oversight

The Housing Authority of the County of Los Angeles, Monterey Park, CA, Generally Administered the Procurement and Contracting of Its Recovery Act Capital Fund Formula Grant in Accordance With HUD Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-07-14.

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

                                                               Issue Date
                                                                        July 14, 2011
                                                               Audit Report Number
                                                                            2011-LA-1013




TO:         K. J. Brockington, Director, Los Angeles Office of Public Housing, 9DPH




FROM:       Tanya E. Schulze, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: The Housing Authority of the County of Los Angeles, Monterey Park, CA,
         Generally Administered the Procurement and Contracting of Its Recovery Act
         Capital Fund Formula Grant in Accordance With HUD Requirements

                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of the County of Los Angeles’ American
             Recovery and Reinvestment Act Capital Fund formula grant. We performed the
             audit because Recovery Act reviews are part of the Office of the Inspector
             General’s (OIG) annual plan and because the Authority was the fourth highest
             overall recipient of Recovery Act capital funds in California.

             Our audit objective was to determine whether the Authority administered the
             procurement and contracting of its Recovery Act Capital Fund formula grant in
             accordance with U.S. Department of Housing and Urban Development (HUD)
             rules and regulations.

 What We Found
           The Authority generally administered the procurement and contracting of its
           Recovery Act Capital Fund formula grant in accordance with HUD rules and
           regulations.

What We Recommend


           There are no recommendations.

Auditee’s Response


           We provided the Authority the draft report on July 6, 2011, and held an exit
           conference with the Authority on July 13, 2011. The Authority generally agreed
           with our report.

           The Authority did not submit a formal response to the report.




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                           TABLE OF CONTENTS

Background and Objective                                                            4

Results of Audit
      The Authority Generally Administered the Procurement and Contracting of Its   5
      Recovery Act Capital Fund Formula Grant in Accordance With HUD Rules and
      Regulations

Scope and Methodology                                                               7

Internal Controls                                                                   8

Appendixes

       A. Criteria                                                                  9




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                     BACKGROUND AND OBJECTIVE

On February 17, 2009, President Obama signed into law the American Recovery and
Reinvestment Act of 2009. This bill authorized approximately $4 billion in new Public Housing
Capital Fund program funds, of which $3 billion was distributed using the U.S. Department of
Housing and Urban Development’s (HUD) 2008 Capital Fund program formula and $1 billion
was awarded through a competitive grant application process.

On March 18, 2009, HUD allocated to the Authority more than $7.4 million in Capital Fund
formula grant funds authorized under the Recovery Act. The funds were obligated among 17
construction projects and administration fees. The funds enabled the Authority to complete
construction projects for parking lots and sidewalks, elevator modernization, common area
flooring replacement, Americans with Disabilities Act upgrades and design, parking maintenance
and repair projects, fence replacement projects, window retrofits, and smoke detectors.

The objective of our audit was to determine whether the Authority administered the procurement
and contracting of its Recovery Act Capital Fund formula grant in accordance with HUD rules
and regulations.




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                               RESULTS OF AUDIT

The Authority Generally Administered the Procurement and Contracting
of Its Recovery Act Capital Fund Formula Grant in Accordance With
HUD Rules and Regulations
The Authority generally administered the procurement and contracting of its Recovery Act
Capital Fund formula grant in accordance with HUD rules and regulations. It properly awarded
contracts for its Recovery Act Capital Fund formula grant, and its procurement policies and
procedures were adequate.



 Contracts Were Properly
 Awarded

              We reviewed 2 of the Authority’s 17 contracts, which it awarded for its Recovery
              Act Capital Fund formula grant, which comprised approximately 31 percent of the
              total $7.4 million in grant funds received. The Authority awarded both contracts
              in compliance with HUD requirements.

                 •   The first contract was for $1.7 million and was the largest contract
                     awarded for the Recovery Act Capital Fund formula grant. The work to
                     be performed included the replacement and modernization of six parking
                     lots and sidewalks at Carmelitos Housing Development located in Long
                     Beach, CA. The lowest bidder formally withdrew its bid as it was unable
                     to meet the minimum requirements for contract selection. Therefore, the
                     Authority awarded the contract to the second lowest bidder that met the
                     minimum requirements as required by 24 CFR (Code of Federal
                     Regulations) 85.36 for contract selection.

                 •   The second contract was for $643,787 and was the third largest contract
                     awarded. The work to be performed included the completion of two new
                     parking lots and the replacement and modernization of the existing
                     parking lot, adjacent sidewalks, and all associated work at Nueva
                     Maravilla Housing Development located in East Los Angeles, CA. The
                     Authority awarded the contract to the lowest bidder that provided all
                     required documentation.

              The Authority followed all steps required in its internal procurement policies and
              procedures and met HUD’s procurement and contracting requirements.




                                               5
Procurement Policies and
Procedures Were Adequate

             The Authority had adequate procurement policies and procedures in place. The
             policies and procedures were extensive and provided step-by-step instructions
             regarding the procurement process. Further, the policies and procedures covered
             the HUD procurement requirements under 24 CFR 85.36. The Authority also
             incorporated the Recovery Act’s requirement to buy American as required in PIH
             (Public and Indian Housing) Notice 2009-31.

Conclusion


             The Authority generally administered the procurement and contracting of its
             Recovery Act Capital Fund formula grant in accordance with HUD rules and
             regulations.




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                        SCOPE AND METHODOLOGY

We performed our onsite audit work at the Authority’s offices in Monterey Park, CA, between
April and May 2011. Our audit generally covered the period March 2009 through May 2011.

To accomplish our audit objective, we reviewed

   •   Applicable HUD regulations, including 24 CFR Part 85, Administrative Requirements for
       Grants and Cooperative Agreements to State, Local, and Federally Recognized Indian
       Tribal Governments; 24 CFR Part 905, Capital Fund Formula; HUD Handbook 7460.8,
       The Procurement Handbook for Public Housing Agencies; applicable Office of Public
       and Indian Housing notices; and Public Law 111-05, American Recovery and
       Reinvestment Act of 2009.
   •   The Authority’s internal policies and procedures.
   •   The 2009 HUD monitoring review letter and 2009 HUD monitoring report.
   •   Contracts obligated for the Recovery Act Capital Fund formula grant to determine
       whether services were properly procured.
           o We selected a nonstatistical sample of 2 of the 17 contracts obligated for the
              Recovery Act Capital Fund formula grant.
           o We initially planned to select the two highest contract amounts; however, the two
              highest contract amounts were awarded to the same contractor. To more fully
              review the Authority’s procurement process, we reviewed the highest contract
              amounts for two distinct contractors.
           o We selected the highest contract amount and the third highest contract amount.
              These two contracts comprise approximately 31 percent of the total $7.4 million
              in formula grant funds received.

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




                                                 7
                              INTERNAL CONTROLS

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

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

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



 Relevant Internal Controls


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

                  •   Policies and procedures to ensure that HUD funds are procured and
                      contracted in accordance with HUD requirements.

               We assessed the relevant controls identified above.

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

 Significant Deficiencies


               We found no significant deficiencies in the relevant controls identified above.

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

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Appendix A

                                        CRITERIA
  PIH Notice 2009-31 (HA), PIH Implementation Guidance for the Buy American
  Requirement of the American Recovery and Reinvestment Act of 2009 Including Process for
  Applying Exceptions, section I, states, “none of the funds appropriated or otherwise made
  available by this Act may be used for a project for the construction, alternation, maintenance,
  or repair of a public building or public work unless all of the iron, steel, and manufactured
  goods used in the project are produced in the United States.”

  24 CFR 85.36, Procurement

  (b) Procurement Standards.
         (1) Grantees and subgrantees will use their own procurement procedures which
             reflect applicable State and local laws and regulations, provided that the
             procurements conform to applicable Federal law and the standards identified in
             this section.
         (8) Grantees and subgrantees will make awards only to responsible contractors
             possessing the ability to perform successfully under the terms and conditions of a
             proposed procurement. Consideration will be given to such matters as contractor
             integrity, compliance with public policy, record of past performance, and
             financial and technical resources.
         (9) Grantees and subgrantees will maintain records sufficient to detail the significant
             history of a procurement. These records will include, but are not necessarily
             limited to the following: rationale for the method of procurement, selection of
             contract type, contractor selection or rejection, and the basis for the contract price.
  (c) Competition.
         (3) Grantees will have written selection procedures for procurement transactions.
             These procedures will ensure that all solicitations:
                i. Incorporate a clear and accurate description of the technical requirements
                     for the material, product, or service to be procured. Such description shall
                     not, in competitive procurements, contain features which unduly restrict
                     competition. The description may include a statement of the qualitative
                     nature of the material, product or service to be procured, and when
                     necessary, shall set forth those minimum essential characteristics and
                     standards to which it must conform if it is to satisfy its intended use.
                     Detailed product specifications should be avoided if at all possible. When
                     it is impractical or uneconomical to make a clear and accurate description
                     of the technical requirements, a brand name or equal description may be
                     used as a means to define the performance or other salient requirements of
                     a procurement. The specific features of the named brand which must be
                     met by offerors shall be clearly stated; and
               ii. Identify all requirements which the offerors must fulfill and all other
                     factors to be used in evaluating bids or proposals.




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(d) Methods of procurement to be followed.
       (2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a
           firm-fixed-price contract (lump sum or unit price) is awarded to the responsible
           bidder whose bid, conforming with all the material terms and conditions of the
           invitation for bids, is the lowest in price. The sealed bid method is the preferred
           method for procuring construction, if the conditions in Sec. 85.36(d)(2)(i) apply.
                 ii. If sealed bids are used, the following requirements apply:
                       A. The invitation for bids will be publicly advertised and bids shall be
                           solicited from an adequate number of known suppliers, providing
                           them sufficient time prior to the date set for opening the bids.
                       B. The invitation for bids, which will include any specifications and
                           pertinent attachments, shall define the items or services in order for
                           the bidder to properly respond;
                       C. All bids will be publicly opened at the time and place prescribed in
                           the invitation for bids;
                       D. A firm fixed-price contract award will be made in writing to the
                           lowest responsive and responsible bidder. Where specified in
                           bidding documents, factors such as discounts, transportation cost,
                           and life cycle costs shall be considered in determining which bid is
                           lowest. Payment discounts will only be used to determine the low
                           bid when prior experience indicates that such discounts are usually
                           taken advantage of; and
                       E. Any or all bids may be rejected if there is a sound documented
                           reason.

HUD Handbook 7460.8, REV-2, The Procurement Handbook for Public Housing Agencies,
exhibit, provides guidance on to public housing agencies on procurement for the operation,
modernization, and the development of public housing.




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