oversight

The West Memphis, AR, Housing Authority Generally Administered Its Recovery Act Funding in Compliance With Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-01-05.

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

                                                                 Issue Date
                                                                    January 5, 2011
                                                                 Audit Report Number
                                                                  2011-FW-1004




TO:        Johnny Wooley, Director, Office of Public Housing, 6FPH

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


SUBJECT: The West Memphis, AR, Housing Authority Generally Administered Its
         Recovery Act Funding in Compliance With Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the West Memphis Housing Authority (Authority) in Arkansas as part of
             our annual audit plan to review the Public Housing Capital Fund Stimulus (formula)
             Recovery Act Funded (Recovery Act). We chose to audit the Authority based
             upon our risk assessment and subsequent discussion with the U. S. Department of
             Housing and Urban Development (HUD). Our objective was to determine
             whether obligations the Authority made between January 30 and March 17, 2010,
             were appropriate, prudent, eligible, and supported, whether procurements and
             disbursements were made in accordance with requirements.

 What We Found


             Generally, the Authority complied with Recovery Act requirements regarding the
             obligation of capital funds, including complying with procurement requirements.
             However, it did not comply with all requirements and could strengthen its
             controls. The instances of noncompliance appeared to have been oversights by
             the Authority.
What We Recommend


           We recommend that the Director, Office of Public Housing, require the Authority
           to implement procurement and accounting procedures to ensure that it executes
           contracts within award amounts and budgets amounts reasonably in its action
           plans and annual statements. Further, HUD should require the Authority to
           allocate from existing funds to cover the more than $23,000 that it over-obligated
           from its Recovery Act funds. 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 December 7,
           2010 with a request for a written response by December 17, 2010. We held an
           exit conference with the Authority on December 14, 2010, and it provided written
           comments to the draft report on December 17, 2010.

           The Authority did not entirely agree with parts of the finding. However, the
           Authority’s response and corrective action to obligate funds is adequate to resolve
           Recommendation 1B. Thus, we will close the recommendation concurrent with
           the report issuance. The complete text of the auditee’s response, along with our
           evaluation of that response, can be found in appendix B of this report.




                                            2
                            TABLE OF CONTENTS

Background and Objective                                                             4

Results of Audit
       The Authority Generally Administered Its Recovery Act Funding in Compliance   5
       With Requirements

Scope and Methodology                                                                7

Internal Controls                                                                    8

Appendixes
   A. Schedule of Questioned Costs                                                   9
   B. Auditee Comments and OIG’s Evaluation                                          10




                                            3
                        BACKGROUND AND OBJECTIVE

The West Memphis Housing Authority (Authority), incorporated under the laws of the State of
Arkansas, was established in December 1959. The Authority operates under the governance of a
board of commissioners (board), which appoints an executive manager to manage the Authority.
The board is made up of five members. The Authority works with the U. S. Department of
Housing and Urban Development (HUD) to provide low-income public housing to individuals
eligible for financial assistance and owns and operates 385 low-rent public housing units in two
developments and administers 523 housing choice vouchers. The Authority targeted the
Courtyard Apartments, one of its public housing facilities, for part of its Recovery Act work.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009 (Recovery Act). Under the law, HUD funded the Public Housing Capital Fund Stimulus
(formula) Recovery Act Funded (Recovery Act). 1 The Recovery Act provided $4 billion to carry
out capital and management activities for public housing agencies according to law. 2 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. Table 1 summarizes the funds the Authority received.
                  Table 1. West Memphis Housing Authority Capital Fund grant awards
              Fiscal year                                         Authorized funds
              2008 regular Capital Fund                               $626,392
              2009 regular Capital Fund                               $628,852
              2009 Recovery Act Capital Fund                          $792,888

HUD allocated and made available $792,888 to the Authority for its Recovery Act Capital Fund
(formula grant) on March 18, 2009, with an obligation deadline of March 17, 2010. The
Recovery Act required HUD to recapture the remaining unobligated funds awarded to the
Authority and reallocate funds to agencies that complied with those requirements if the Authority
failed to comply with the obligation deadline. HUD required the Authority to use its formula
grant on eligible activities already identified or revised to be included in either its annual
statement or Five-Year Action Plan (action plan) by the mandated deadline and to provide a
budget for completing those activities.

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




1
    Catalog of Federal Domestic Assistance Number 14.885.
2
    Section 9 of the U.S. Housing Act of 1937


                                                     4
                                       RESULTS OF AUDIT


Finding: The Authority Generally Administered Its Recovery Act
Funding in Compliance With Requirements
Generally, the Authority complied with Recovery Act requirements to obligate capital funds for
appropriate, prudent, eligible, supported projects to meet the obligation deadline and to ensure
compliant procurements, and make disbursements in a timely fashion. It obligated funds to
procure the services of an architect and contractor to construct a new office building and replace
siding for 18 buildings at the Courtyard Apartments. While the Authority generally met the
requirements of the Recovery Act, it did not completely comply with requirements to execute
contracts within the confines of the Recovery Act award amount and budget appropriately for
projects it undertook. The Authority should implement procedures to correct these oversights.




    The Authority Obligated Its
    Funds in a Timely Manner


                  In accordance with the Recovery Act requirements, the Authority obligated its grant
                  funds before the March 17, 2010, deadline.3 It obligated $72,300 for an architect
                  and $744,000 for a construction contractor. The Authority expected to complete the
                  construction of the management office building and siding replacement before the
                  Recovery Act deadlines.4 As of December 2010, it had expended more than 55
                  percent of its funds and appeared to have completed the work appropriately.


    The Authority Contracted for
    More Than the Grant Amount


                  While the Authority complied with procurement requirements, it obligated
                  approximately $23,000 more than it received for architectural and construction
                  services. Specifically, the $816,300 total value of the two contracts exceeded the
                  authorized Recovery Act award amount of $792,888. According to the Authority, it
                  would fund the excess obligation from either its regular fiscal year 2009 Capital
                  Fund or operating budget funds. HUD should require the Authority to use existing
                  funds to cover the more than $23,000 that it over-obligated from its Recovery Act
3
      The Authority obligated all formula grant funds by February 28, 2010.
4
      The Recovery Act required deadlines for expenditures at 60 and 100 percent for March 17, 2011 and 2012,
      respectively.


                                                         5
                  funds. The Authority should implement procurement and accounting procedures to
                  ensure that it does not over-obligate funds.


    The Authority Did Not Budget
    Properly To Include Reasonable
    Costs for Its Approved Plans


                  The Authority’s contract amount represented a significant increase of $500,500
                  from prior budgeted amounts in its 2008 plan. According to HUD, the Authority
                  had not conducted a physical needs assessment in more than 5 years. HUD
                  expected the amounts in the budget to be reasonable estimates. 5 In this instance,
                  the actual cost of the activities exceeded the budgeted estimate by more than 200
                  percent. The Authority should implement procedures to ensure that the amounts
                  presented in its submitted plans are reasonable.


    Conclusion

                  The Authority complied with Recovery Act requirements to obligate capital funds
                  for appropriate, prudent, eligible, and supported projects to meet the obligation
                  deadline, ensure compliant procurements, and make disbursements in a timely
                  fashion. It obligated funds to procure the services of an architect and contractor
                  to construct a new office building and replace siding for 18 buildings at the
                  Courtyard Apartments with minimal exceptions. However, it did not comply with
                  all requirements and could strengthen its administration by implementing
                  additional procurement and accounting procedures. The Authority did not
                  execute contracts within award amounts or budget amounts reasonably in its
                  approved action plans.

    Recommendations

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

                  1A. Implement procurement and accounting procedures to ensure that it executes
                      contracts within the Recovery Act award amount and budgets amounts
                      reasonably in its action plan and annual statements.

                  1B. Obligate from existing funds $23,412 to cover its contracts.


5
     HUD does not provide specific guidance for budgeting items in the plan, only that all “large capital items” be
     listed and that the budgets and expected funding estimates be based on what a public housing agency has
     previously received.


                                                          6
                         SCOPE AND METHODOLOGY

We conducted the audit from July through December 2010, at both the West Memphis Housing
Authority office at 2820 E. Harrison Avenue in West Memphis, AR, and the Fort Worth, TX,
regional HUD Office of Inspector General (OIG) office. The audit period was January 1 to
March 17, 2010. We expanded the scope of the review to December 2010, to report the
Authority’s Recovery Act disbursements.

To accomplish the objective, we

           •   Reviewed and obtained an understanding of the Recovery Act legislation, relevant
               Capital Fund program guidance and criteria, grant agreements, and the
               Authority’s policies and procedures to carry out its planned activities.
           •   Interviewed the Authority’s management and staff and HUD staff to obtain an
               understanding of the Authority’s background, Recovery Act grant, and operations.
           •   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, action plans, and
               required budget submissions to HUD.
           •   Reviewed Authority board meeting minutes.
           •   Conducted site visits and inspected the office building site and a sample of siding
               replacement sites.
           •   Analyzed obligations and contracts to determine eligibility.
           •   Analyzed the Authority’s compliance with reporting requirements.

We reviewed the Authority’s architect and construction contracts to determine whether they were
appropriate and complied with the Recovery Act. The construction of the office building was
underway, and the siding replacement work had not been scheduled. For the site visit, we
observed the office building construction site with the foreman and Authority staff to obtain an
understanding of the progress of the work. We randomly selected five buildings from a universe
of 18 buildings for inspection and determined that the buildings needed siding replacement.

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.




                                                7
                              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 has established to make
                      obligations and procure contracts to ensure compliance and meet the
                      requirements of the Recovery Act.

               We assessed the relevant controls identified above.

               A deficiency in internal control exists when the design or operation of a control does
               not allow management or employees, in the normal course of performing their
               assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
               impairments to effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.


 Significant Deficiency


               We evaluated internal controls related to the audit objective in accordance with
               generally accepted government auditing standards. Our evaluation of internal
               controls was not designed to provide assurance on the effectiveness of the internal
               control structure as a whole. Accordingly, we do not express an opinion on the
               effectiveness of the Authority’s internal control.



                                                 8
                                       APPENDIXES

Appendix A

                    SCHEDULE OF QUESTIONED COSTS

                              Recommendation         Ineligible 1/
                              number

                                      1B                       $23,412




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.




                                                 9
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                           Auditee Comments

             December 14, 2010


             Mr. Gerald R. Kirkland
             U.S. Department of Housing and Urban Development
             Office of Inspector General, Region VI
             819 Taylor Street, Suite 13A09
             Fort Worth, TX 76102

             RE: WEST MEMPHIS HOUSING AUTHORITY ARRA AUDIT

             Dear Mr. Kirkland:

             This letter is in response to the results of your audit received in our office December 9, 2010.
             We will address each comment concisely and in order as directed on page 12 of the audit
             results.

Comment 1        1.   We will meet all required expenditure deadlines for this program.

Comment 2        2.   While the Authority tried to stay within the confines of the ARRA budget, it was not
                      feasible given that we were only estimating the costs. As is typical with all Capital
                      Fund Program expenditures, we are allowed to supplement the construction in order
                      to avoid taking deductive alternates. This results in more benefits to the residents of
                      the West Memphis Housing Authority.

                      As you know, it would be impossible to competitively bid a construction job exactly
                      within the confines of the ARRA grant. Therefore, we chose to supplement it with
                      either 2009 CFP or Operating funds when the time comes. This is fully allowed and
                      understood by the Little Rock HUD Field Office.

                      Documentation for the obligation of the $23,412 to our 2009 Capital Fund Program is
                      attached for your review and files.

                 3.   The Authority did meet the Recovery Act requirements before we proceeded with the
Comment 3             project. As mentioned, the office and siding were in both the 2007 and 2008 Capital
                      Fund Program Five-Year Plans. They were not in the 2009 regular Capital Fund
                      Program budget because the 2009 plan is not due to HUD until April each year given
                      that our Fiscal Year ends June 30th. As described in the “Background and Objective”
                      section of your report, President Obama signed the Recovery Act on February 17,
                      2009. In March of 2009, the Authority adopted a resolution to accept the $792,888
                      and a plan was due to the Field Office.




                                                    10
                     This ARRA or Recovery Act plan used “fungeability” to move the office and siding
                     from the previously approved and adopted 2007 and 2008 Capital Fund Programs.
                     There was no need to put these items anywhere in the regular 2009 Capital Fund
                     Program since this grant allowed us the opportunity to address them. We did in fact
                     ensure that our Recovery Act grant and the 2009 CFP were consistent with the Five-
                     Year Plan for the Authority.

                4.   This comment needs to be addressed twofold:
Comment 4
                         a.   The previously identified amount of $500,500 for the office identified in the
                              latter years of the Five-Year Plan was only an educated guess. We were
                              more interested in having the item identified than trying to put an actual
                              figure in the plan. Without the ARRA grant, we probably could not have
                              accomplished the construction of the much needed office. A “true” cost
                              estimate was prepared by the architect, and the bid was evaluated against it
                              to ensure reasonableness. This estimate was provided to the Mr. Benson
                              Mathews as well.

                         b.   The Arkansas housing authorities have been advised to wait for forthcoming
                              instructions before performing another physical needs assessment.

Comment 4       5.   The Housing Authority implements accounting and procurement procedures to the
                     best of our ability, and we feel that the contracts were executed appropriately,
                     consistently and within the budgets developed as previously discussed.
Comment 2       6.   We feel that we have addressed and cleared up any misunderstanding stated in items
Comment 4            1A and 1B.



            Sincerely,


            Timothy White
            Executive Director

            CC: Johnny Wooley, Little Rock, AR HUD Field Office
                Mitchell Warren, Arkansas HUD Field Office
                Randy Hoeschen, Ledford Engineering and Planning




                                                  11
OIG Evaluation of Auditee Comments

Comment 1   We acknowledged the Authority’s expectation to meet all required expenditure
            deadlines for this program.

Comment 2   The Authority’s response and corrective action to obligate funds is adequate to
            resolve Recommendation 1B. We will close this recommendation concurrent
            with the report issuance.

Comment 3   We removed this issue from the report.

Comment 4   We maintain the Authority should implement procedures to ensure that it
            reasonably estimates costs in its budgeted plans. In this instance, the Authority
            contracted in excess of 200 percent of budgeted amounts.




                                             12