deficiencies
found during the June 10, 2010 inspection.




Picture 1: Unit 54. At the time of inspection, this unit had
                                                               Picture 2: Unit 133. This appeared to be a moldy towel in
been vacant for more than 3 months. There were slimy
                                                               the window frame. The dirt and chipped paint indicated that
substances and food on the walls and floors, flies
                                                               the contractor had not cleaned or encapsulated the window
throughout the unit, a pungent odor, and no visible
                                                               frame as required.
indication of work having been completed.




Picture 3: Unit 147. This appeared to be partially painted-    Picture 4: Unit 145. The dust on top of these cabinet
over pest excrement.                                           drawers indicated that the contractor did not clean,
                                                               disinfect, or brush them as required.

Because of the ongoing contract, statements made by the executive
director, and to determine if corrective actions were taken, we conducted a
follow-up site visit of six units (pictures 5 through 8) after our exit


                                                 14
                  conference on September 9, 2010.24 None of the units were occupied and
                  we were told the units would need additional cleaning and preparation
                  work prior to leasing. While the Authority required correction of some of
                  the previous deficiencies, we noted the following:

                       •     No consistency in window frame work. In some units, the window
                             frames were painted and in others, they were not.
                       •     Possibly rust bleeding through paint, specifically on handrails (see
                             picture 8).
                       •     Instances where the contractor did not remove nails, hangers, etc.
                             prior to painting.
                       •     In one instance, the paint already had a bubble (see picture 5).
                       •     In one instance, the sink had torn from the wall causing damage to
                             the wall. It was unclear who was responsible for repairing it (see
                             picture 7).




                  Picture 5: Unit 48. This appeared to be a large paint      Picture 6: Unit 48. The chipped paint indicated that the
                  bubble.                                                    contractor had not cleaned or encapsulated the window
                                                                             frame as required.




                  Picture 7: Unit 107. The wall behind this sink was         Picture 8: Unit 48. This handrail had paint drippings and
                  severely damaged. It was unclear who was responsible for   rust appeared to have bled through the paint.
                  the damage.




24
     We selected six units: four units that we visited previously, one unit that was also on the June 9, 2010 list, and
     one vacant unit that received no remediation. One unit was still under the control of the contractor.

                                                                  15
                   During the second observation, the executive director explained to the site
                   manager and maintenance employee the importance of keeping the
                   windows closed as open windows may encourage the reoccurrence of the
                   mold and mildew. 25 The Authority did not provide evidence that it had
                   adequate processes in place to identify and correct such deficiencies.
                   Further, it should implement effective policies to ensure that contractors
                   meet the terms of their contract(s).

     Conclusion


                   By its actions of significantly changing its activities without sufficient
                   justification, not revising its approved plans to include new/different
                   activities, exceeding the work in its approved plans, providing HUD with
                   unrealistic budget information, and violating procurement requirements,
                   the Authority mismanaged its Recovery Act grant. Further, the Authority
                   did not have procedures in place to ensure contractor’s compliance and
                   workmanship. As a result of its actions, the Authority is at risk of
                   inefficiently and ineffectively spending more than $1.5 million in
                   Recovery Act funding.

     Recommendations

                   We recommend that the Director, Office of Public and Indian Housing, New
                   Orleans, LA, require the Authority to

                   1A. Deobligate and return $191,850 from its Recovery Act formula grant for the
                       improperly procured change order for phase 1 contract work at its Wilkinson
                       Terrace site. Any amounts paid on the contract should be repaid from
                       nonfederal funds.

                   1B. Deobligate and return $955,820 from its Recovery Act formula grant for the
                       improperly procured phase 2 contract that also contained the unapproved
                       activities. Any amounts paid on the contract should be repaid from
                       nonfederal funds.

                   1C. Establish and implement procurement procedures for Authority staff and
                       board members involved in the contracting process to ensure proper contract
                       administration, including updating and following its procurement policy.
                       This includes that the Authority receives quality workmanship, contractor
                       compliance, payment procedures, and informing management, maintenance,
                       and tenants of actions needed to preserve and maintain improvements and
                       repairs.


25
      The architect’s inspection site report also warned about leaving the windows opened.

                                                         16
1D. Correct the unit deficiencies cited during the observations.

Also, we recommend that the Director, Office of Public and Indian Housing, New
Orleans, LA,

1E. Recapture and rescind the $1,147,670 in deobligated funds and deposit those
    funds with the U. S. Treasury in accordance with the Recovery Act, as
    amended.

1F. Provide additional technical assistance for the Authority and impose
    procurement review thresholds.




                                17
                         SCOPE AND METHODOLOGY

We performed the audit at Authority’s main offices at 2500 Line Avenue, Shreveport, LA, and
our offices in Fort Worth, TX, from June 3 through September 20, 2010. The scope of the audit
was the Authority’s Recovery Act obligations from January 1 through March 17, 2010. We
expanded the scope to September 9, 2010, as needed to accomplish our objective.

To achieve our audit objectives, we

   •   Obtained and reviewed relevant laws, regulations, program guidance, and grant
       agreements.
   •   Interviewed HUD and Authority staff.
   •   Analyzed and reviewed the Authority’s Recovery Act contracts and obligations.
   •   Analyzed and reviewed the Authority’s audited financial statements.
   •   Analyzed and reviewed HUD reviews of the Authority’s Recovery Act activities.
   •   Analyzed and reviewed the Authority’s annual statement, 5-year plans, and required
       budget submissions to HUD.
   •   Reviewed Authority board meeting minutes.
   •   Conducted site visits and inspected phase 1 completed units.
   •   Analyzed obligations and contracts to determine eligibility.
   •   Analyzed the Authority’s compliance with reporting requirements.
   •   Analyzed and reviewed additional information the Authority and its architect provided
       after the exit conference.

We completed a 100 percent review of the Authority’s five Recovery Act contracts. The
Authority had completed 37 units for its phase 1 remediation. For our site visit, we randomly
selected nine (24 percent) of those units for inspection. We used the scope of work detailed in
the phase 1 project specifications to assess adherence to contract terms and quality of
workmanship.

We conducted the audit in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               18
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting, and
   •   Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objective:

               •   Policies and procedures that the Authority’s management implemented to
                   reasonably ensure that its program met its objectives.
               •   Procurement policies and procedures established and/or followed by the
                   Authority.
               •   Policies and procedures that the Authority’s management implemented to
                   reasonably ensure that its resource use was consistent with laws and regulations
                   and that its resources were safeguarded against waste, loss, and misuse.

               We assessed the relevant controls identified above.

               A deficiency in internal controls 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.




                                                19
Significant Deficiencies

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

            •   The Authority mismanaged its Recovery Act grant by entering into ineligible
                contracts to meet the obligation deadline (finding).
            •   The Authority’s plans were unreliable both in terms of activities to be
                undertaken and cost of the activities (finding).




                                             20
                                             APPENDIXES
Appendix A

                       SCHEDULE OF QUESTIONED COSTS

                                      Recommendation            Ineligible 1/
                                             number
                                               1A                 $ 191,850
                                               1B                    955,820
                                            Total                 $1,147,670




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.



                                                        21
                                         APPENDIXES
Appendix B

       AUDITEE COMMENTS AND OIG’S EVALUATION




                                                          Housing Authority
                                                                   OF THE
                                                            City of Shreveport
                                            PHONE: 318.227.8174 FAX: 318.221.2579 TDD: 318.227.0383
            COMMISSIONERS                                     2500 Line Avenue
                                                           SHREVEPORT, LA 71104
            CHARLES SANDERS, JR                                                                       RICHARD HERRINGTON, JR
             CHAIRMAN                                                                                 EXECUTIVE DIRECTOR
            HERBERT MURPHY
             VICE CHAIRMAN                                                                            TRAVIS BOGAN
            CAROL NUNLEY                                                                               ASST. EXECUTIVE
            CHERYL ANDERSON                                                                             DIRECTOR


                                                           September 8, 2010

            Mr. Gerald R. Kirkland
            Regional Inspector General for Audit
            819 Taylor Street, Suite 13A09
            Fort Worth, Texas 76102

            Dear, Mr. Kirkland,

            Following are responses to the draft audit report #2010-FW-100X, dated August 26, 2010.

            Finding 1:       THE AUTHORITY MISMANAGED ITS RECOVERY ACT FUNDS BY ENTERING INTO
                             IMPRUDENT CONTRACTS TO MEET THE OBLIGATION DEADLINE

Comment 1   The Authority did not simply wait for nine months after the availability of the ARRA formula grant to revise
            the planned use of funds. The Housing Authority of the City of Shreveport (HACS) underwent a change in
            senior management, replacing both the Executive Director and the Assistant Executive Director in August
            2009 and October 2009 respectively. The agency had experienced a long period of mismanagement,
            operating deficiencies and questionable practices. The new senior management staff was not aware of the
            lack of action related to the utilization of ARRA funding, as many and various difficulties existed at the
            HACS upon our arrival. The new senior management staff at the HACS actually made a visit in person to
            the HUD Area Office in October, 2009 to relay some of the initial findings at the HACS upon our arrival.

Comment 2   More explanation is needed in order to understand what was called an ‘improper modification of one
            contract and awarding of another contract in excess of the total bid for unapproved work’. The contracted
            work was divided into two phases—Phase 1 was for the remediation of mold and mildew, and Phase 2 was
            for all other work needed to make the units habitable. The company which bid on Phase 1 also bid on
            Phase 2, as the types and scope of work were different in each phase. The encapsulating painting portion
            of Phase 2 was transferred to Phase 1 in order to save money. The total amounts that were to be
            expended in both phases as a result of this change were actually less in total than the total bid amounts, as
            the encapsulating painting portion of the bids was less than originally planned by moving this unit price item
            to Phase 1.

            The activity selected was not for expediency purposes. Rather, it was a documented health and safety
Comment 3   concern that existed for a number of years prior to the arrival of the new executive staff. The HACS has a
            letter from HUD dated May 31, 2006, (see attached) in which 22 units were allowed to be taken offline due
            to the mold and mildew status in those specific units. We will discuss later why these most damaged units
            did not benefit from the recovery act funding.

                                                       EQUAL HOUSING OPPORTUNITY




                                                        22
            The Authority Modified Its Activities Without Sufficient Justification
Comment 4
            The HACS selected an activity that was in the Authority’s approved plan. The fact
            that the majority of the funding was allocated to one site represented the new
            administration’s attempt to resolve a long-standing health and safety air quality issue
            that was prevalent at the Wilkinson Terrace site. No additional documentation was
            necessary since HUD agreed with the Authority’s request to remove specific units
            offline in its 2006 letter.

Comment 5   The Authority Was at Risk of Losing Its Recovery Act Formula Grant

            The Authority had obligated only 19% of its ARRA grant as of February 13, 2010.
            However, the major estimated portion of the funding dollars were already out for bid.
            The Authority was confident that the 100% obligation would take place by the stated
            deadline of March 17, 2010.

Comment 2   The Authority Was Unable To Justify Work That Was Not in Approved Plans
Comment 3
            The Authority did not arbitrarily choose Wilkinson Terrace to “benefit from the
Comment 4   funding.” Rather, there were several discussions with the HUD Area Office to
            discuss the health concerns at the Wilkinson Terrace site. The remediation of the
            mold issue at Wilkinson far outweighed the potential legal actions that may have
            resulted from health-related claims that could be made at any time by current and/or
            past residents. These legal claims could easily amount to multiple times more costly
            legal fees and court-ordered payments by the Authority and HUD, which made the
            decision to address the air quality issue at Wilkinson the best use of governmental
            funds, and not the “easiest thing to do.” Again, the attached documented letter from
            HUD clearly substantiates the health concerns which were never addressed by the
            previous management at the Authority.

            The draft audit report also states, “However, the Authority could not substantiate
            either the ease of completion or health concern claims.” It should be pointed out that
            Altec (Environmental Consultants) was selected to perform air quality testing of the
            units at Wilkinson Terrace. The Project Manual for Phase 1 clearly identified the
            level of work required for all 184 units at the Wilkinson Terrace site: Level 1, Level 2,
            Level 3 and Level 4 (units beyond the scope of work that could be afforded by the
            project funding). Their testing determined that only 30 of the total 184 units did not
            require corrective work (remediation). This means that there were a total of 30 Level
            1 units. Altec also determined that 35 units (Level 4) were so affected that
            remediation and repair needed was beyond the scope of work that could be afforded
            by available funds. Therefore, the remaining 119 units were identified as requiring
            some type of corrective/remediation work to address the indoor air quality (health
            concerns) within the units. The HACS and the architect decided to include the 30
            Level 1 units as a health concern for those residents to prevent future poor air
            quality. Ease of completion was clearly identified within the Project Manual for Phase
            1.

Comment 6   Abatement of mold and mildew was indeed mentioned in the Authority’s approved
            annual plan, which made it an eligible item for the use of ARRA funds. The amended
            plan was submitted and approved by HUD. What the auditor claims as
            “modernization work” was actually work that was simply necessary to return the units
            to a livable state after the abatement process was completed.
                                             EQUAL HOUSING OPPORTUNITY




                                               23
            Contract Amounts Far Exceeded Estimates in the Authority’s Approved Plans
Comment 3
Comment 4   The explanation of the increased planned expenditures was the severity of mold and
            mildew that existed at the Wilkinson site. Would the Authority have better served its
            residents at Wilkinson by performing remediation at five to ten units and leaving the
            remaining 140 or so units currently occupied by residents at the unacceptable risk
            levels so there is no ‘deviation from the Authority’s approved plan’?

            The Most Damaged Units Did Not Benefit From the Recovery Act Funding

Comment 6   Priority was afforded to almost all units to receive remediation measures to improve
            the indoor air quality of those units identified for work. Approximately 34 habitable
            units were already vacant at the time the units were observed at the beginning of the
            project. These units provided the beginning of the project. The plan was to start with
            these 34 units, and then relocate tenants to free up additional units to continue the
            project. After review of all 184 units, 35 units were identified to be beyond the funding
            capabilities of the project. Therefore, at the end of this project, all remaining units will
            have had some level of corrective measures provided except for the 35 units identified
            to receive no work. There were 34 habitable vacant units prior to the project. After the
            project, there will be 35 total vacant units. Included in this 35 total vacant units are 22
            units which were authorized to be removed from the HACS Public Housing Rent Roll
            in 2006. However, all remaining 149 units will achieve improved indoor air quality as a
            result of the project.

            Because no work was done on the units that were taken offline nearly five years ago,
Comment 3
            the amount of work that would have been necessary to make those units livable would
            have been considerably greater than the units which were currently occupied. Also,
            since HUD had declared these units offline, no timetable was established for these
            units to be brought back on line at any future point in time. Again, instead of, “the
            Authority remediated mold and mildew only if it was not cost prohibitive,” the Authority
            sought to be more prudent in its use of funding, which resulted in the remediation of
            mold in more total units than if we had worked on the units that were declared
            uninhabitable back in 2006. A representative of the environmental consulting
            company sent a definitive statement that units which have been remediated with
            encapsulated, fungicidal inhibitor paint will not be affected by adjacent offline units
            which contain levels of uninhabitable indoor air quality. (See attached email.)

            Even if “the Authority’s ultimate plan was to demolish the Wilkinson Terrace units
            within the next few years,” the residents have to reside somewhere for the next few
            years. Would we be in line with our charge of providing decent, safe and sanitary
            housing for the next few years by allowing the residents to continue to live in
            Wilkinson?

            The draft further states, “Therefore, the Phase I and Phase II contracts received
            additional money to do additional work”. There was no additional money provided to
Comment 7   the project. The budget was set and the project was developed to adhere to the
            allocated budget amounts.

            The draft report also stated, “For the other three contracts and the change order, the
Comment 8
            Authority could not provide cost estimates.” Two of the contracts were for
Comment 3   professional services. The other three contracts were publicly bid.
                                              EQUAL HOUSING OPPORTUNITY




                                               24
             The Authority’s Phase 1 Contract Included an Ineligible Change Order
Comment 2
             The scope of work was identified as unit pricing within the Phase 2 bid documents.
             Bids were received from three general contractors. The amount of this revision
             represents the lowest possible cost associated with one work item--$191,850 as
             compared to $238,900 from the second lowest contractor for encapsulating painting
             of each unit. This revision did not change the scope of the project. It transferred a
             Phase 2 unit price to Phase 1, saving a total of $47,050, a more prudent use of
             federal funding.

             The Board of Commissioners were knowledgeable of the entire project and assisted
             in the obligation of the ARRA funding. They spent a considerable amount of time
             discussing the issues related to the project as well as the process. The entire
             package was reviewed by the Board on a line item basis.

Comment 2    The Authority’s Phase II Contract Amount Exceeded the Bid Amount
Comment 9
             The Phase 2 contractor provided a base bid of $926,670 with additive alternates
             totaling $238,900. Modernization work as described from this report is a “broad
             term”. These units were not receiving a “modernization”. The title of the project
             manual for these projects is listed as a “minor modernization”. New items were
             required due to the presence of mold, and the removal of certain items was identified
             within the scope of work for Phase I. Replacement items were included in Phase 2.

             The bid documents provided a request for a base bid amount and three additive
             alternates. In addition, unit pricing was requested for twelve specific items. The
             installation of a new water closet was identified on the bid form as a requested unit
             price.

             NOTE: Footnote #14 at the bottom of page 10 has no bearing on this project.
Comment 10
             Finding 2:      THE AUTHORITY MAY HAVE ALLOWED SUBSTANDARD WORK
Comment 11                   FROM ITS CONTRACTOR
Comment 12
             The work was not complete for any part of project at the time of the audit. The quote
             provided on page 13 is a statement from the contractor, not the HACS’
             representative. Unless the HACS representative is the Executive Director, the
             statement cannot be considered an official statement of the HACS. In addition, since
             there was no punch list present and approved, the statement is definitely inaccurate.
             The statement, “37 units at Wilkinson Terrace have been remediated and achieved
             acceptable clearance criteria” was made by the contractor on June 9, 2010.
             However, that statement prompted a walkthrough of the project that resulted in a
             punch list as required to meet the intent of the documents. The punch list was not
             created until June 22, 2010, nearly two weeks after the contractor’s statement.
             Meeting the indoor air quality “clearance criteria” is materially different than meeting
             the scope of work in regards to architectural work.

             The removal of the locks did not prevent the contractor from returning to the site and
             addressing the associated punch list items. Locks on the doors, whether the owner’s
             or the contractor’s, in no way prevented the completion of the work.



                                              EQUAL HOUSING OPPORTUNITY




                                               25
             Again, an item of note is that a date of June 9, 2010 is referenced in the report.
Comment 11                                                                                      th
             This date is prior to issuance of a punch list (June 22, 2010). Based on the June 9
Comment 12   date, no work was “accepted”. The contractor’s first Application for Payment was
             not forwarded to the HACS for payment until July 8, 2010. As such, the contractor
             had not been paid for any work on June 9, 2010. Also, a retainage in the amount of
             10% of the completed work is being withheld throughout the course of the project
             until all contractual obligations are met by the contractor.

             A current timeline of Phase 1 and Phase 2 activities for stage one is attached for
             your review.

             The pictures included within the report are not identifiable. Picture #1 – Which unit
             was this? Was it scheduled to be included in the scope of the Phase I? This image
             is not indicative of the work performed by the Phase I contractor. Picture #2 –
             Where is the picture taken? Which unit? What is being questioned? Is the picture
             taken from the exterior of the building? The goal of this project is to improve the
             indoor air quality of each unit. All indoor air quality tests were performed with the
             windows closed. The scope of the work does not apply to the exterior of the
             building. Picture #3 – The commentary associated with the picture is merely
             commentary. Again, what unit is this? The windows themselves are not required to
             be encapsulated. Picture #4 – What unit is this? The status of the work was not
             complete. This was actually addressed in the Phase 2 portion of the work.

             It should be pointed out that Altec provided the HACS with clean air reports for the
             following units on July 1, 2010:


             8,9,16,17,21,22,24,27,29,44,48,52,54,56,59,67,71,79,90,92,93,107,109,110,117,12
             4,133,135,137,142,145,147,155, 159,167,168,170, and 175

             Repair of plaster work is scheduled to be completed within Phase 2 of the project.
             Paint deficiencies were identified during the generation of the punch list, and were
             addressed by the contractor.

             Picture #5 – Which unit is this? This is not an accurate reflection of the work
             performed and not apparent whether work in this unit was in the scope of work for
             the Phase 1 contractor. Picture #6 - Which unit is this? Is it within the scope of the
             Phase 1 contractor? Cleaning of the units is an ongoing process. The Phase 1
             contractor reaches a level of completed work in accordance with the documents and
             produces a clean air report. The Phase 2 contractor then addresses additional work
             required to bring the quality of the units to a livable condition, and provides a broom
             finish level of clean to the unit. Final cleaning will be provided after the scope of the
             project is completed. Picture #7 – What unit is indicated? Work was not complete
             in unit at time of photograph. Picture #8 - No plaster repair was within the scope of
             the Phase 1 contractor. All plaster repair is scheduled under the Phase 2 portion of
             the work. The ceilings of the first floor units are painted concrete. The ceilings of
             the second floor units vary between painted gypsum board and traditional plaster. It
             is unclear which unit is photographed (first or second floor). It should also be noted
             that the installation of all water flues and plumbing modifications were provided
             some 20 years ago at this project. The quality of that installation and ongoing
             maintenance, repair, and painting over time yields a rough palette for a new
             paintable surface.
                                              EQUAL HOUSING OPPORTUNITY




                                                26
             Any damage to locks will be corrected. It is unclear if the contractor damaged his
Comment 12
             own locks or those of the HACS. Ultimately, the Phase 1 contractor will be on site
             for at least three more phases of work, and all damaged locks will be corrected as
             required.

             It is a correct statement that the Phase I contractor notified Altec that remediation
             was completed and clean air samples had been achieved. It is also typical for the
             contractor to assume to be paid for his work. However, a punch list must be
             developed after walking the units with the owner to determine if in fact the units
             were “complete,” and in accordance with the contract documents. (This was not
             performed at the time of the visit for this DRAFT report).

             Observations were made throughout the course of the work to determine what
             progress was being made on the project in the form of field observations and
             documentation. As the work neared completion, punch lists were generated and
             distributed to the contractor to review and complete prior to completion, and prior to
             bringing the Phase 2 contractor on site. Involvement from the environmental
             consultant, the architect, and the Housing Authority all lead to effective policies in
             place for the determination that the work was performed in accordance with the
             contract documents.

             Phase 1 work was not complete at the time of the audit. Work is now complete. A
             punch list was generated, distributed to the contractor and deficient items were
             corrected. At the time of the report, no funds had been distributed to the Phase 1
             contractor. Work is now underway for Phase 2 of the project, and this process will
             continue for approximately four stages of work.

             Thank you for the opportunity to respond to the draft audit. Based upon the
             information and facts supplied in this letter, we welcome additional training.
             However, we see no reason for any monetary damages to the HACS as a result of
             our efforts to improve the quality of life for our residents. It is likely that our inability
             to finish this job will result in potential litigation, which would not be in the best
             interests of anyone. It is our desire to make the residents the winners of the use of
             the ARRA funding. Failure to do this hurts everyone involved. We gladly await to
             discuss this further on your visit here on Thursday, September 9, 2010.


             Respectfully submitted,




             Richard Herrington, Jr.
             Executive Director
             Housing Authority of the City of Shreveport
             richardh@shvhousauth.com

             Attachments


             Cc: Ms. Cheryl J. Williams – Director, Office of Public Housing, New Orleans,
             Louisiana
                                                EQUAL HOUSING OPPORTUNITY




                                                  27
                         OIG Evaluation of Auditee Comments

Comment 1   We acknowledged that the Authority underwent management changes in footnote
            9 of the draft and included it in the finding of the final report. The Authority
            management’s lack of awareness did not preclude it from being effective and
            efficient stewards of Recovery Act funds. Although the Authority criticized prior
            management, it used prior management’s plans as its basis to support some
            decisions. Irrespective, effective and efficient obligation of Recovery Act funds
            should have been a top priority of the new management team, including
            understanding the planned use of the Recovery Act funds.

Comment 2   We modified the finding as appropriate. The contemporaneous documentation
            did not reflect cost savings as a reason for the Authority’s procurement decisions.
            The Authority did not provide support for its assertion of cost savings. Further,
            the Authority did not provide documentation or discussion to contradict that it
            violated procurement requirements in the awarding of cited contracts.

Comment 3   We modified the finding as appropriate. The Authority’s records, adopted board
            minutes and interviews with staff indicate expediency was the major
            consideration in awarding the contracts. The Authority provided a 2006 letter
            from HUD approving the Authority’s request to remove 22 units from its rent roll
            due to mold and mildew problems. Four of the 22 units listed in the letter were
            included in the work performed with Recovery Act funds and presumably will be
            returned to the rent roll. The Authority did not provide any other documentation
            of the “health and safety concern that existed for a number of years prior to the
            arrival of the new executive staff.” The testing of the units supplied by the
            Authority occurred in 2010.

            Further, based on our follow-up observations 3 months after the initial
            observations, and after obligation of more than $10,000 per unit, the units that we
            observed remained unoccupied and uninhabitable.

Comment 4   As discussed in the finding, modernization work undertaken by the Authority was
            not in its approved annual or five-year plan as required. HUD’s approval of the
            Authority’s request to remove 22 units due to mold and mildew 4 years ago does
            not support the Authority’s assertion of “a long-standing health and safety air
            quality issue that was prevalent at the Wilkinson Terrace site.” Nor, does it
            support the Authority violating Recovery Act requirements.

            Our audit objective included determining whether obligations were appropriate
            and prudent. This includes ensuring the health and safety of residents and
            acceptable project conditions, primary concerns of OIG.




                                             28
Comment 5   While the Authority may have been confident, HUD was not as evidenced by its
            letter to the Authority, its board and the Mayor of Shreveport. Further, the pre-
            bid conferences for the Phase 1 and Phase 2 contracts (87 percent of contract
            dollars for the Wilkinson Terrace site) were not held until after February 13,
            2010. We maintain that the Authority was at risk of losing its Recovery Act
            formula grant.

Comment 6   We modified this section of the finding as necessary. The Authority did not provide
            documentation related to the cost and benefit to evaluate its response. Contrary to
            the Authority’s editorial, the Authority did expend Recovery Act funds on 4 of the
            22 units removed from the Authority’s rent roll in 2006.

Comment 7   The Authority misinterpreted what the draft report stated.

Comment 8   The Authority was required by 24 CFR 85.36 to perform a cost or price analysis in
            connection with every procurement action including contract modifications. The
            Authority was also required to maintain records sufficiently detailing the history
            of the procurement, including the basis for the contract price.

            Comment 9 We modified the finding as appropriate. According to the
            contractor’s bid package and the Authority’s official bid tabulation sheet (shown
            below), the lowest responsive bidder provided a base bid of $782,760 and alternate
            bids totaling $143,910, resulting in a total bid of $926,670. The Authority’s
            response incorrectly reports that the contractor provided a base bid of $926,670. The
            Authority did not provide sufficient explanation of how it calculated the alternate
            totals in its response.




                                             29
Comment 10 According to HUD requirements, 26 the Authority could have considered past
           performance in determining whether to award a contract.

Comment 11 We merged draft findings 1 and 2 into one finding based upon the Authority’s
           comments and our additional site visit after the exit conference.

Comment 12 At the time of our June 10, 2010 observations, it appeared the Authority and its
           contractors considered the phase 1 work complete. 27 We informed the executive
           director of our observations at the conclusion of our June 10, 2010 site visit.
           Following our discussions, the executive director requested its architect to
           conduct a field visit to address our observations. 28




26
     24 CFR 85.36(b)(8)
27
     The reference to removed locks was for illustrative purposes, indicating that the contractor considered the work
     complete. However, we removed the discussion from the finding.
28
     The architect provided a report on June 11, 2010, which referenced our observations.

                                                         30