oversight

Albuquerque Housing Services, Albuquerque, NM, Mismanaged Its Recovery Act Funding

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-04-07.

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

                                                                  Issue Date
                                                                           April 7, 2011
                                                                  Audit Report Number
                                                                           2011-FW-1007




TO:        Floyd R. Duran, Program Center Coordinator, Office of Public Housing, 6BPHO

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

SUBJECT: Albuquerque Housing Services, Albuquerque, NM, Mismanaged Its Recovery
           Act Funding


                                   HIGHLIGHTS

 What We Audited and Why

            In accordance with our goal to review funds provided under the American
            Recovery and Reinvestment Act of 2009 (Recovery Act), we audited
            Albuquerque Housing Services’ (Housing Services) Public Housing Capital Fund
            Stimulus (formula) Recovery Act-funded activities. Our audit objectives were to
            determine whether Housing Services (1) properly obligated and expended its
            Recovery Act formula grant in accordance with requirements, (2) followed the
            Recovery Act requirements when procuring contracts for goods or services, (3)
            maintained inventory controls over its fixed assets to ensure that Recovery Act funds
            were used efficiently, and (4) accurately reported its Recovery Act activities.

 What We Found


            Housing Services mismanaged its Recovery Act formula grant. Specifically, it
            did not properly obligate its Recovery Act formula grant in accordance with
            requirements, did not ensure that proper approval was obtained for disbursements
            exceeding $25,000, did not properly procure contracts, and did not maintain
            inventory controls over its fixed assets. However, it did ensure that expenditures
            were properly supported, and it properly reported its Recovery Act activities.
           Housing Services mismanaged its grant because its management disregarded
           Federal and City of Albuquerque (City) requirements and lacked policies to
           ensure compliance. As a result, Housing Services entire grant of more than $1.8
           million was ineligible and unsupported.

What We Recommend


           We recommend that the U. S. Department of Housing and Urban Development
           (HUD) rescind more than $1 million in ineligible costs and deposit those funds
           with the U.S. Treasury in accordance with the Recovery Act as amended.
           Further, HUD should require Housing Services to support or repay to the U.S.
           Treasury $711,294 in unsupported costs and adopt policies, procedures, and
           internal controls. Additionally, HUD should place Housing Services under direct
           review for procurements and provide technical assistance and monitoring.

           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 issued a draft report to Housing Services, its board, the City Purchasing
           Division, and HUD on March 22, 2011. We requested written comments by
           March 30, 2011. We conducted an exit conference with Housing Services,
           various other City departments, and HUD on March 28, 2011. Housing Services
           received an extension of time to provide written comments to and provided them
           on April 4, 2011. Housing Services both agreed and disagreed with the report.
           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 Objectives                                                           4

Results of Audit
      Finding 1: Housing Services Mismanaged Its Recovery Act Obligations and       5
                 Disbursements
      Finding 2: Housing Services Failed To Properly Procure Recovery Act-Funded    10
                 Contracts
      Finding 3: Housing Services Lacked Inventory Controls Over Its Fixed Assets   17

Scope and Methodology                                                               19

Internal Controls                                                                   21

Appendixes
   A. Schedule of Questioned Costs                                                  23
   B. Auditee Comments and OIG’s Evaluation                                         24




                                           3
                         BACKGROUND AND OBJECTIVES

The City of Albuquerque (City) has provided assistance as a public housing agency since 1967.
The public housing agency is currently called Albuquerque Housing Services (Housing Services)
and is a division of the City’s Department of Family and Community Services (Community
Services). The City’s mayor appointed the director of Community Services to govern and serve as
the entire board of Housing Services. The City hired a manager (executive director) to oversee
Housing Services’ day-to-day operations. Housing Services’ purpose is to provide decent and safe
housing designed to help low- and moderate-income citizens with housing, rent subsidies, housing
rehabilitation, housing opportunities, and self-sufficiency. Housing Services owns and manages
953 housing units located on 28 development sites throughout Albuquerque. It maintains its office
and records at 1840 University, Southeast, Albuquerque, NM.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of 2009
(Recovery Act) into law. 1 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.

Housing Services receives capital funds annually from the U. S. Department of Housing and Urban
Development (HUD). HUD allocated more than $1.8 million to Housing Services for its Recovery
Act Public Housing Capital Fund formula grant (formula grant). HUD made the formula grant
available to Housing Services on March 18, 2009, resulting in a statutory obligation deadline of
March 17, 2010. If Housing Services failed to comply with the obligation deadline, the Recovery
Act required HUD to recapture those obligations that did not meet the deadline and return the funds
to the U.S. Treasury for the sole purpose of deficit reduction. 2

HUD required Housing Services to use its Recovery Act grant on eligible activities already
identified in either its annual statement or Five-Year Action Plan (action plan). Additionally, HUD
required Housing Services to prioritize capital projects that were already underway or were included
in the action plan. If Housing Services decided to undertake work items not in its approved plans, it
was required to amend its approved plans. It was also required to provide a physical needs
assessment, as specified by HUD, when using funds from the Recovery Act grant.

Our audit objectives were to determine whether Housing Services (1) properly obligated and
expended its Recovery Act capital funds in accordance with requirements, (2) followed the
Recovery Act requirements when procuring contracts for goods or services, (3) maintained
inventory controls over its fixed assets to ensure that Recovery Act funds were used efficiently, and
(4) accurately reported its Recovery Act activities.

1
    Public Law 111-5
2
    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 U.S. Treasury and dedicated for the sole purpose
    of deficit reduction.


                                                        4
                                   RESULTS OF AUDIT

Finding 1: Housing Services Mismanaged Its Recovery Act Obligations
           and Disbursements
Housing Services properly supported its Recovery Act formula grant expenditures; however, it
mismanaged its obligations and disbursements because it did not properly obligate the funds and
ensure that proper approval was obtained for some disbursements. Specifically, Housing
Services’ management mismanaged its obligations and disbursements because it did not
understand obligation requirements, lacked policy providing direction, and lacked proper
oversight and controls. As a result, Housing Services entered its obligations into HUD’s Line of
Credit Control System (LOCCS) too soon, had not obligated $287,782 by the Recovery Act
obligation deadline date of March 17, 2010, entered into contract obligations totaling $316,988
after the Recovery Act obligation deadline, and failed to obtain proper signature approval on
disbursements exceeding $25,000.



    Housing Services Could Not
    Support Its Obligations

                 The Recovery Act requirements stated that public housing agencies must obligate
                 100 percent of the formula grant within 1 year of the effective date (March 18, 2009)
                 and all unobligated funds would be recaptured 1 year after the effective date.
                 Further, public housing authorities were required to expend at least 60 percent of the
                 grant within 2 years and 100 percent of the grant within 3 years of the effective date.
                 Any funds that did not meet the required percentages within the effective dates were
                 to be recaptured. According to Federal requirements, an obligation occurs when an
                 order is placed, a contract or subgrant is awarded, and goods and services are
                 received.3

                 Housing Services made entries into HUD LOCCS on April 30, 2009, stating that its
                 entire Recovery Act formula grant was obligated. However, 45 of its 50 contracts
                 (90 percent) were dated after the April obligation date in LOCCS. This condition
                 occurred because Housing Services did not understand the basic concepts of an
                 obligation or contract and lacked operating procedures. As a result, it obligated its
                 formula grant in LOCCS too soon and without the proper support.




3
     24 CFR 85.3 Definitions


                                                    5
    Formula Grant Funds Were Not
    Properly Obligated

                  HUD awarded Housing Services more than $1.8 million in Recovery Act formula
                  grant funds. Housing Services had a rough budget and a spreadsheet indicating how
                  it obligated its funds. Reviewing its contracts showed that it did not obligate its
                  grant funds in a timely manner. As table 1 shows, it had not obligated $287,782 by
                  the Recovery Act obligation deadline date of March 17, 2010.

                        Table 1: Total funds unobligated by Recovery Act deadline

                                   Description                                      Amount
                          Recovery Act formula grant award                                      $1,802,128
                          Less
                            Amount obligated by 3/17/2010            ($1,480,841)
                            Administration amount 4                     ($33,505)
                          Total obligated                                                     ($1,514,346)
                          Total unobligated                                                      $287,782


    Twelve Contracts Were Dated
    After the Deadline

                  Housing Services awarded 12 contracts worth $316,988 after the Recovery Act
                  obligation deadline of March 17, 2010. As shown in table 2, the contracts ranged
                  from a few days to more than 7 months after the deadline.

                  Table 2: Contracts awarded after the obligation deadline of March 17, 2010

                                                                                          Months
                          Type of work                   Development        Contract       after          Cost
                                                                               date      3/17/2010
              Roof replacement change order             LaPlata             3/22/2010       <1          $9,699.54
              Roof replacements                         Fruit               3/25/2010       <1        $174,478.19
              Water heater replacement change orders    Roma                4/2/2010        <1          $1,143.80
              Evaporator cooler replacement             Fruit               4/8/2010        <1         $93,936.00
              Furnace replacement change order          Fruit               5/17/2010        2          $6,798.00
              Ceiling repairs 5                         LaPlata             5/20/2010        2          $2,414.00
              Water valve replacement change order      60th St.            7/29/2010        4          $2,736.00
              Water heater replacement change orders    Don Gabal           8/7/2010        4.5           $425.00
              Water heater replacement change orders    60th St.            8/25/2010        5         $13,980.96
              Furnace replacement change order          Commanche           9/16/2010        6          $6,818.60
              Water heater replacement change orders    Sunset Gardens      9/21/2010        6          $2,292.00
              Furnace replacement change order          General Bradley    10/29/2010       7.5         $2,266.00
                                                       Total                                          $316,988.09

4
     Amount reported by Housing Services in LOCCS as administration, budget line item 1410.
5
     This was a small purchase to repair ceiling work damage caused by another contractor. The invoice date for
     this repair was used as the contract date.


                                                         6
            The amount exceeded the amount previously reported as unobligated before the
            deadline as Housing Services apparently used its administrative fee to fund contract
            change orders. Since Housing Services awarded these contracts after the Recovery
            Act deadline, $316,988 was ineligible.

Housing Services Did Not
Understand Obligations or
Contracting

            Housing Services did not understand when an obligation occurred and as
            explained in finding 2, did not follow the City’s contracts. As shown in table 2,
            awards and/or signed agreements between Housing Services and a contractor to
            perform requested work were not executed until after the deadline. The executive
            director stated that funds were obligated when the contractor was in place and
            ready to do the work, not at contract signing. He further stated that when the City
            had a contractor on file, he could immediately obligate the funds, because when a
            contract existed for the City, it also existed for Housing Services. As explained in
            finding 2, Housing Services did not follow the City’s contracts; thus, an
            obligation did not occur until it entered into agreements with the contractors.
            Further, the director of Community Services did not provide adequate oversight of
            Housing Services’ obligation of Recovery Act funds. Although the director of
            Community Services served as the board, there were no written meeting minutes
            to document her oversight. The new director of Community Services stated that
            she relied on the Housing Services’ executive director to oversee operations.

Disbursements Were Generally
Supported

            Housing Services generally ensured that disbursements were promptly paid and
            adequately supported. It provided payments to its contractors on a timely basis.
            Once an invoice was received from the contractor and all work was cleared for
            payment, Housing Services would submit a request to HUD for drawdown of
            funds for disbursement to the contractor. It generally issued checks to the
            contractors 2 days after drawdown of funds. In addition, all checks issued
            matched the invoices received and were paid to the appropriate contractors.




                                              7
Proper Signature Authority for
Disbursements Was Not
Obtained

             On December 31, 2009, the new director of Community Services signed a
             “Delegation of Requisition Signature Authority” requiring Housing Services’
             executive director to obtain signature approval on all purchase requisitions,
             disbursements, and purchase order adjustments exceeding $25,000. The director
             of Community Services did not sign requisitions, but her signature was on all
             original purchase orders exceeding the limit. A review of all 13 disbursements
             exceeding $25,000 showed that her signature was not on any of them. Some of
             the disbursements materially exceeded the limit, as 3 of the 13 disbursements
             exceeded $100,000. This condition occurred because the director of Community
             Services stated that she would only approve purchase orders exceeding the set
             limit, and, thereafter, Housing Services’ executive director was authorized to sign
             off on the necessary documents to process the payments contemplated by the
             purchase order. However, this verbal policy was not documented and was in
             direct conflict with the written signature authority. As a result, the director of
             Community Services did not provide adequate oversight of Housing Services’
             disbursements in excess of $25,000.


Housing Services Lacked
Policies and Segregation of
Duties

             Housing Services lacked policies and procedures that would provide the appropriate
             directions for its staff to obligate funds and ensure that disbursements were made
             according to Recovery Act, Federal, and City requirements. Further, Housing
             Services had no written policy or standard operating procedures. The executive
             director stated that Housing Services was required to follow the City’s policies,
             including using the City’s purchasing contracts as detailed in finding 2, but he failed
             to ensure that he or his staff followed the City’s policies. Further, Housing Services
             lacked adequate segregation of duties as the executive director was heavily involved
             in making purchases and directing payments and his actions were not properly
             overseen by the director of Community Services.


Conclusion


             Housing Services mismanaged it Recovery Act formula grant. It failed to
             properly obligate its Recovery Act funds as it did not have an understanding of
             Recovery Act and Federal requirements. As a result, it entered its obligations into
             LOCCS too soon, entered into contracts after the Recovery Act deadline, and



                                                8
          failed to obtain proper signature approval of disbursements in excess of $25,000.
          This condition occurred because Housing Services did not follow Recovery Act,
          Federal, and City requirements and it lacked proper oversight and controls.

Recommendations



          We recommend that the Program Center Coordinator, Office of Public and Indian
          Housing,

          1A. Recapture the $316,988 in ineligible Recovery Act grant funds that was
              obligated after the required date and return the funds to the U.S. Treasury in
              accordance with the Recovery Act, as amended, for the sole purpose of deficit
              reduction.

          1B. Require Housing Services to adopt and implement policies and procedures
              regarding its obligations and implement those procedures already in place
              regarding disbursements to ensure that proper oversight is provided by
              Housing Services’ board.

          1C. Provide additional monitoring of Housing Services’ obligations and
              disbursements to ensure that it complies with Recovery Act and Federal
              requirements.




                                           9
Finding 2: Housing Services Failed To Properly Procure Recovery Act-
           Funded Contracts
Because Housing Services’ management disregarded Federal and City requirements, it failed to
properly procure its Recovery Act formula grant-funded contracts. As a result, the entire
formula grant amount of more than $1.8 million was ineligible and unsupported.


 Housing Services Did Not
 Adopt a Recovery Act-
 Compliant Procurement Policy

              The Recovery Act and HUD required that public housing agencies amend their
              procurement standards so that they complied with Recovery Act and Federal
              requirements, including the “Buy American” provisions and the use of Energy Star
              products and appliances. Housing Services did not ensure that the procurement
              policy it used complied with the requirements.

              Housing Services’ executive director stated that Housing Services did not have its
              own procurement policy and that it followed the City’s policy. He further stated that
              he was verbally told by the prior director of Community Services that the City would
              not adopt the requirements and that Housing Services would have to use the vendors
              currently under City contract. However, Housing Services did have its own
              procurement policy, dated 1991, but no one in Housing Services or Community
              Services was aware of it until our audit. In addition, the Purchasing Division stated
              that it had told Housing Services that it could incorporate Recovery Act
              requirements into its procurements if Housing Services would provide them.
              Further, it warned Housing Services in April 2010 that its contracts did not follow
              Recovery Act requirements and that it should have performed a solicitation months
              earlier to ensure that the requirements were met. Thus, Housing Services
              disregarded Recovery Act and Federal procurement policy requirements when it
              made its Recovery Act procurements. Since the Authority did not properly procure
              the contracts, it did not have valid obligations by the March 17, 2010 Recovery Act
              deadline. Thus, the funds must be repaid to the U.S. Treasury.

Housing Services Did Not
Properly Plan Its Recovery Act
Procurements


              HUD allowed public housing agencies to use formula grant funds on eligible
              activities identified in the public housing agency’s annual statement or action plan.
              HUD allowed for revisions to the action plan if there were insufficient work items
              for the amount of funds provided. Upon receiving notice of the Recovery Act
              formula grant funding, Housing Services prepared a handwritten ledger sheet listing


                                               10
           items needing repair such as roofs, furnaces, evaporative coolers, water heaters, and
           water shutoff valves; their location; and the estimated cost. However, as discussed
           more fully in finding 3, Housing Services did not have a fixed asset inventory or
           other method to support how it determined which units would receive Recovery Act
           funding. Housing Services’ annual statement and action plan also did not contain
           sufficient detail regarding which units had previously been budgeted to receive
           funding to correct deferred maintenance or perform major work. When listing a
           development number and name for major repairs in its 2009 and 2010 plans, it listed
           “all” for repairs such as coolers, heaters, and water heaters completed in 2006, 2007,
           and 2008 and “all” for replacing items like roofs, air handling, and appliances in
           2009, 2010, 2011, and 2012. Further, its budget for the 2009 Recovery Act grant
           listed “agency wide” for water turnoff valves, roof replacements, heaters, coolers,
           and water heaters. Additionally, Housing Services had no written policy or
           procedures concerning planning major repairs, performing cost estimates, budgeting
           for grant expenditures, or tracking its fixed assets. As a result, Housing Services
           could not show that it prioritized capital projects and used the funds in an efficient
           manner.

Housing Services’ Did Not
Ensure That Some Products
Were Energy Efficient


           When purchasing energy products under the Recovery Act, housing agencies
           were to ensure that they purchased Energy Star products or Federal Energy
           Management Program (FEMP) designated products unless the purchase of an
           energy-efficient appliance was not cost effective to the agency. Housing Services
           stated both verbally and on its Web site that its purchases complied with the
           requirements. As shown in table 3, a review of its contracts and the products
           purchased showed that none of its furnace purchases and none of its water heater
           contracts, which totaled to $807,570, complied with the requirements. However,
           some of the water heaters that did not comply with the requirements had not been
           purchased because the contractor had not started the work at the time of the audit.
           Thus, Housing Services may still be able to avoid this deficiency for $70,162
           worth of water heaters.




                                             11
           Table 3: Housing Services’ compliance with FEMP

                      Product                  Product’s      FEMP         Met         Cost
                                               efficiency    standard     FEMP
                                                 rating                  (Y or N)
           Evaporator coolers - Mastercool       None          None         NA*         $151,175
           Total of purchased products that complied                                    $151,175

           Water heaters – AO Smith               59%          62%           N          $185,474
           Water heaters – Bradford White     61% and 59%      62%           N           $94,988
           Furnaces – Tempstar                    80%          90%           N          $456,946
           Total of purchased products that did not comply                              $737,408

           Water heaters – AO Smith               59%             62%         N          $70,162
           Total of contracted but not purchased products that did not comply            $70,162

           Grand total of products that did not comply                                  $807,570
           *Not applicable

           Since the products did not meet Federal requirements, Housing Services payments
           and obligations of $807,570 for the noncompliant products were ineligible.
           However, furnace costs of $15,883 and water heater costs of $17,842 were
           already determined to be ineligible, as Housing Services entered into obligations
           for these products after the Recovery Act deadline (see finding 1); thus, only
           $773,846 of this $807,570 needs to be repaid.

Housing Services Improperly
Used the City’s Contracts

           Housing Services stated that it awarded its Recovery Act contracts by using the
           City’s contracts. HUD had previously requested these contracts, but Housing
           Services did not provide them. The City’s Purchasing Division provided the various
           contracts for review. The City had contracts to provide roofing; heating, ventilating,
           and air conditioning (HVAC) maintenance; and plumbing services. The City had
           primary and secondary roofing and plumbing services contractors available for
           Housing Services. The City also had primary, secondary, and tertiary HVAC
           preventative maintenance contractors; however, the City had also awarded a separate
           contract to provide HVAC services for Housing Services. To award contracts,
           Housing Services prepared a request for proposal or quote and sent it to one or more
           of the contractors under contract with the City.

           Comparing Housing Services’ available requests for proposals and quotes and its
           contracts to the City’s contracts showed that its procurements did not comply with
           the language and requirements in the City’s contracts.




                                              12
          Scope of Services Requested Was Not Consistent With the City’s Contracts

          Housing Services did not ensure that its requests for proposals and quotes and its
          contracts were limited to services and materials in the City’s contracts for plumbing
          and roofing. The City’s plumbing contract was structured toward repairs and
          replacement; however, Housing Services sought the installation of new water shutoff
          valves at 196 units and the installation of new gas water heaters at 404 units. The
          City’s roofing contract provided for different types of roofing materials from those
          sought by Housing Services in its requests for quotes. Further, a roofing contractor
          stated that Housing Services’ capital fund grant coordinator said that Housing
          Services wanted a change in the scope of work to obtain an upgrade that would
          provide a better roof than was found in the City’s contract. However, the
          coordinator disagreed this occurred, but documentation shows that Housing Services
          purchased a roofing product with more plies than are in the City's contract. Thus,
          Housing Services knew that it was not following the City’s contract requirements.

          City’s Contract Pricing Methodologies Were Not Followed

          Housing Services did not ensure that its requests for proposals and quotes and its
          contracts used the same pricing methodologies as those that were in the City’s
          contract. The City’s contract for roofing included pricing at a per square foot cost;
          however, none of Housing Services’ requests or contracts used this methodology.
          Instead, Housing Services’ requests and contracts sought either a total based on total
          labor, total material, and totals for all other applicable costs or a grand total. In
          addition, the City’s contracts for HVAC and plumbing were all based on hourly
          labor rates and materials, yet none of Housing Services’ plumbing or HVAC
          requests or contracts were priced that way.

          Since the services it acquired were different from the scope of services in the City’s
          contracts and used different pricing methodologies, Housing Services did not
          properly use the contracts. It should have followed Federal and City procurement
          policies and sought competitive sealed bids to ensure full competition and the best
          price. Since it did not, all procurements, which totaled $1,797,829, were
          unsupported.

Housing Services Mismanaged
Its Request Process


          Housing Services did not properly manage its request for proposals or request for
          quotes process. Testing of all of its contract files showed missing requests, dating
          issues, acceptance issues, and a failure to include Recovery Act and HUD
          requirements.




                                            13
            Requests Were Missing and Lacked Information

            Housing Services did not provide requests for proposals or quotes for 16 (32
            percent) of the 50 contracts it awarded. Some of the requests for proposals and
            quotes were used for multiple contracts, resulting in fewer requests than contracts
            awarded. Thus, only 11 requests were found for the remaining 34 contracts. Six of
            its 11 proposals mentioned the Recovery Act and HUD requirements and 3
            mentioned just the Recovery Act; however, details such as “Buy American” and
            Energy Star requirements were absent. The remaining two proposals did not
            mention either the Recovery Act or HUD requirements.

            Requests Had Significant Dating and Acceptance Issues

            Housing Services made serious errors in its request process. It did not put issuance
            dates on any of its requests for proposals and requests for quotes. It also did not put
            submission deadlines on 7 of the 11 requests reviewed; however, e-mails providing
            deadlines were found for 4 of the 7 requests. Further, in two cases, it accepted the
            quotes and entered into two contracts before the submission deadline. In two other
            cases, it accepted a proposal dated 12 days and a quote dated 38 days after the
            submission deadline. In addition, Housing Services accepted three quotes for
            furnace replacements, which resulted in eight contracts, although the quotes did not
            follow the required pricing methodology in the request. It also dated a contract
            March 25, 2010, although it stated in e-mails that the new submission deadline was
            March 26, 2010, and a later e-mail stated that it was still negotiating the contractor’s
            proposal and the award on April 29, 2010.

Housing Services’ Contracting
Process Was Lacking

            Housing Services did not ensure that its contracting process met requirements. A
            total of 16 of 50 contracts awarded, totaling $653,554, were not signed by both
            parties. Housing Services also did not ensure that all purchase order changes or
            requisitions were signed.

 Housing Services Did Not
 Follow Small Purchase
 Procedures

            Housing Services made two Recovery Act-funded purchases using small purchase
            methods. One purchase totaling $2,414 was to repair damages caused by another
            contractor, and the other totaling almost $1,079 was to purchase new thermostats.
            Neither purchase met Federal or City requirements as Housing Services could not
            show that it had competitively made the purchases by obtaining three quotes. As
            further explained in finding 1, one purchase was ineligible as it was improperly



                                               14
           made after the obligation deadline. Thus, the second purchase of $1,079 was
           unsupported as Housing Services could not document that it followed Federal
           requirements.


 Housing Services’ Procurement
 Documentation Was Inadequate

           Although Federal regulations required it to have files that were sufficient to detail
           the history of its procurements, Housing Services did not maintain adequate
           procurement files. Its procurement files were missing documents, contradictory,
           and unorganized. Missing information included requests for proposals or quotes,
           requisitions, purchase orders, and signed contracts. The capital fund grant
           coordinator stated that some information was missing due to a data disk becoming
           corrupted.


 Housing Services’ Management
 Disregarded Requirements

           Housing Services did not comply with Recovery Act, Federal, and City
           procurement requirements due to its management and staff disregarding the
           requirements. Interviews with Housing Services, the Purchasing Division, and
           contractors showed that Housing Services was aware of the various requirements
           but did not follow them. Housing Services also lacked written policies,
           procedures, and internal controls. Its staff had no written guidance outlining what
           was required for a procurement or a procurement file. Strong internal controls,
           including a clear segregation of duties, which would have limited Housing
           Services’ ability to disregard requirements, did not exist. Housing Services’
           failure to follow the requirements or adopt policies, procedures, and controls went
           undetected because the directors of Community Services did not provide
           sufficient oversight as the board of Housing Services. The board never held
           official meetings, and the current director of Community Services relied on the
           executive director to ensure that Housing Services operated in compliance with
           requirements.

Housing Services’ Management
Had Changed

           Housing Services underwent management changes during the audit. The prior
           executive director retired at the end of January 2011, and a new executive director
           started in February 2011. The new executive director was briefed on the issues
           and stated that they would be addressed. In addition, Housing Services indicated
           that in July 2011 it would separate from the City and become a separate entity.




                                            15
    Conclusion


                  Since Housing Services’ management disregarded Recovery Act, Federal, and
                  City requirements, it failed to properly procure its Recovery Act formula grant-
                  funded contracts. As a result, the entire formula grant amount of more than $1.8
                  million was ineligible and unsupported.

    Recommendations



                  We recommend that the Program Center Coordinator, Office of Public and Indian
                  Housing,

                  2A. Require Housing Services to repay to the U.S. Treasury the $773,846
                      obligated or spent on products that were not Energy Star or FEMP
                      compliant and that had not been previously determined ineligible due to
                      being obligated after the statutory deadline.

                  2B. Require Housing Services to support or repay to the U.S. Treasury Recovery
                      Act procurements totaling $711,294 6 that were not determined ineligible but
                      which did not meet Recovery Act, Federal, or City procurement requirements.

                  2C. Require Housing Services to create, adopt, and implement a procurement
                      policy and internal controls that meet Federal requirements.

                  2D. Place Housing Services under a direct review for its procurements, which
                      would restrict its ability to enter into contracts.

                  2E. Provide technical assistance to and perform monitoring of Housing Services to
                      ensure that it complies with Federal procurement requirements.




6
     Total represents all procurements totaling $1,797,829 plus its remaining administration amount of $4,299, less
     ineligible obligations after the deadline ($316,988) and ineligible products that did not meet FEMP ($773,846).


                                                         16
Finding 3: Housing Services Lacked Inventory Controls Over Its Fixed
           Assets
Housing Services did not have controls over, maintain accountability for, or safeguard its fixed
assets. Specifically, it did not (1) know the estimated useful life of its fixed assets, (2) have a
fixed asset disposal process, and (3) have a system to track and determine which fixed assets to
replace to ensure that Recovery Act funds were used in an effective and efficient manner.
Housing Services lacked these controls because it did not realize that they were required, did not
know how to determine an asset’s useful life, and did not properly plan for its capital
improvements. As a result, Housing Services disposed of replaced assets that may have had a
remaining useful life, may have replaced assets before the end of their useful life, and performed
replacements without a system that prioritized units that had deferred maintenance needs.



 Housing Services’ Physical
 Inventory Was Inadequate

               Housing Services did not have an adequate inventory system or written policy
               concerning fixed assets. Information entered into its system was incomplete because
               it did not include proper descriptions, serial numbers, useful asset life, and
               acquisition and disposal dates. As a result, Housing Services was unable to
               determine which units had the greatest need for the Recovery Act funds. Further, it
               could not determine that the assets replaced were at the end of their useful life.
               Finally, when it disposed of fixed assets, it was unable to determine that the assets
               disposed of had economic or useful value. Housing Services accepted back some
               evaporator coolers that its contractor had disposed of in order to use them for parts;
               however, it did not add them to its parts inventory. This condition occurred because
               Housing Services had not implemented a system or policy and apparently did not
               realize the importance of such controls.

               Housing Services started tracking Recovery Act purchases by recording the make,
               model, and acquisition date of the new fixed assets. However, it did not know how
               to determine the useful life of its fixed assets.


 Housing Services Did Not
 Clearly Identify Capital
 Improvements Needed

               HUD required public housing agencies to prepare an action plan and an annual
               plan. According to HUD, the action plan is one of the most important documents
               of a public housing agency as it requires strategic planning to detail the capital
               improvements that coordinate with the public housing agency’s mission, goals,
               and strategies. HUD’s Public Housing Agency (PHA) Plan Desk Guide states
               that planned capital projects should be grouped by development and planned


                                                17
          activity. It further states that a public housing agency is only required to list large
          capital items. It recommends listing all items as “the PHA will only be permitted
          to exercise fungibility…between work items that are included in the annual plan.”
          Housing Services’ plans rarely listed the development, instead they often used
          “all” or “agency-wide.” Doing this may have allowed Housing Services to move
          funds, but it impaired its ability to plan its purchase of fixed assets and project
          modernization. As a result, it did not have a strategic plan to ensure that the
          Recovery Act funds were used in an effective and efficient manner.

Recommendations



          We recommend that the Program Center Coordinator, Office of Public and Indian
          Housing,

          3A. Require Housing Services to adopt and implement policies and controls over
              its fixed assets.

          3B. Perform additional monitoring and provide technical assistance in the area
              of fixed assets.

          3C. Require Housing Services to properly complete its action plan.




                                            18
                        SCOPE AND METHODOLOGY

The scope of the audit was Housing Services’ Recovery Act Public Housing Capital Fund
formula grant obligations made between March 1, 2009, and September 29, 2010. Housing
Services obligated its entire grant during this period, so we reviewed activities related to the
obligation and expenditure of the grand funds, which generally took place between March 2009
and November 2010. We expanded the scope of the audit as necessary. We performed the work
at Housing Services’ office at 1840 University Boulevard Southeast, Albuquerque, NM; the
City’s office at One Civic Plaza, Albuquerque, NM; and our offices in Albuquerque, NM, and
Fort Worth, TX, from October 20, 2010, to March 2, 2011.

To accomplish our objectives, we performed the following steps as they related to Housing
Services’ Recovery Act Public Housing Capital Fund formula grant:

   •   Reviewed relevant laws, regulations, and HUD guidance.
   •   Reviewed HUD’s 2009 monitoring reports for Housing Services’ Recovery Act funds
       and projects, dated January 14, 2010, and February 12, 2010.
   •   Reviewed Housing Services’ action plan and annual plan for the fiscal year beginning
       July 2009, the action plan for 2010-2014, and the annual plan for 2010.
   •   Reviewed the City’s audited financial statements for fiscal years starting July 1 and
       ending June 30 for 2006, 2007, and 2008.
   •   Reviewed the City’s Code of Ordinances, including chapter 5, which dealt with City
       property, purchase, and sales.
   •   Reviewed the City’s contracts with various contractors that were used by Housing
       Services.
   •   Reviewed Housing Services’ Recovery Act Public Housing Capital Fund formula grant
       agreement, procurement policies, procurement records, and invoice payments.
   •   Reviewed HUD’s LOCCS grant detail for Housing Services’ Recovery Act grant.
   •   Reviewed 100 percent of Housing Services’ 50 Recovery Act grant contracts.
   •   Conducted five site visits at four locations, which were selected randomly and included
       one project for each major project type, to visually verify that work was completed.
   •   Reviewed Housing Services’ procurements to ensure that installed furnaces, water
       heaters, and evaporative coolers met the efficiency requirements of the Recovery Act.
   •   Obtained and reviewed an electronic listing of Housing Services’ Recovery Act payments
       from August 5, 2009, to November 17, 2010. We determined that the data were
       sufficiently reliable to meet our objectives.
   •   Selected and tested a sample of 10 of 39 obligations made by Housing Services and
       valued at more than $1.4 million to determine whether the obligations were included in
       its action plan. The first two obligations from each of the major contract categories
       (roofs, furnaces, evaporator coolers, water heaters, and water turnoff valves) were
       selected. These disbursements were also tested to determine whether invoices matched
       disbursements and contracts and were properly authorized.
   •   Reviewed the City’s executive instructions on signature authority, including reviewing
       the various delegations of signature authority to the executive director.


                                               19
   •   Reviewed 100 percent of Housing Services’ 13 Recovery Act disbursements made after
       January 1, 2010, which were in excess of $25,000, to test signature approval.
   •   Reviewed Housing Services’ asset inventory records.
   •   Interviewed three contractors, Housing Services’ staff, the director of the City’s Office of
       Internal Audit and Investigation, the purchase manager and the assistant purchasing
       manager of the City’s Purchasing Division, the current director of Community Services,
       and HUD staff in Albuquerque, NM.

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
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                                20
                              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
               objectives:

               •   Controls over obligations and expenditures related to Recovery Act activities.
               •   Controls over procurement concerning Recovery Act activities.
               •   Controls over inventory of its fixed assets.
               •   Controls over Recovery Act reporting.

               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.




                                                21
Significant Deficiencies


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

             •   Housing Services mismanaged its Recovery Act obligations (finding 1).
             •   Housing Services failed to properly procure Recovery Act-funded contracts
                 (finding 2).
             •   Housing Services lacked inventory controls over its fixed assets (finding 3).




                                              22
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS


                  Recommendation            Ineligible 1/   Unsupported 2/
                         number
                                1A             $316,988
                                2A              773,846
                                2B                                $711,294

                             Totals          $1,090,834           $711,294


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

2/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.




                                             23
Appendix B

          AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                               Auditee Comments


                April 4, 2011

                Theresa A. Carroll, CPA
                Assistant Regional Inspector General
                819 Taylor Street, Suite 13A09
                Fort Worth, TX 76102

                Re: Response to Audit Report Number: 2011-FW-100X

                Dear Ms. Carroll,

COMMENT 1 On November 2, 2010, your office interviewed Albuquerque Housing Services staff and began the
                preliminary investigation procedure to determine if a full investigation was necessary. On January
                5, 2011, a letter was received from your office stating it will be necessary to complete a full audit
                of the ARRA Grant. On March 23, 2011, the draft audit report was received from your office via
                email. On March 23, 2011, you telephoned to schedule a meeting for March 28, 2011 at 1:00 pm
                to discuss the draft audit report. There were 18 persons in attendance and it was agreed that there
                would be modifications to the draft audit. AHS is not in receipt of the revised draft audit. Shortly
                after the meeting I received the following email:

                Ms. Newman,

                This email is to confirm that we have extended the date of your written response
                to our draft report issued to you on 3/23/2011 from 3/30/2011 to 4/4/2011. As
                stated in the exit, please provide your comments to us via email on 4/4/2011 or
                the audit report will issued without them. Further, to comply with handicap
                accessibility reporting requirements, we need your written response in a word
                format.
                If you have any questions, please contact me.

                Sincerely,
                Theresa Carroll, CPA
                Assistant Regional Inspector General for Audit
                Region VI, Fort Worth, Texas

                This letter responds to the draft audit received on March 23, 2011.

                Finding 1: Housing Services Mismanaged Its Recovery Act Obligations

COMMENT 2 Albuquerque Housing Services agrees $287,782 was not obligated timely.

COMMENT 3 The following obligated amounts were change orders and should be allowed as a project in
                progress, since the original obligation date would have been when the two parties agreed on the
                job and scope:



                                                       24
COMMENT 3
                Roof replacement change order                                 $ 9,699.54
                Water heater replacement change order                 $ 1,143.80
                Furnace replacement change order                      $ 6,798.00
                Water valve replacement change order                          $ 2,736.00
                Water heater replacement change order                 $ 425.00
                Water heater replacement change order                 $13,980.96
                Furnace replacement change order                      $ 6,818.60
                Water heater replacement change order                 $ 2,292.00
                Furnace replacement change order                      $ 2,226.00

COMMENT 4 The roof replacement in the amount of $174,478.19 (obligated 3/25/10) and Evaporator cooler
                replacement in the amount of $93,936.00 (obligated 4/8/10); should be allowed to be included as
                obligated timely. The processes for the roof replacement and Evaporator cooler replacement were
                in the final stages of contract negotiations.

COMMENT 2 In summary: Albuquerque Housing Services agrees the funds in the amount of $2,414.00 were
                not obligated timely.

COMMENT 5 Proper signature authority was exercised during the process of disbursements. Review of the
                accounts payable files in the accounting department show 15 disbursement exceeding $25,000,
                and all had signatures of both the Executive Director for AHS and the Department Director of
                Family and Community Services. Of the 15 disbursements, there were four that exceeded
                $100,000. The disbursements, also known as payments, were signed by the Chief Administrative
                Officer, David Campbell.

                Recommendations to Finding 1:

                1A.      “Recapture the $316,988 in ineligible Recovery Act grant funds that was obligated after
                the required date… in accordance with the Recovery Act, as amended, for the purpose of deficit
                reduction.”

COMMENT 2               Response: AHS agrees there were funds that need to be recaptured and determine the
                amount is $2,414.00.

                In the draft report, there is no reference to the date or notice number of the amended Recovery
                Act for the purpose of deficit reduction.

                1B.      “Require Housing Services to adopt and implement policies and procedures regarding
                obligations and implement those procedures already in place regarding disbursements to ensure
                that proper oversight is provided by Housing Services’ Board.”

COMMENT 6                Response: On July 1, 2011, Albuquerque Housing Services will become Albuquerque
                Housing Authority. The Authority will be governed by a duly constituted Board of
                Commissioners appointed by the Mayor of the City of Albuquerque and confirmed by the City
                Council. The Board shall be required to approve policy and procedures. The first order of
                business for the Board will be to review and approve procurement policy and procedures.




                                                       25
                1C.      “Provide additional monitoring of Housing Services’ obligations and disbursement to
                ensure that it complies with Recovery Act and Federal requirements.”

COMMENT 7                Response: The report requires relinquishment of any extra funds and repayment of
                unauthorized funds. The grant will be closed once this has occurred and will no longer need
                additional monitoring.

COMMENT 2 In Summary, Albuquerque Housing Services will pay back the difference between $287,782 and
                the current balance plus $2,414 with an approximate total amount to the treasury of $138,552.

                Finding 2: Housing Services Failed to Properly Procure Recovery Act Funded Contracts

COMMENT 8 The City of Albuquerque procures its contractors annually. AHS uses the contractors with the
                City of Albuquerque as described in CFR 85.36(5): “To foster greater economy and efficiency,
                grantees and subgrantees are encouraged to enter into State and local intergovernmental
                agreements for procurement or use of common goods and services.”

                The Albuquerque Housing Authority Procurement policy was adopted by the Albuquerque City
                Council on June 4, 1991. Per Section IX (B)(1), “Use of State and Local Governmental
                Procurement Services”, mirrors the CFR stated above.

COMMENT 8 Below is a spreadsheet that was used to monitor the work progress using the ARRA grant funds.


                        picture




                                                      26
picture




          27
picture




          28
                Recommendations to Finding 2:

                2A.     “Require Housing Services to repay to the US Treasury the $773,846 obligated or spent
                on Products that were not Energy Star or FEMP compliant and that had not been previously
                determined ineligible due to be obligated after the statutory deadline.”

COMMENT 9       Response: The PIH Notice PIH 2000-25(HA) issued July 30, 2009 mentions in paragraph 10,
                page 7: “…a PHA shall purchase energy efficient appliances which are Energy Star products or
                FEMP- designated products, unless the purchase of energy efficient appliances is not cost effective
                to the agency….”

COMMENT 9       The items on the table in the draft report lists water heaters, furnaces and evaporator coolers.
                Water heaters are not considered an appliance, they are considered plumbing. Furnaces are not
                considered as an appliance and evaporator coolers do not have any energy ratings.

COMMENT 9       The water heaters were replaced with 30 gallon water heaters due to the limited space in the closet
                for the item. At the time of contract negotiations, there was not energy efficiency available. The
                contractors stated to provide Energy Star would cost twice as much and would cause
                modifications of the closet that housed the water heater, as would the replacement of the furnaces.

                2B.     Require Housing Services to support or repay the US Treasury Recovery Act
                procurements totaling $711,294 that were not determined ineligible but which did not meet
                Recovery Act, Federal, or City procurement requirements.

COMMENT 10 Response: The footnote refers to ineligible products that did not meet FEMP and that amount is
           $773,846. The footnote does not provide information on the $711,294.

                AHS will provide documentation to the HUD Field Office to support the dollar amount listed
                above by June 3, 2011.

                2C.       Require Housing Services to create, adopt, and implement a procurement policy and
                internal controls that meet Federal requirements.

COMMENT 6       Response: Housing Services has created and adopted a Procurement Policy that was passed by
                the City Council. The policy will be reviewed for current regulations and presented to the
                Housing Authority Board of Commissioners for review and approval at their first official meeting
                in July 2011. It will then be implemented and training provided to those employees who have
                involvement with the CFP Grants.

                2D.        Place Housing Services under a direct review for its procurements, which would restrict
                its ability to enter into contracts.

COMMENT 11 Response: AHS is currently under this restriction with the HUD Field Office. Prior to any
           LOCCS entries, the requests are being reviewed and then approved or denied.

                2E.       Provide technical assistance to and perform monitoring of Housing Services to ensure
                that it complies with Federal procurement requirements.




                                                       29
COMMENT 12 Response: AHS will request that the HUD Field Office provide technical assistance and
           monitoring of the Federal procurement requirements.

                Finding 3: Housing Services Lacked Inventory Controls Over its Fixed Assets


                Recommendations to Finding 3:

                3A.        Require Housing Services adopt and implement policies and controls over its fixed
                assets.

COMMENT 13 Response: The Housing Services software program offers a fixed asset module. The assets are
           entered into the system that, as of now, consists of 317 pages of assets. The module has not,
           however, been consistently utilized so there are fields that have no entries. It does provide a
           starting place and we will complete the listings.

                3B.        Perform additional monitoring and provide technical assistance in the area of fixed assets.

COMMENT 13 Response: AHS will work with the HUD Field Office to ensure all fixed assets are accounted for
           properly.

                3C.        Require Housing Services to properly complete its action plan.

COMMENT 13 Response: AHS will communicate with the HUD Field Office to ensure all items are included in
           the action plan and collaborate with that office to ensure all steps are being completed properly.

                Regards,



                Robin Dozier Otten




                                                         30
                           OIG Evaluation of Auditee Comments

Comment 1     Housing Services stated that OIG agreed to make modifications to the draft, but it
              had not received a revised draft. At the exit, OIG agreed to delete one paragraph
              concerning Housing Services significantly exceeding contract maximum amounts
              as the City’s purchasing officer stated the amounts were more of an estimate at a
              given point in time rather than a maximum. OIG also agreed to add that Housing
              Services’ program coordinator disagreed that he had told a contractor that the
              City’s contract scope would not be followed. As all the changes were minor, OIG
              did not state it would provide a revised draft. However, OIG granted an extension
              for providing a response. In addition, OIG notified the individual, who was the
              board, of the findings in the audit notification letter issued January 5, 2011, and
              met with and provided the prior executive director with testing results and finding
              outlines on January 12, 2011. The board was aware of, but did not attend the
              meeting. OIG also met the new executive director on February 3, 2011, and
              briefed her on the findings. The results of the reviews of all 50 contracts were
              emailed to her and her staff on the same day. At the exit conference, the new
              executive director stated she had received but not reviewed the information.
              Thus, Housing Services was aware of the findings and had sufficient time to
              respond.

Comment 2     Housing Services stated that it agreed $287,782 was not obligated timely.
              However, it stated the funds that needed to be recaptured was $2,414 or the
              difference between $287,782 and the current balance, plus $2,414, with an
              approximate total amount to the U.S. Treasury of $138,552. We disagree.
              Housing Services’ Recovery Act amended annual contribution contract clearly
              stated that amounts had to be obligated by the deadline and no extensions were
              allowed. As explained and referenced to the law in the background section of the
              report, the entire amount must be repaid to the U.S. Treasury for debt reduction,
              as it was not obligated by the deadline.

Comment 3     Housing Services stated that some obligated amounts were change orders and
              should be allowed as a project in progress, since the obligation date would have
              been when the two parties agreed on the job and scope. We disagree, as the
              change orders were outside the original scope of work agreed to by both parties.
              For example, the change orders included items like removing and replacing
              concrete to repair water leaks at the meter when installing a new water heater,
              installing new water heaters in order to have the new furnaces meet code
              inspections, and installing new water cut-off valves in units that had received new
              water heaters even though it had just installed new exterior water cut-off valves at
              the units. Further, if on-site reviews of the original scope of work had been
              performed prior to submission of bids, these issues would have been identified
              and addressed during the procurement of the work.

Comment 4: Housing Services stated that the two contracts for $174,478 and $93,936, which
           were obligated after March 17, 2010, should be allowed, as the contracts were in



                                               31
              the final stages of negotiations. We disagree. The Recovery Act requirements
              had a statutory obligation deadline date of March 17, 2010, with no exceptions.
              In June 2009, HUD provided training at Housing Services, which provided a
              definition of obligation. HUD stated an obligation occurred when work activities
              have been properly procured and the contract has been signed.

Comment 5: Housing Services stated that proper signature authority was exercised during the
           process of disbursements that exceeded $25,000. We disagree. Our review of the
           disbursements found that the director of Family and Community Services signed
           the original purchase orders, but she did not sign the disbursements. Instead, a
           copy of the purchase order with her signature was included in the disbursement
           package. The director did not appear to understand that signing and approving a
           purchase order was separate from signing and approving a disbursement of funds.

Comment 6     Housing Services indicated, on July 1, 2011, the first order of business for the
              newly appointed board of commissioners will be to approve policies and
              procedures. We acknowledge Housing Services’ statement that it will adopt new
              policies and procedures. However, we do not believe that it should wait several
              months to implement policies and procedures that prevent HUD funds from being
              mismanaged.

Comment 7     Housing Services indicated the grant will be closed and no additional monitoring
              will be needed. We disagree. Due to the significant and material findings,
              Housing Services needs additional HUD monitoring and oversight.

Comment 8: Housing Services stated the City procured contractors annually and that its
           procurement policy, which followed federal policy, was adopted on June 4, 1991.
           It also provided a spreadsheet it stated was used to monitor Recovery Act funds.
           OIG agreed the City procured contractors; however, Housing Services did not
           address the finding issues, which concerned it not modifying its procurement
           policy to include Recovery Act requirements and its failure to properly use the
           City’s contracts. Additionally, the board and Housing Services admitted they
           were not aware that the 1991 procurement policy existed until our audit. Since it
           became aware of the policy in November 2010, Housing Services could not have
           used it to procure Recovery Act contracts and change orders from March 2009
           through October 2010. Housing Services previously provided OIG the
           November 1, 2010 monitoring spreadsheet, which we reviewed during the audit.

Comment 9     Housing Services stated that based on PIH Notice 2009-25 (HA), water heaters,
              furnaces, and evaporator coolers were not considered appliances. We disagree.
              The FEMP website describes furnaces and water heaters as appliances. Further,
              PIH Notice 2009-9 (HA), Using Energy Star to Promote Energy Efficiency in
              Public Housing, which was issued prior to the Recovery Act grant on March 5,
              2009, stated that Energy Star should be selected whenever energy systems,
              devices, and appliances are replaced unless it is not cost effective to do so.




                                              32
              Housing Services also stated that water heaters were replaced with 30 gallon
              water heaters due to the limited space in the closet. It also stated that at the time
              of contract negotiations energy efficiency was not available and the contractors
              stated that Energy Star would cost twice as much and require modifications of the
              closets. We disagree. Energy Star products of equivalent size and price were
              available instead of the water heater and furnace models installed by Housing
              Services. Further, Housing Services stated the installed furnaces and water
              heaters met energy efficiency requirements by being 85-90 percent efficient. Yet,
              none of its appliances met that standard. Additionally, no documentation existed
              in Housing Services’ procurement files indicating that Energy Star was not cost
              effective.

Comment 10 The finding stated the entire grant was unsupported as Housing Services did not
           properly procure the contracts. The footnote explanation merely detailed how
           much of the grant was ineligible and how much was unsupported to prevent
           duplicate reporting.

Comment 11 This is appropriate action by HUD.

Comment 12 We acknowledge Housing Services’ response.

Comment 13 We acknowledge Housing Services’ response.




                                               33