Issue Date
July 7, 2011
Audit Report Number
2011-FW-1014
TO: Regenia Hawkins, Director, Office of Public Housing, 6APH
//signed//
FROM: Gerald R. Kirkland
Regional Inspector General for Audit, Fort Worth Region, 6AGA
SUBJECT: The Housing Authority of the City of Wichita Falls, TX, Generally Ensured That
Its Recovery Act Capital Fund Grant Complied With Requirements
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 the Housing
Authority of the City of Wichita Falls’ Public Housing Capital Fund Stimulus
(formula) Recovery Act-funded activities. Specifically, our objectives were to
determine whether the Authority followed Recovery Act rules and regulations
when obligating and expending its Recovery Act capital funds and reported
Recovery Act funds as required.
What We Found
Generally the Authority followed Recovery Act rules and regulations with two
minor exceptions. It properly used the formula grant funds to expand its
extensive capital projects already underway. It met the time deadlines and
provided support for both obligations and expenditures associated with the
formula grant. It also reported its use of the funds in a timely manner. However,
the Authority relied on its architect’s statement that only one asbestos monitor
could provide needed services, resulting in a $16,600 contract being awarded
without adequate competition. In addition, it did not ensure that water heaters,
which cost $16,799, met Federal Energy Management Program requirements
before purchase. These minor exceptions 1 occurred because the Authority did not
follow or was not aware of the Federal requirements.
What We Recommend
We recommend that the Director of the U.S. Department of Housing and Urban
Development’s (HUD) Office of Public Housing require the Authority to provide
support for the $16,600 spent for asbestos monitoring and the $16,799 spent for
noncompliant water heater purchases. If the Authority cannot support the costs,
HUD should return the unsupported cost to the U.S. Treasury.
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 draft report to the Authority on June 15, 2011, and held an exit
conference with it and HUD on June 20, 2011. We requested a written response
by June 24, 2011. In its June 24, 2011 response, the Authority agreed and
disagreed with the findings and recommendations. The complete text of the
Authority’s response, along with our evaluation of that response, can be found in
appendix B of this report.
1
These represented only 2.5 percent of the total formula grant.
2
TABLE OF CONTENTS
Background and Objectives 4
Results of Audit
Finding: The Authority Generally Complied With Recovery Act Requirements 5
Scope and Methodology 8
Internal Controls 9
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 10
B. Auditee Comments and OIG’s Evaluation 11
3
BACKGROUND AND OBJECTIVES
The Housing Authority of the City of Wichita Falls, TX, is a public body that was established
pursuant to the laws of the State of Texas. 2 The Authority may construct, lease, and operate
housing projects. The governing body of the Authority is its board of commissioners appointed
by the mayor. The Authority receives capital funds annually via a formula grant from the U.S.
Department of Housing and Urban Development (HUD). It may use its capital funds for
development, financing, modernization, and management improvements for its public housing
developments.
On February 17, 2009, the President signed the American Recovery and Reinvestment Act of
2009 (Recovery Act) into law. 3 The Recovery Act provided $4 billion for public housing
agencies to carry out capital and management activities, including modernization and
development of public housing. It allocated $3 billion for formula grants and $1 billion for
competitive grants. The Recovery Act required public housing agencies to obligate 100 percent
of the funds within 1 year of the date on which funds became available to the agency for
obligation and expend 60 percent within 2 years and 100 percent within 3 years of such date.
HUD allocated more than $1.3 million to the Authority for one Recovery Act Capital Fund
formula grant. HUD made the formula grant available to the Authority on March 18, 2009,
resulting in a statutory obligation deadline of March 17, 2010. If the Authority failed to comply
with the obligation deadline, HUD was required 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. 4
HUD required the Authority to use its Recovery Act formula grant on eligible activities already
identified in either its annual statement or 5-year action plan. The HUD-approved plans set forth
all of the Authority’s physical and management improvement needs for its public housing
developments and must demonstrate long-term physical and social viability of proposed projects,
including cost reasonableness. If the Authority decided to undertake work items not in its
approved plans, HUD required it to amend its approved plans.
Our audit objectives were to determine whether (1) the Authority properly followed the
Recovery Act rules and regulations when obligating and expending its Recovery Act capital
funds and (2) reported Recovery Act funds as required.
2
Section 392.031 of the Texas Local Government Code; Bylaws of the Housing Authority of the City of Wichita
Falls; Resolutions 129 and 51
3
Public Law 111-5
4
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: The Authority Generally Complied With Recovery Act
Requirements
Generally the Authority followed the Recovery Act rules and regulations with two minor
exceptions. It properly used the formula grant funds to expand capital projects already
underway. It met the time deadlines for both obligation and expenditures associated with the
formula grant. It also included in its 5-year action plan its intention to update residential units’
heating and air units. Upon receipt of the Recovery Act formula grant, the Authority expanded
its project to include additional residential units. It generally followed HUD procurement
regulations; however, it awarded one contract without adequate competition and purchased
electric water heaters that did not meet Federal energy requirements, which resulted in $33,399
being unsupported. These two minor instances of noncompliance occurred because the
Authority did not follow or was not aware of Federal requirements.
The Authority’s Obligations
Were Supported and Timely
The Authority’s obligations were supported with appropriate contracts. The
Authority executed each of its 10 vendor contracts well before the Recovery Act
deadline of March 17, 2010. It also verified that equipment and supplies
purchased were American made.
The Authority Properly
Supported Its Costs
The Authority supported the expenses related to the formula grant supporting
contracts with an effective accounting system. It ensured that work and
equipment were verified as complete by performing joint architect and Authority
inspections before paying invoices for the installation of the heating and air units.
In addition, the purchasing functions were separated from the payable function of
the Authority.
5
The Authority’s Procurements
Were Generally Supported
With Minor Exceptions
The Authority reported its plans to update its property units’ heating and air
conditioning in its 5-year action plan and annual plan. With the Recovery Act
formula grant, the Authority procured new heating and air conditioning units for
additional residential units, including geothermal units for residential units with
sufficient exterior space for installation. It procured contractors appropriately for
both large and small contracts with one exception.
The Authority selected the asbestos monitor for its asbestos abatement without
soliciting bids from competitors. It relied on its architect’s statement that only
one asbestos monitor was located in the area. A review of the licensed asbestos
monitors on the State of Texas’ Web site showed that one monitor was in the
immediate vicinity of Wichita Falls; however, many asbestos monitors were
located in the State. Although this $16,600 contract was a small purchase, the
Authority should have solicited bids from additional licensed asbestos monitors
within the State or followed sole source procurement procedures.
In addition, the Authority purchased a total of 84 electric water heaters at a cost of
$16,799 but it did not ensure that the water heaters met Energy Star or Federal
Energy Management Program (FEMP) requirements. The Authority indicated that
an electric Energy Star water heater was not available and it was unaware of FEMP
requirements. HUD required that a public housing agency acquire only equipment
that met or exceeded the minimum efficiency requirements established by the U.S.
Department of Energy unless it was not cost effective to do so. The Authority did
not determine that water heaters did not meet FEMP requirements or were not cost
effective before making its purchase. Although the Authority’s May 2011 cost
justification appeared to support its reasoning for purchasing noncompliant water
heaters, HUD will need to determine whether it will accept a cost justification made
after the fact.
The Authority Reported as
Required
The Recovery Act required recipients of Recovery Act grants to report the way
the money received was used to promote transparency in the use of the funds.
With a few insignificant timing differences, the Authority reported the use of
funds as required.
6
Conclusion
The Authority had made substantial improvements to the residential units in its
three developments using its Recovery Act formula grant. Its costs related to the
formula grant were adequately supported, and it complied with Federal
regulations with two minor exceptions, which totaled $33,399.
Recommendations
We recommend that the Director of HUD’s Office of Public Housing require the
Authority to
1A. Support the contract amount of $16,600 for asbestos monitoring or
reimburse this amount to the U.S. Treasury.
1B. Develop a procedure to ensure that it solicits competitive bids for purchases
or follows its sole source procedures when applicable.
1C. Provide justification and support for not purchasing Energy Star or FEMP-
compliant water heaters to HUD for its determination of whether the
documentation is sufficient to support the cost effectiveness of the $16,799
in water heater purchases since the Authority’s determination was made
after the purchase. If the amounts are not supported, HUD should recapture
the $16,799 and reimburse it to the U.S. Treasury.
7
SCOPE AND METHODOLOGY
We conducted our audit work at the Authority’s administrative office in Wichita Falls, TX, and in
the HUD Office of Inspector General’s (OIG) office in Fort Worth, TX. We performed our audit
work between January and April 2011. The audit generally covered the period March 18, 2009, to
December 31, 2010. We limited our scope to the Recovery Act Capital Fund formula grant
because it was the largest grant awarded.
To accomplish our objectives, we performed the following steps as they related to the
Authority’s Recovery Act Capital Fund formula grant:
• Reviewed relevant laws, regulations, and HUD guidance.
• Reviewed meeting minutes of the Authority’s board of commissioners.
• Reviewed the Authority’s audited financial statements for fiscal years 2009 and 2010.
• Reviewed the Authority’s Recovery Act Capital Fund formula grant agreement, annual
plan, and 5-year action plan.
• Reviewed the Authority’s procurement records and environmental review reporting.
• Traced obligations and project costs from procurement through HUD’s Line of Credit
Control System drawdown of funds for eight contracts procured with the Recovery Act
formula grant funds.
• Reviewed 100 percent of expenditures made to ensure that disbursement were adequately
supported.
• Interviewed Authority staff to determine procurement, contract, accounts payable, and
reporting procedures.
• Reviewed the Authority’s compliance with energy efficiency requirements.
• Verified that the Authority’s Recovery Act reporting was timely, complete, and accurate.
• Conducted site visits of and photographed representative units reflecting the Authority’s
use of formula grant funds.
• Interviewed HUD Office of Public Housing staff in Fort Worth, TX.
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.
8
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 to ensure that the Authority followed procurement requirements.
• Controls to ensure that payments were properly authorized and allocated to
the appropriate source and that the Authority received the goods and
services for which it paid.
• Controls to ensure that the Authority met mandated environmental review
requirements.
• Controls to ensure that the Authority met Recovery Act and HUD
reporting requirements.
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.
We evaluated internal controls related to the audit objectives in accordance with
generally accepted government auditing standards. Our evaluation of internal
controls was not designed to provide assurance regarding 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 controls.
9
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Unsupported
number 1/
1A $16,600
1C 16,799
Total $33,399
1/ 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.
10
Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
WICHITA FALLS HOUSING AUTHORITY
501 Webster Street • P.O. Box 544
Wichita Falls, Texas 76307
(940) 723-8389 • Fax (940) 723-1680
Donna Piper, Executive Director
Thursday, June 16, 2011
Mr. Gerard R. Kirkland
Regional Inspector General for Audit
U.S Department of Housing and Urban Development
Office of Inspector General, Region VI
819 Taylor Street, Suite 13A09
Forth Worth, Texas 76102
Dear Mr. Kirkland,
RE: 06/15/2011 OIGS Draft Audit Report
Per your request, please find below the written response to the 06/15/2011 draft audit
report.
Should you have any questions, please do not hesitate to contact Donna Piper,
Executive Director, at (940)723-8389.
Sincerely,
//signed//
Donna Piper,
Executive Director
Enclosure(s)
11
1 A. Support for the contract amount of $16,600 for asbestos monitoring
or reimburse this amount to the U.S. Treasury.
Wichita Falls Housing Authority has older housing units that frequently require
the use of asbestos related services for most of its construction projects.
Asbestos monitoring consulting services fall under a highly specialized field
that includes the testing of air samples to detect asbestos particles before,
during and after an asbestos abatement project according to established
methods and protocols to evaluate the hazard potential of asbestos exposure.
The Texas Asbestos Health Protection Rule (TAHPR) regulates asbestos
abatement or any asbestos-related activities in public buildings in order to
control and minimize public exposure to airborne asbestos fibers.
Per the Texas asbestos rules, policies and regulations found in the Texas
Administrative Code (Title 25, Part I, Chapter 295, Subchapter C, Rule §
295.48),
“(a) a company employing an individual asbestos consultant and one or more
additional asbestos consultants, inspectors, project managers, or air monitor
technicians must be licensed as an asbestos consultant authority. Consultant
organizations desiring to be licensed as asbestos consultant agencies shall
designate one or more individuals licensed as asbestos consultants as their
responsible persons, who shall be either principals or employees, and who
shall have responsibility for the organization's asbestos activity.
(b) a licensed asbestos consultant authority is specifically authorized to employ
asbestos consultants, asbestos project managers, asbestos inspectors and
management planners, and air monitoring technicians who are currently
licensed under these rules to assist in the conduct and fulfillment of the
authority's asbestos consultation activity, as necessary.”
Comment 1 Within the immediate vicinity of Wichita Falls, there is only one known asbestos
consultant agency with a local office that employs and/or subcontracts a
multitude of licensed individuals that can provide those services. All other
asbestos individuals and or consultant agencies that could provide those types
of services have offices that are located outside of the area with the closest
one being roughly 120 miles away from Wichita Falls.
Comment 1 In the past, the Wichita Falls Housing Authority has sought to obtain a
reasonable number of quotes to procure asbestos monitoring services by
means of advertisement and/or direct solicitation. This method of procurement
did not produce a reasonable number of quotes since very few contractors
were interested in bidding for jobs in our area. A trend developed where a
given individual was either employed or subcontracted by Lambert &
Associates (the local asbestos monitoring consultant agency) and/or the local
consultant agency was the only bidder or the lowest bidder, with bids
substantially lower than its competitors. Given the nature of the business
involved, the authority’s historical knowledge of the industry as well as prior
12
procurement outcomes for asbestos monitoring services in our area, the
authority moved towards direct solicitation of vendor and/or the sole-source
method of procurement for those services.
Roughly three years ago, Wichita Falls Housing Authority started a renovation
project to upgrade its HVAC units which again, required the procurement of
services in the field of asbestos monitoring. Based on its prior knowledge of
the industry, the authority selected the direct solicitation method for the project.
Besides the local contractor, only one contractor located outside of the area
submitted a bid over the phone to the authority’s architect and engineering
(A/E) firm which was substantially higher. The difference in the price might
have been attributed to additional costs such as per diem, travel, and lodging
that the contractor would have had incurred for the length of the project.
Comment 1 Prior to starting the project, Wichita Falls Housing Authority already had in
place a procurement procedure that defined the rules for competitive and non-
competitive proposals (sole-source). A cost analysis and estimation of
asbestos related services for the HVAC project was discussed between the
authority and its A/E firm prior to the procurement. The authority had set aside
in its budget funds to account for those services based on those discussions
and its knowledge of prior asbestos projects.
Thus, based on a good faith review of asbestos monitoring services in the area,
current and historical bids for those services and all other pertinent information
available at the time, the authority and its contracted A/E service firm was able
to determine that the local contractor was the only qualified vendor to offer this
type of service in the most competitive way.
Comment 1 In conclusion, the Wichita Falls Housing Authority selection was based on a
good faith review of available service providers and management discussions
and analysis of those services. In addition, past and current competitive bids
that have been submitted in earlier construction phases and projects were also
taken into consideration.
In the future, the authority will implement a contract tracking procedure that will
be included in the budget process with checks and balances that will ensure
that all documentation, rules and regulations are in place before, during and
after the procurement of services.
1 B. Develop a procedure to ensure that it solicits competitive bids for
purchases or follows its sole source procedures when applicable.
Comment 2 Wichita Falls Housing Authority already has in place a procedure that sets out
the rules and regulations for procurement which includes competitive and non-
competitive proposals (sole-source). However, in addition to the procedure,
WFHA will develop and/or incorporate in its budget tracking templates a section
that will enable the Authority to better monitor its procurement policy. This will
include checklists and other key procedures that will test all its adopted
procurements standards against budget and contractual activities.
Furthermore, the Authority will also develop and implement grant management
13
procedures that will encompass all aspects of grant management based on
known rules, laws and regulations as well as standard and industry best
practices.
1 C. Provide justification and support for not purchasing Energy Star or
FEMP compliant water heater to HUD for its determination of whether the
documentation is sufficient to support the cost effectiveness of the
$16,799 in water heater purchases since the Authority’s determination
was made after the purchase. If the amounts are not supported, HUD
should recapture the $16,799 and reimburse it to the U.S. Treasury.
The Wichita Falls Housing Authority had elected to purchase Energy Star
Water Heaters and could not find any at its targeted price range. The decision
was made to purchase 40 gallons electric water heaters based on historical
purchases and usages for all the project units with the exception of its 1
bedroom units that uses 30 gallons water heaters.
Comment 3 The authority had no previous knowledge of FEMP guidelines for electric water
heaters prior to this audit. The purchase was made solely based on the search
for Energy Star rated appliances at a price that the authority could afford at the
time. Had the authority have known about the cost justification required to
comply with the FEMP guidelines, it would have done a cost analysis prior to
procuring the hot water heaters to justify the purchase. However, based on the
high cost of FEMP compliant electric water heaters and the funding available at
the time, the authority would have still bought the same water heaters.
The authority would like to reiterate its May 2011 cost justification to support its
reasoning for purchasing the noncompliant electric water heaters on the basis
of its lack of awareness of FEMP requirements prior to the purchase and the
unavailability of affordable FEMP compliant as well as Energy Star rated
electric water heaters.
14
OIG Evaluation of Auditee Comments
Comment 1 The Authority said it procured the asbestos monitor based on its past experience
and a good faith review of asbestos monitoring services in the area. It stated it
had sole source procurement policies. However, the Authority had two options.
It could have followed competitive procurement procedures or it could have
followed sole procurement requirements. Neither option was properly followed.
Further, the Authority did not clearly document in its procurement files the
process it stated in its response. The Authority's implementation of a contract
tracking procedure with checks and balances should help it ensure that all
documentation, rules and regulations are in place both before and after the
procurement of services.
Comment 2 We acknowledge the Authority’s willingness to develop and implement grant
management procedures that encompass HUD regulations.
Comment 3 The Authority admitted it did not follow the Federal Energy Management
Program in its water heater purchases. It provided a cost analysis that appeared to
support the purchase of the water heaters. HUD will need to determine whether
the cost justification is acceptable since it was made after the fact.
15
The Housing Authority of the City of Wichita Falls, TX, Generally Ensured That Its Recovery Act Capital Fund Grant Complied With Requirements
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-07-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)