oversight

The Housing Authority of the City of Las Cruces, NM, Complied With Recovery Act Capital Fund Obligation and Expenditure Requirements but Had Environmental and Reporting Exceptions

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-15.

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

                                                                 Issue Date
                                                                          September 15, 2011
                                                                 Audit Report Number
                                                                          2011-FW-1015




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: The Housing Authority of the City of Las Cruces, NM, Complied With
           Recovery Act Capital Fund Obligation and Expenditure Requirements but
           Had Environmental and Reporting Exceptions


                                   HIGHLIGHTS

 What We Audited and Why

             In accordance with our goal to review funds provided under the American
             Recovery and Reinvestment Act of 2009, we audited the Housing Authority of the
             City of Las Cruces’ Public Housing Capital Fund Stimulus (formula) Recovery
             Act-funded activities. Specifically, our objectives were to determine whether the
             Authority (1) properly followed Recovery Act rules and regulations when
             obligating and expending its Recovery Act formula grant funds, (2) properly
             followed the environmental requirements for Recovery Act activities, and (3)
             accurately reported its Recovery Act activities.


 What We Found

             The Authority properly obligated and expended its Recovery Act funds. It met
             the required deadlines and properly supported its obligations and expenditures.
             However, it did not properly follow environmental requirements before
             performing Recovery Act activities. Fortunately, the activities performed using
             Recovery Act funds were categorically excluded, meaning that no further
             assessments were required. Further, the Authority did not accurately report on its
           Recovery Act-funded activities. These exceptions occurred because the Authority
           did not understand the requirements. As a result, the proper environmental review
           of the Recovery Act activities was not performed, and the Authority’s Federal
           reporting was incorrect and incomplete.

What We Recommend


           We recommend that the U. S. Department of Housing and Urban Development’s
           (HUD) field office program center coordinator of the Office of Public Housing
           require the Authority and the City of Las Cruces to establish a process to ensure
           that future projects have the proper environmental review performed in a timely
           manner. We also recommend that HUD provide guidance to the Authority and
           assist it in correcting the information submitted to FederalReporting.gov.

           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 the draft report to HUD and the Authority on August 31, 2011, and
           requested written comments by September 12, 2011. We conducted an exit
           conference with HUD and the Authority on September 8, 2011. The Authority
           provided its written response on September 8, 2011, which agreed with the report.
           The complete text of the auditee's response, along with our evaluation of that
           response, can be found in appendix A of this report.




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                           TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding: The Authority Complied With Recovery Act Capital Fund Obligation   5
               and Expenditure Requirements but Had Environmental and Reporting
               Exceptions

Scope and Methodology                                                             9

Internal Controls                                                                 10

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                       12




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                         BACKGROUND AND OBJECTIVES

The Housing Authority of the City of Las Cruces, NM, was created under the Municipal Housing
Law of the State of New Mexico in November 1961. The Authority manages, owns, or serves as
administrator for approximately 1,930 units. The governing body of the Authority is its board of
commissioners appointed by the mayor. The Authority receives capital funds annually via a
formula from the U. S. Department of Housing and Urban Development (HUD). The Authority’s
mission is to lead the public effort in providing safe, affordable housing to eligible persons.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of 2009
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.

HUD allocated $480,323 to the Authority for its Recovery Act Public Housing 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, 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 the Authority to use its Recovery Act formula grant on eligible activities already
identified in either its annual statement or 5-year action plan (action plan). Additionally, HUD
required the Authority to prioritize capital projects that were already underway or were included in
the action plan. If the Authority decided to undertake work items not in its approved plans, it was
required to amend its approved plans.

Our audit objectives were to determine whether the Authority (1) properly followed the Recovery
Act rules and regulations when obligating and expending its Recovery Act formula grant funds, (2)
properly followed the environmental requirements for Recovery Act activities, and (3) 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: The Authority Complied With Recovery Act Capital Fund
Obligation and Expenditure Requirements but Had Environmental and
Reporting Exceptions
The Authority properly obligated and expended its Recovery Act funds to repave parking lots,
replace electrical outlets in units, landscape areas, and replace sidewalks. However, it did not
properly follow environmental requirements by ensuring that an environmental review was
performed and that the required forms were completed and signed by the City of Las Cruces, the
responsible entity, before performing Recovery Act activities. Fortunately, the activities
performed using Recovery Act funds were categorically excluded, meaning that no
environmental impact statement or environmental assessment and finding of no significant
impact was required. Further, the Authority did not accurately report on its Recovery Act-
funded activities. It did not provide detailed descriptions of the activities performed or an
estimate of the jobs created and/or retained by the contractor. These exceptions occurred
because the Authority did not understand the requirements. As a result, the proper
environmental review of the Recovery Act activities was not performed, and the Authority’s
Federal reporting was incorrect and incomplete.



 The Authority Properly
 Obligated and Expended Its
 Recovery Act Funds

              The Authority properly obligated its Recovery Act funds in accordance with the
              Recovery Act and Federal requirements. It properly planned and selected projects
              from its annual and action plans that met the Recovery Act purpose of developing
              and modernizing public housing projects. The Authority repaved parking lots,
              replaced electrical outlets in kitchens with new ground fault interrupter outlets,
              landscaped areas, and replaced sidewalks in several housing developments. It
              maintained sufficient records to detail the significant history of the Recovery Act
              procurement. Its records included the method of procurement, contract pricing
              arrangement, contractor selection, and the contract documents awarded or issued,
              which were signed by all parties involved. In addition, it executed its contract
              before the Recovery Act deadline of March 17, 2010.

              The Authority’s expenditures were eligible, properly supported, and disbursed in a
              timely manner. As of February 28, 2011, it had expended $479,071 (99 percent of
              the grant) which exceeded the Recovery Act’s March 18, 2011 deadline to be 60
              percent expended. The Authority’s final payment to the contractor occurred in July
              2010, well before the 100 percent expenditure deadline of March 18, 2012.



                                                5
    The Authority Did Not Properly
    Follow Environmental
    Requirements

                  The Authority, also called the recipient, did not properly follow the environmental
                  requirements for Recovery Act activities. Specifically, it did not ensure that (1)
                  an environmental review was performed by the City of Las Cruces, the
                  responsible entity; (2) all of the required environmental review forms were
                  properly completed and signed by the responsible entity’s certifying officer before
                  Recovery Act activities began; and (3) the required documents were submitted to
                  HUD before funds were requested.

                  Neither the Authority nor the City Performed a Proper Environmental Review

                  An environmental review for the Authority’s Recovery Act activities did not
                  occur because each party assumed the other had performed it. The Authority
                  submitted to the City for signature a portion of the required documents 3 it had
                  completed based on its best guess of what would be considered exempt or
                  excluded. The City received these completed documents, assumed the Authority
                  was responsible for completing them, and submitted them to the certifying officer
                  for signature. The requirements state that the City was the responsible entity for
                  the environmental review, the decision making, and action that would otherwise
                  apply to HUD. Further, the City had to certify that the requirements had been met
                  before any activities were performed by the Authority. Neither the Authority nor
                  the City understood what was required of them, thus the proper environmental
                  review was not performed.

                  The City Lacked the Proper Environmental Review Records

                  Since the Authority submitted completed documents, the City assumed that the
                  Authority had completed the environmental review and all needed documents.
                  After sending the Authority’s documents to the certifying officer for approval and
                  signature, a City employee began reviewing them and realized the Authority had
                  not prepared all of the required information. The City requested the additional
                  documentation 4 from the Authority, which responded that it did not know what
                  the City was asking for. Although it did not have all of the information, the City
                  approved the Request for Release of Funds and Certification, which was
                  contradictory to the environmental requirements. As a result, as of May 2011, the
                  proper environmental review documents had not been completed by the City, the
                  responsible entity.



3
     Environmental Clearance Status Form and Request for Release of Funds and Certification, form HUD-7015.15
4
     Certification of Categorical Exclusion and Statutory Checklist For Categorical Excluded Projects Only (subject
     to 24 CFR 58.5 and 58.6)


                                                         6
             The Authority Did Not Submit the Environmental Review in a Timely Manner

             The Authority did not submit the required environmental review documents to
             HUD until April 2011, which was after it completed its Recovery Act activities in
             June 2010. Although the regulations required the environmental review to be
             completed before funds were released, both the Authority and HUD assumed that
             the activities were exempt and proceeded accordingly with the Recovery Act
             activities. However, the project wasn’t exempt; it was categorically excluded, and
             as previously stated, additional documentation was needed and should have been
             completed before the Authority undertook the activities and HUD released the
             funds.


The Authority Did Not Properly
Report Recovery Act Activities

             The Authority did not accurately report its Recovery Act activities. Specifically,
             it did not (1) provide a detailed description of projects or activities; (2) report an
             estimate of jobs created and/or retained by its contractor; and (3) in a few
             instances, meet the 10-day quarterly requirement for filing its Recovery Act
             reports. The Recovery Act requirements of Section 1512 state that each recipient
             should report, no later than 10 days after the end of each calendar quarter,
             information that contains a detailed list of all projects or activities for which funds
             were obligated and/or expended, a description of the project or activity, and an
             estimate of the number of jobs created and/or retained by project or activity.
             These conditions occurred because the Authority did not understand the reporting
             requirements. As a result, the information reported by the Authority to
             FederalReporting.gov was incorrect and incomplete.


Conclusion

             The Authority’s Recovery Act funds were adequately supported, and the
             Authority met all obligation and expenditure requirements. However, it did not
             meet the environmental and reporting requirements. These exceptions occurred
             because the Authority did not understand the requirements. As a result, the
             proper environmental review of the Recovery Act activities was not performed,
             and the Authority’s Federal reporting was incorrect and incomplete.

             The Authority and the City have been proactive in developing a process to ensure
             that future environmental reviews are properly performed and that all
             documentation is completed and submitted to HUD in a timely manner.




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Recommendations

          We recommend that HUD's field office program center coordinator of the Office
          of Public Housing:

          1A. Require the Authority and the City of Las Cruces to establish a process to
              ensure that future projects have the proper environmental review performed in
              a timely manner.

          1B. Provide guidance to the Authority and assist it in correcting the information
              submitted to FederalReporting.gov.




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                         SCOPE AND METHODOLOGY

We conducted our audit work at the Authority’s administrative office and City Hall in Las Cruces,
NM, and in HUD OIG’s offices in Albuquerque, NM, and Fort Worth, TX, between April and July
2011. The audit generally covered the period March 1, 2009, through March 31, 2011. We limited
our scope to the Authority’s Recovery Act Capital Fund formula grant.

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 for 2009, 2010, and
       2011.
   •   Reviewed HUD’s monitoring reports for the Authority’s Recovery Act funds and projects,
       which were dated January 13, 2010, and March 2, 2011.
   •   Reviewed the Authority’s audited financial statements for fiscal years 2008, 2009, and 2010.
   •   Reviewed the Authority’s Recovery Act Capital Fund formula grant agreement, annual plan
       and action plan.
   •   Obtained HUD’s Line of Credit Control System (LOCCS) grant expenditure and obligation
       detail data. We did not evaluate the reliability of the LOCCS data as we used it for
       information purposes only.
   •   Reviewed the Authority’s procurement records including its procurement policies and
       internal control procedures.
   •   Reviewed 100 percent of the Authority’s grant obligation records.
   •   Reviewed 100 percent of the Authority’s expenditures to ensure that disbursements were
       adequately supported and made before Recovery Act deadlines.
   •   Reviewed the Authority’s environmental review records for compliance with the
       environmental requirements.
   •   Analyzed the Authority’s and the City of Las Cruces’ environmental review process for
       compliance with environmental requirements.
   •   Reviewed the Authority’s reporting submitted to FederalReporting.gov for compliance with
       the requirements. Items tested included name of activity, description of activity, completion
       status of activity, and number of jobs created and/or retained by activity.
   •   Conducted site visits at three assisted sites.
   •   Interviewed HUD’s Office of Public Housing staff in Albuquerque, NM, the Authority’s
       staff, personnel of the City of Las Cruces’ Neighborhood Services Division, a contractor
       that performed the Recovery Act activities, and personnel from Cooperative Educational
       Services, which procured the contractor.

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.


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                              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 the Authority followed procurement requirements.
                  •   Controls to ensure obligations and expenditures were properly authorized
                      and allocated, and that the Authority received the goods and services for
                      which it paid.
                  •   Controls to ensure the Authority met mandated environmental review
                      requirements.
                  •   Controls to ensure 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.




                                                10
Significant Deficiencies


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

             •   The Authority lacked controls and procedures to ensure compliance with
                 environmental requirements (finding).
             •   The Authority lacked internal controls to ensure that Recovery Act and HUD
                 reporting requirements were met (finding).




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                                    APPENDIXES

Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                      Auditee Comments

            Executive Director:                                             General Offices:
            Thomas G. Hassell                                               926 S. San Pedro St.
                                 Housing Authority of the
                              City of Las Cruces, New Mexico
                                               575-528-2000
                                             575-526-8452 (fax)

            September 8, 2011

            Ms. Theresa Carroll, Assistant Regional Inspector General for Audit
            US Department of Housing and Urban Development
            Region VI Office of Inspector General
            819 Taylor Street, Suite 13A09
            Fort Worth, TX 76102

            Ms, Carroll:

            The following is our response to the findings indicated in your draft audit report.

            The Authority did not properly follow environmental review requirements

            And;

            The Authority did not ensure that proper documentation relating to the environmental
            assessment was completed and signed by the responsible entities certifying officer
            before Recovery Act activities began

            And;

            The Authority did not submit the environmental review documents in a timely manner

Comment 1   The Authority assumed, incorrectly, that since all work items in the CFRG were exempt
            that no environmental assessment would be necessary and that work could begin. The
            Authority subsequently completed the physical work, HUD also subsequently released
            the funds, all prior to the execution or completion of an environmental assessment. HUD


                                              12
            later informed the Authority that environmental assessment documents would need to
            be completed and we complied at that time and submitted documents to the City of Las
            Cruces for their review and approval. Apparently the City of Las Cruces also assumed
            that since the work items were exempt or categorically exempt that they were not
            required to do anything other than sign the environmental clearance (release of funds
            and certification form), which they did.

Comment 1   Based on the above, the Authority will work with HUD and the City of Las Cruces to
            establish a process to ensure that future projects have the proper environmental review
            performed in a timely manner.



            The Authority did not properly report Recovery Act activities

Comment 2   The Authority submitted reports to Federal Reporting.gov relating to its CFRG activities.
            A description of work was entered, but was not detailed enough. An estimate of Jobs
            created was also entered but the reporting system would not allow for accurate entry of
            jobs created. Two reports were filed after the 10 day quarterly requirement for
            submission.

Comment 2   The Authority will work with the HUD Field Office to correct the information relating to
            detailed descriptions of work and jobs created. In the event that future reports are
            required, they will be submitted in a timely manner. The current CFRG cannot be closed
            until HUD completes the recapture of funds remaining in the grant. The Authority Board
            of Commissioners has passed a resolution on May 17, 2011, which approved the
            recapture of funds, as required by the HUD field office. Once this process is completed
            by HUD, a final report can be submitted and the grant closed.

            Please do not hesitate to contact me if you require further assistance or
            clarification.

            Sincerely,


            Thomas G. Hassell
            Executive Director




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                         OIG Evaluation of Auditee Comments

Comment 1   The Authority agreed that it did not properly follow the environmental
            requirements. The Authority plans on working with the City of Las Cruces to
            develop a step-by-step procedure for the environmental review process.

            We acknowledge the Authority's plans.

Comment 2   The Authority agreed that it did not accurately report on its Recovery Act funded
            activities. The Authority plans on working with the HUD office to make possible
            editorial changes of the past reports in FederalReporting.gov.

            We acknowledge the Authority's plans.




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