oversight

The Tule River Indian Housing Authority, Porterville, CA Did Not Administer the Procurement and Contracting of Its Recovery Act Native American Housing Block Grant in Accordance With HUD requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-09-22.

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

                                                               Issue Date
                                                                        September 22, 2011
                                                               Audit Report Number
                                                                            2011-LA-1018




TO:         Carolyn O‘Neil, Administrator, Southwest Office of Native American Programs,
            9EPI



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

SUBJECT: The Tule River Indian Housing Authority, Porterville, CA, Did Not Administer
         the Procurement and Contracting of Its Recovery Act Native American Housing
         Block Grant in Accordance With HUD requirements

                                 HIGHLIGHTS

 What We Audited and Why

             We audited the Tule River Indian Housing Authority in response to a
             complaint involving the Authority‘s alleged misuse and improper procurement
             of $303,721 in Recovery and Reinvestment Act of 2009 Native American
             Housing Block Grant funding to be used for cabinet construction work on 38 of
             its housing units. Our overall objective was to determine whether the
             Authority followed procurement and contracting requirements and used its
             Recovery Act Native American Housing Block Grant funding in accordance
             with U.S. Department of Housing and Urban Development (HUD)
             requirements.

 What We Found


             The Authority did not follow procurement and contracting requirements and
             did not use its Recovery Act Native American Housing Block Grant funding in
             accordance with HUD requirements under 24 CFR (Code of Federal
           Regulations) 85.36 (Procurement), 29 CFR Parts 3 and 5, and its own internal
           policies and procedures (see appendix C). The Authority also did not have
           sufficient policies, procedures, and controls in place to ensure that it complied
           with Federal procurement and contracting requirements, which led to improper
           cash disbursements and a lack of segregation of duties in its program. As a
           result, it used $36,884 for ineligible expenditures and failed to obligate
           $95,831 in Recovery Act Native American Housing Block Grant funds.

What We Recommend


           We recommend that HUD require the Authority to reimburse its Recovery Act
           Native American Housing Block Grant $36,884 from non-Federal funds for the
           ineligible overpayments made to the contractor for cabinet construction work.
           We also recommend that HUD recover the remaining unobligated Recovery
           Act grant funds of $95,831from the Authority for return to the U.S. Treasury.
           Further, we recommend that HUD require the Authority to establish and
           implement sufficient written procurement policies and procedures. In addition,
           we recommend that the Authority implement sufficient written internal control
           procedures for cash disbursements, including proper segregation of duties.

           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 August 24, 2011, and held an
           exit conference with Authority officials on August 29, 2011. The Authority
           provided written comments on September 6, 2011. It generally agreed with
           our report recommendations regarding implementation of policies and
           procedures but disagreed with our report recommendations related to
           repayment of Native American Housing Block Grant funds.

           The complete text of the auditee‘s response, along with our evaluation of that
           response, can be found in appendix B of this report. The auditee also provided
           additional documentation related to the Native American Housing Block Grant
           in question. We did not include this in the report because it was too
           voluminous; however, it is available upon request.




                                           2
                           TABLE OF CONTENTS

Background and Objective                                                           4

Results of Audit
Finding: The Authority Did Not Administer the Procurement and Contracting of Its   5
         Recovery Act Native American Housing Block Grant in Accordance With
         HUD Requirements

Scope and Methodology                                                              11

Internal Controls                                                                  12

Appendixes

       A. Schedule of Questioned Costs                                             14
       B. Auditee Comments and OIG‘s Evaluation                                    15
       C. Criteria                                                                 25




                                            3
                     BACKGROUND AND OBJECTIVE

The American Recovery and Reinvestment Act

The American Recovery and Reinvestment Act of 2009 became Public Law 111-5 on
February 17, 2009. The purpose of the Recovery Act is to (1) preserve and create jobs and
promote economic recovery; (2) assist those most impacted by the recession; (3) provide
investments needed to increase economic efficiency by spurring technological advances in
science and health; (4) invest in transportation, environmental protection, and other
infrastructure that will provide long-term economic benefits; and (5) stabilize State and local
government budgets to minimize and avoid reductions in essential services and
counterproductive State and local tax increases.

Native American Housing Block Grant Program

The Native American Housing Block Grant program (also known as the Indian Housing
Block Grant program) is a formula grant that allows tribes or tribally designated housing
entities to provide a range of affordable housing activities on a reservation or Indian area.
These activities are identified and described in an Indian housing plan, which is prepared each
year and submitted to the U.S. Department of Housing and Urban Development (HUD) for
review and to ensure compliance with the Native American Housing Assistance and Self-
Determination Act of 1996.

Tule River Indian Housing Authority

The Tule River Indian Housing Authority, a component of the Tule River Indian Tribe, was
established to administer Mutual Help Homeownership Opportunity Programs for Low-
Income Indian Families and the low-rent housing program funded by HUD. The primary
purpose of the Authority is to provide safe, decent, sanitary, and affordable housing to low-
income, elderly, and disabled families of the Tule River Indian Tribe.

The Authority receives HUD funding under the Native American Housing Assistance and
Self-Determination Act of 1996 (NAHASDA). Under the provisions of NAHASDA, the
Authority was designated by the Tule River Indian Tribe as the tribal designated housing
entity to receive and implement grants to provide housing assistance. The Authority received
$303,721 in Native American Housing Block Grant funds under the Recovery Act. Under the
terms of its Native American Housing Block Grant with HUD, it was required to obligate all
of its grant funds within 1 year. The Authority received its funding on April 23, 2009.
Therefore, it was required to obligate all $303,721 of its Recovery Act funds by April 23,
2010.

Audit Objective

Our overall objective was to determine whether the Authority procured and administered its
Recovery Act Native Housing Block Grant in accordance with HUD requirements.

                                               4
                               RESULTS OF AUDIT

Finding: The Authority Did Not Administer the Procurement and
         Contracting of Its Recovery Act Native American Housing
         Block Grant in Accordance With HUD Requirements
The Authority did not administer the procurement and contracting of its Recovery Act Native
American Housing Block Grant in accordance with HUD requirements, thereby allowing
improper payments to be made to its contractor. This condition occurred because the
Authority did not have sufficient procurement personnel, policies, procedures, and controls in
place to provide proper procurement and contract administration and it did not adequately
plan for the use of its Recovery Act funds. As a result, the Authority used $36,884 in grant
funds for ineligible purposes and did not obligate $95,831 in Recovery Act Native American
Housing Block Grant funds.


 The Authority’s Request for
 Proposals Violated HUD
 Procurement Requirements


               Contrary to 24 CFR (Code of Federal Regulations) 85.36, Procurement, the
               Authority did not follow procurement and contracting requirements and did not
               use its Recovery Act Native American Housing Block Grant funding in
               accordance with HUD requirements. We identified aspects of the Authority‘s
               procurement and contracting process for its Recovery Act Native American
               Housing Block Grant that did not meet the standards required by 24 CFR 85.36
               (see appendix C). These deficiencies led to an insufficient request for
               proposals and the improper procurement of its cabinet construction contract.
               The specific procurement deficiencies included the following:

               The Authority did not conduct an independent cost or price analysis as required
               by 24 CFR 85.36(f)(1) (see appendix C) for its cabinet construction request for
               proposals, issued on April 10, 2010. Without conducting an independent cost
               or price analysis, the Authority did not have a method to determine whether the
               bids it received were reasonable. The request did not include a detailed, clear,
               or accurate description of the scope or technical requirements of work and
               materials to be used as required under 24 CFR 85.36(c)(3)(i)(ii) (see appendix
               C). The request consisted of a one-page document with a one-sentence scope
               of work stating that it was requesting proposals from qualified contractors for
               removing and replacing kitchen and bathroom cabinets and vanities, including
               sinks and faucet supply lines for 13 Low-Rent 1937 Housing act units and 25
               Mutual Help 1937 Housing Act units.


                                              5
The request for proposals and contract documentation failed to include bonding
requirements as a condition for prospective bidders as required under 24 CFR
85.36(h)(1),(2), and (3) (see appendix C). These bonds are required to ensure
that bidders will honor their bids, complete work as contracted, and pay their
subcontractors and suppliers. The Authority‘s failure to include bonding
requirements subjected it to additional risks

The request for proposals was not publicly advertised as required under 24
CFR 85.36(d)(2)(ii) (see appendix C). The procurement process also lacked
full and open competition as required by 24 CFR 85.36(c). Since the
procurement was not publically advertised, prospective contractors were
informed of the request by the Authority‘s tenant relations officer. The
Authority received sealed bids from four contractors within the April 15, 2010,
due date. Two prospective contractors (E&K Maintenance and Pacific Coast
Cabinets) met with the tenant relations officer at the Authority on separate
occasions, reviewed the unit floor plans, and discussed the specific work to be
performed before submitting bids. The other two bidders (Garza‘s Custom
Cabinets and Welker Interiors, Inc.) did not obtain additional information from
the Authority before bidding and did not review floor plans of the housing
units. As a result, two contractors (Welker Interiors, Inc., and Garza‘s Custom
Cabinets) were bidding on the brief scope of work in the request for proposals,
while the other two contractors (E&K Maintenance and Pacific Coast
Cabinets) were bidding on the scope of work in the request plus the
information obtained during its meetings with the Authority‘s tenant relations
officer. As a result, the procurement lacked full and open competition, since
bidders were inconsistently informed of all factors used to evaluate bids.

The Authority did not document its reasoning for rejecting losing bidders,
including rejection of the lowest bidder as required under 24 CFR
85.36(d)(2)(ii)(E) (see appendix C). On April 20, 2010, the Authority opened
all four sealed bids, which ranged from $119,000 to $540,000. Two of the four
bids were approximately half the amount of the other two bids. The Authority
disqualified the lowest bidder, Garza‘s Custom Cabinets. It did not document
the reason for the disqualification, but we later learned that it was due to
Garza‘s lack of a general contractor‘s license. The Authority awarded the
contract to the second lowest bidder, Welker Interiors, Inc., in the amount of
$261,000.

The Authority did not issue a new request for proposals when change orders
increased the construction contract amount beyond the simplified acquisition
threshold under 24 CFR 85.36(d)(1) and (f)(1) (see appendix C). On April 22,
2010 (1 day before the grant obligation deadline), the Authority contracted
with Welker Interiors, Inc., for $261,000 to install new cabinets in 38 housing
units. Since the scope of work lacked sufficient detail, Welker and the
Authority discussed the specific work needed for construction. Just 4 days
after the original contract (April 26, 2010), the Authority entered into a change

                                6
           order totaling an additional $216,200 for labor and materials for cabinets,
           vanity finish, and countertops. A second change order was executed on May 5,
           2010. This change order was for labor and materials for linen, laundry, and
           pantry cabinets. The change orders doubled the amount of the original contract
           and increased it by $280,157. As a result, the total contract amount with the
           change orders increased to $541,157. It was also well in excess of the
           Authority‘s $303,721 grant. Further, the change orders significantly exceeded
           the simplified procurement acquisition threshold of $100,000, and a new
           procurement should have been conducted.

           The request for proposals failed to include contract provisions required for all
           Federal contracts to reduce the legal and financial risk to the Authority under
           24 CFR 85.36(i)(1-13) (see appendix C). Also, the contract did not contain
           administrative, contractual, or legal remedies for contract termination. The
           Authority did include provisions requiring the contractor to possess a valid
           contractor‘s license, follow Davis-Bacon Act wage rates, and specify the
           number of hours required to complete the contract. However, it did not obtain
           weekly certified payroll reports to verify that the contractor paid Davis-Bacon
           wage rates. Therefore, there was no assurance that the contractor paid Davis-
           Bacon wage rates.

           We attribute the Authority‘s failure to provide a sufficient request for
           proposals, leading to large change orders, to insufficient written procurement
           and contract policies and procedures under 24 CFR 85.36.

The Authority Made Improper
Payments to the Contractor

           The Authority made improper progress payments for the cabinet construction
           work in violation of HUD regulations and the Authority‘s own policies and
           procedures. The Authority‘s policy specified that an inspection of the work be
           conducted and documented in an inspection form that showed the work
           completed and the amount to be paid to the contractor (see appendix C). The
           executive director was required to approve the inspection form before payment
           to the contractor. The Authority did not perform these steps when it made its
           payments to Welker. As a result, it made payments without sufficiently
           reviewing and monitoring the contractor‘s work.

           The Authority made a total of two payments under the terms of its
           compensation contract with Welker. The compensation contract required that
           the Authority make an initial progress payment of 25 percent of the contract
           amount ($119,300) before beginning construction work. The contract further
           required progress payments throughout the duration of the contract. Although
           the contract specified that an 8 percent retention allowance would be withheld
           from each progress payment, the Authority did not withhold a retention amount
           from its payments to the contractor.

                                           7
         The Authority made the two payments to Welker totaling $207,890 out of the
         $541,157 contract. This amount represents 38.4 percent ($207,890 / $541,157)
         of the total contract amount. Thus, the prorated amount to be paid for 12 of the
         38 units would be $171,006 (31.6 percent x $541,157). Since the Authority
         paid the contractor $207,890, the amount overpaid by the Authority totaled
         $36,884 ($207,890 - $171,006) in ineligible costs (see table below).

   Description of         Percentage of          Total                Amount
progress payments to     completion (per     percentage of
      Welker                invoice)        contract dollar
                                                amount
Initial payment on       0%                 25%                               $119,300
May 18, 2010, of
25% contract, plus
approved change
orders
July billing paid July   21%                38%                                  88,590
29, 2010, for 21%
completion of
contract
Total payments on        21%                38%                               $207,890
contract for 12 units
completed
Less: actual cost for                                                        ( 171,006)
12 units completed
Total overpayment                                                              $ 36,884

         On November 5, 2010, the Authority terminated its contract with Welker due
         to the improper progress payments, low number of units completed, and
         insufficient grant funds remaining to complete the contract.

         Since the Authority terminated its contract with Welker, $95,831 ($303,721 –
         207,890) of its Recovery Act Native American Housing Block Grant was never
         expended. Further, since the Authority‘s grant funds are no longer obligated to
         this contract, all $95,831 in unobligated and unexpended funds must be
         returned to the U.S. Treasury.

         We attribute the improper payments made to the contractor to a lack of internal
         controls for cash disbursements and inadequate policies and procedures
         regarding the segregation of duties. The Authority also did not sufficiently
         review and monitor payments submitted by the bookkeeper for approval.

         During our review of Authority payments to the contractor, we determined that
         the Authority lacked sufficient segregation of accounting and banking
         functions. The bookkeeper made accounting entries, prepared checks, mailed

                                        8
             the checks, and prepared monthly bank reconciliations. Although the
             Authority is small, it had an adequate number of employees to segregate its
             accounting and banking functions. The lack of segregation of duties was a
             significant internal control weakness.

The Authority’s Procurement
Policies and Procedures Were
Not in Accordance With
Procurement Requirements

             The Authority‘s procurement policies and procedures were not in accordance
             with HUD‘s procurement requirements under 24 CFR 85.36. We identified
             deficiencies in the Authority‘s procurement policy, which did not include
             several elements that are specifically required by 24 CFR 85.36 for proper
             procurement of construction contracts (see appendix C). For example, the
             Authority‘s policy lacked language requiring a clear and accurate description
             of the material, product, or service to be procured. The policy also did not
             include a requirement that any or all bids be rejected if there was a sound
             documented reason. The policy also lacked requirements for contractor
             bonding and public advertising of procurements. The Authority‘s lack of
             proper procurement policies and procedures significantly contributed to its
             difficulties with the procurement and administration of its cabinet construction
             contract.

Conclusion

             The Authority did not procure and administer its Recovery Act Native
             American Housing Block Grant funding in accordance with HUD
             requirements. It also made improper payments to its cabinet construction
             contractor. We attribute these deficiencies to the Authority‘s lack of sufficient
             personnel, policies, procedures, and controls relating to procurement and
             contract administration and its failure to adequately plan for the use of its
             Recovery Act funds. As a result, the Authority used Recovery Act Native
             American Housing Block Grant funds of $36,884 for ineligible costs and did
             not obligate $95,831 in Recovery Act Native American Housing Block Grant
             funds.

Recommendations


             We recommend that the Administrator of the Southwest Office of Native
             American Programs require the Authority to




                                             9
1A       Recover the remaining Recovery Act Native American Housing Block
         Grant funds of $95,831 ($303,721 - $207,890) for return to the U.S.
         Treasury in accordance with the Recovery Act, as amended for the sole
         purpose of deficit reduction (classified as ineligible costs).

1B       Reimburse the Recovery Act Native American Housing Block Grant
         project fund account $36,884 for ineligible expenses from non-Federal
         funds.

1C.      Establish and implement policies and procedures to ensure that all
         procurements include sufficient instructions and descriptions that
         accurately describes the scope of work and materials to be used in
         accordance with 24 CFR 85.36.

1D.      Implement sufficient written procurement policies and procedures in
         accordance with 24 CFR 85.36, including those relating to procurement
         standards, competition, procurement methods, contract cost and price,
         and bonding requirements.

1E.      Ensure compliance with contractor wage requirements in accordance
         with NAHASDA Section 104(b) and Office of Native American
         Programs Guidance 2003-04 through one of the following methods:

      o 1) Implement sufficient written policies and procedures to ensure that it
        obtains and reviews weekly Davis-Bacon certified payrolls for its
        construction contractors.

      o 2) Provide evidence that it has a) adopted Tribally Determined Wage
        Standards in accordance with requirements and b) designed sufficient
        monitoring and enforcement mechanisms to ensure compliance with its
        adopted wage standards.

1F.      Implement sufficient written cash disbursement procedures, thereby
         allowing greater internal control and sufficient segregation of duties.




                                 10
                          SCOPE AND METHODOLOGY

We performed our onsite audit work at the Authority, located in Porterville, CA, from March
through August 2011. The audit generally covered the period January 1, 2009, to December
31, 2010. We expanded our audit period as needed to accomplish our objective.

To accomplish our objective, we

        Conducted interviews with pertinent personnel at the Authority, including supervisors,
        staff employees, accounting staff, contractors, commissioners, and former employees;
        Reviewed the Recovery Act Native American Housing Block Grant contract between
        the Authority and HUD;
        Reviewed the Authority‘s procurement policies and procedures;
        Reviewed the Authority‘s Recovery Act Native American Housing Block Grant
        request for proposals;
        Reviewed applicable cabinet construction contract documents, including change
        orders, billings, payments, and subcontractor documentation;
        Conducted onsite reviews of cabinet construction in tenant homes;
        Reviewed the Authority‘s accounting policies and procedures;
        Reviewed the Authority‘s internal control policies and procedures, including
        procedures related to segregation of duties;
        Reviewed all Recovery Act grant funds drawn down by the Authority through the Line
        of Credit Control System for payment of the construction contract, which totaled
        $263,3981 of the $303,721 in Recovery Act grant funds awarded to the Authority; The
        computer processed data was used for background purposes only; therefore, we did not
        assess the reliability of the data.
        Reviewed the Authority‘s organizational charts;
        Reviewed the Authority‘s audited financial statements for fiscal years 2009 and 2010;
        and
        Reviewed applicable rules and regulations, including Recovery Act regulations,
        NAHASDA, the Code of Federal Regulations, and Indian housing guidance.

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




1
  $263,398 was drawn down through the Line of Credit Control System. However, $55,508 was returned
through the system. Therefore, the Authority used $207,890 in grant funds ($263,398 - $55,508).

                                                   11
                             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
systems for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls


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

                      Program operations - Policies and procedures that management has
                      implemented to reasonably ensure that procurement activities are
                      conducted in accordance with applicable laws and regulations.
                      Reliability of financial reporting - Policies and procedures implemented
                      to reasonably ensure that reliable data are obtained, monitored, and
                      reported to adequately support procurement and contracting activities.
                      Compliance with laws and regulations - Policies and procedures to
                      ensure that payments made to vendors and procurement activities
                      comply with applicable laws and regulations.

                      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.




                                              12
Significant Deficiencies


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

                    The Authority did not have sufficient procurement policies and
                    procedures in place to ensure compliance with procurement
                    requirements for Recovery Act Native American Housing Block Grant
                    funds (finding).
                    The Authority did not have sufficient internal control procedures for
                    cash disbursements, including inadequate segregation of duties
                    (finding).




                                            13
                                   APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS

                          Recommendation             Ineligible 1/
                                 number
                                         1A              $95,831
                                         1B              $36,884
                                       Total            $132,715


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. The costs represent unexpended funds that must be
     returned to the U.S. Treasury (recommendation 1A) and expended funds that were
     used for ineligible purposes and must be reimbursed to the program (recommendation
     1B).




                                            14
Appendix B

       AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




Comment 2




Comment 3




                        15
Comment 1




Comment 4




            Name has been redacted for privacy reason




                                         16
Comment 5




Comment 1




            17
Comment 1




Comment 1




Comment 1




            18
Comment 6




Comment 7




Comment 7




Comment 1




            19
Comment 8




Comment 9




Comment 10




Comment 1




Comment 11




             20
Comment 7




Comment 12




Comment 13




             21
                       OIG Evaluation of Auditee Comments

Comment 1   We acknowledge that the board took action when it determined that there were
            problems with the cabinet construction contract. We also acknowledge that the
            Authority has taken steps to address the issues stated in the report by revising
            its existing written procurement and contracting policies and procedures to be
            in accordance with HUD requirements. However, these additions to the
            procurement and contracting policies and procedures should be approved by
            the Board of Commissioners through the board resolution process.
            Furthermore, the Authority can work with HUD during the audit resolution
            phase to ensure that the Authority‘s policies and procedures are compliant with
            NAHASDA and 24 CFR 85.36 requirements.

Comment 2   We acknowledge the Authority‘s position that the issues related to the cabinet
            construction contract were brought to the attention of the Office of Inspector
            General (OIG) by the Authority‘s Board of Commissioners and not as a hotline
            tip. Due to the audit process, the issues stated in the complaint letter were
            recorded as a hotline complaint with the Program Integrity (Hotline) Division,
            as standard practice. OIG removed the phrase ―hotline‖ from the report.

Comment 3   We reviewed the Authority‘s comments and the documentation provided with
            its comments. We have addressed the Authority‘s response in this section of
            the report.

Comment 4   We agree that the Authority‘s old procurement guidelines during the time of
            the cabinet construction contract did not include requirements for an
            independent cost or price analysis. We also agree that the Authority has since
            included new requirements to correct this deficiency. However, the Authority
            still should obtain Board approval for proper implementation of these
            requirements through the board resolution process. Further, the Authority must
            work with HUD to ensure that the new policies are compliant with 24 CFR
            85.36 procurement requirements.

Comment 5   We agree that it‘s not always necessary to include all bonding requirements in
            an RFP. However, the RFP and contract documentation should meet all the
            bonding requirements of 24 CFR 85.36(h). The report was revised to clarify
            that the RFP and contract documentation should include a bid bond,
            performance bond, and payment bond. At a minimum, the Authority should
            have required a bid bond or guarantee from each bidder to ensure that the
            awarding bidder will honor its bid and execute contractual documents. The
            Authority would then execute the performance and payment bonds at the time
            of the construction contract. The requirements of 24 CFR 85.36 also give the
            Authority an alternative option to meet bonding requirements. Specifically, 24
            CFR 85.36(h) states that ―…the awarding agency may accept the bonding
            policy and requirements of the grantee or sub-grantee provided the awarding
            agency has made a determination that the awarding agency‘s interest is

                                           22
            adequately protected.‖ Neither the RFP nor any contract documents state that
            the Authority made a written determination that their interests were adequately
            protected during the procurement and contracting process. Since the Authority
            did not provide evidence that it made a determination that its interests were
            adequately protected, the Authority must follow the bonding requirements
            under 24 CFR 85.36(h)(1), (h)(2), and (h)(3).

Comment 6   We acknowledge the Authority‘s recognition of the improper progress
            payments made for the cabinet contract and their efforts to adopt new policies
            and procedures to ensure future payments are made properly. These new
            policies and procedures in the Authority‘s General Conditions of Contract for
            Construction should be approved by the Board of Commissioners through the
            board resolution process. We further advise these new policies be incorporated
            in future construction contracts to ensure that proper payments are made.

Comment 7   We have reviewed the Authority‘s draft Financial Management Internal
            Controls Policy and draft Accounting Procedures and Guidelines. We
            commend the Authority for improving its accounting and cash handling and
            segregation of duties policies and procedures. However, this appears to be a
            draft or template of the proposed policy. We advise the Authority to work with
            HUD to define who the ―authorized individual/s‖ and ―employee/s
            responsible‖ will be to conduct the functions under these policies.

Comment 8   We disagree with the Authority‘s assertion for Recommendation 1A that they
            should be allowed to use the remaining $95,831 ($303,721 - $207,890) of
            Recovery Act Native American Housing Block Grant funds to complete
            construction work. On November 5, 2010, the Authority terminated its
            contract with Welker. Since the Authority terminated its contract with Welker,
            the $95,831 of its Recovery Act Native American Housing Block Grant was
            never obligated nor expended. Since the Authority‘s grant funds are no longer
            obligated to this contract, all $95,831 in unobligated and unexpended funds
            must be returned to the U.S. Treasury in accordance with Public Law 111-203.

Comment 9   We disagree with the Authority that Recommendation 1B should be
            eliminated. Regardless of the fact that the Authority discovered the problems
            prior to this audit and self-reported the problems to HUD and the OIG, the
            Authority still paid for work that was not performed. Further, these problems
            occurred because the Authority did not follow procurement and contracting
            requirements and lacked sufficient policies and procedures. The Authority
            over paid for construction work that was not completed. The Authority‘s
            Board of Commissioners in place at the time of the payments were also aware
            of the improper payments made on the construction contract since approval for
            both payments were signed by two Board members. As a result, the Authority
            obtained board approval to pay $36,884 for work that was not performed.




                                           23
Comment 10 We disagree with the Authority that it has adopted procurement policies and
           procedures that fully meet the requirements of 24 CFR 85.36 (c)(3)(i) and (ii).
           Specifically, the policy does not include requirements that all procurement
           solicitations: ―(i)[i] incorporate a clear and accurate description of the technical
           requirements for the material, product, or service to be procured‖ and ―(ii)[i]
           identify all requirements which the offerors must fulfill and all other factors to
           be used in evaluating bids or proposals.‖ The Authority should work with
           HUD during the audit resolution process to ensure full compliance with
           procurement requirements.

Comment 11 We disagree with the Authority that Recommendation 1E be deleted. The
           Authority did not provide any documentation to show that it adopted Tribally
           Determined Wage Standards in place of Davis-Bacon wage rates. If the
           Authority provides evidence that it adopted its own wage standards, it should
           follow Office of Native American Programs Guidance 2003-04 which require
           that the tribe design sufficient monitoring and enforcement mechanisms to
           ensure compliance with its adopted wage standards. Whether the Authority is
           using Davis-Bacon wage rates or Tribally Determined Wage Rates, it must
           have sufficient monitoring and enforcement mechanisms in place. We have
           revised the recommendation to require the Authority to implement sufficient
           policies and procedures for Tribally Determined Wage Standards OR Davis-
           Bacon wage rates.

Comment 12 Based on discussions with HUD‘s Office of General Counsel, we removed this
           recommendation from the report.

Comment 13 We appreciate the Authority‘s assistance throughout the audit process. We also
           acknowledge that the Authority is taking steps to correct deficiencies and
           improve its operations. We have taken the Authority‘s comments into
           consideration and have addressed them in this section of the report.




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Appendix C

                                      CRITERIA
The following sections of HUD laws and regulations and Authority procurement policies and
procedures were relevant to our audit of the Authority‘s administration of grant funds.

Native American Housing Activities - 24 CFR 1000.26(a): Except as addressed in
§1000.28, recipients shall comply with the requirements and standards of OMB [Office of
Management and Budget] Circular No. A–87, ―Principles for Determining Costs Applicable
to Grants and Contracts with State, Local and Federally recognized Indian Tribal
Governments,‖ and with the following sections of 24 CFR part 85 ―Uniform Administrative
Requirements for Grants and Cooperative Agreements to State and Local Governments.‖ For
purposes of this part, ―grantee‖ as defined in 24 CFR part 85 has the same meaning as
―recipient.‖

Public Law 111-5 – The American Recovery and Reinvestment Act of 2009, Native
American Housing Block Grants states, ―…recipients of funds under this heading shall
obligate 100 percent of such funds within 1 year of the date funds are made available to a
recipient, expend at least 50 percent of such funds within 2 years of the date on which funds
become available to such recipients for obligation and expend 100 percent of such funds
within 3 years of such date: Provided further, That if a recipient fails to comply with the 2-
year expenditure requirement, the Secretary shall recapture all remaining funds awarded to the
recipient and reallocate such funds through the funding formula to recipients that are in
compliance with the requirements…‖

Public Law 111-203-Dodd-Frank Wall Street Reform and Consumer Protection Act

SECTION. 1306. REPAYMENT OF UNOBLIGATED ARRA FUNDS.

(b) WITHDRAWAL OR RECAPTURE OF UNOBLIGATED FUNDS.— Title XVI of the
American Recovery and Reinvestment Act of 2009 (Public Law 111–5; 123 Stat. 302) is
amended by adding at the end the following:

   ―SECTION 1613. WITHDRAWAL OR RECAPTURE OF UNOBLIGATED FUNDS

       ‗‗Notwithstanding any other provision of this Act, if the head of any executive agency
       withdraws or recaptures for any reason funds appropriated or otherwise made available
       under this division, and such funds have not been obligated by a State to a local
       government or for a specific project, such recaptured funds shall be—
          ‗‗(1) rescinded; and
          ‗‗(2) deposited in the General Fund of the Treasury where such amounts shall be—
              ‗‗(A) dedicated for the sole purpose of deficit reduction;
              and
              ‗‗(B) prohibited from use as an offset for other spending increases or revenue
              reductions.‘‘

                                             25
24 CFR PART 85, Administrative Requirements for Grants and Cooperative
Agreements to State, Local, and Federally Recognized Indian Tribal Governments –
PROCUREMENT: 85.36 Procurement(a) - When procuring property and services under a
grant, a State will follow the same policies and procedures it uses for procurements from its
non-Federal funds. The State will ensure that every purchase order or other contract includes
any clauses required by Federal statutes and executive orders and their implementing
regulations. Other grantees and subgrantees will follow paragraphs (b) through (I) in this
section.

24 CFR 85.36(b)(2) states, ―Grantees and subgrantees will maintain a contract administration
system which ensures that contractors perform in accordance with the terms, conditions, and
specifications of their contracts or purchase orders.‖

24 CFR 85.36(c)(3) states, ―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 state;
and (ii) Identify all requirements which the offerors must fulfill and all other factors to be
used in evaluating bids or proposals.‖

24 CFR 85.36(d)(1), Methods of procurement to be followed, states, ―Procurement by small
purchase procedures. Small purchase procedures are those relatively simple and informal
procurement methods for securing services, supplies, or other property that do not cost more
than the simplified acquisition threshold fixed at 41 U.S.C. 403(11) (currently set at
$100,000). If small purchase procedures are used, price or rate quotations shall be obtained
from an adequate number of qualified sources.‖

24 CFR 85.36(d)(2)(i) states, ―In order for sealed bidding to be feasible, the following
conditions should be present:
(A) A complete, adequate, and realistic specification or purchase description is available;
(B) Two or more responsible bidders are willing and able to compete effectively and for the
business; and
(C) The procurement lends itself to a firm fixed price contract and the selection of the
successful bidder can be made principally on the basis of price.‖

24 CFR 85.36(d)(2)(ii) states, ―If sealed bids are used, the following requirements apply:




                                               26
(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.
(E) Any or all bids may be rejected if there is a sound documented reason.‖

24 CFR 85.36(f)(1) states, ―Grantees and subgrantees must perform a cost or price analysis in
connection with every procurement action including contract modifications. The method and
degree of analysis is dependent on the facts surrounding the particular procurement situation,
but as a starting point, grantees must make independent estimates before receiving bids or
proposals. A cost analysis must be performed when the offeror is required to submit the
elements of his estimated cost, e.g., under professional, consulting, and architectural
engineering services contracts. A cost analysis will be necessary when adequate price
competition is lacking, and for sole source procurements, including contract modifications or
change orders, unless price reasonableness can be established on the basis of a catalog or
market price of a commercial product sold in substantial quantities to the general public or
based on prices set by law or regulation. A price analysis will be used in all other instances to
determine the reasonableness of the proposed contract price.‖

24 CFR 85.36(h) states, ―Bonding Requirements

For construction or facility improvement contracts or subcontracts exceeding the simplified
acquisition threshold, the awarding agency may accept the bonding policy and requirements
of the grantee or subgrantee provided the awarding agency has made a determination that the
awarding agency‘s interest is adequately protected. If such a determination has not been
made, the minimum requirements shall be as follows:
(1) A bid guarantee from each bidder equivalent to five percent of the bid price. The ‗bid
guarantee‘ shall consist of a firm commitment such as a bid bond, certified check, or other
negotiable instrument accompanying a bid as assurance that the bidder will, upon acceptance
of his bid, execute such contractual documents as may be required within the time specified.
(2) A performance bond on the part of the contractor for 100 percent of the contract price. A
‗performance bond‘ is one executed in connection with a contract to secure fulfillment of all
the contractor's obligations under such contract.
(3) A payment bond on the part of the contractor for 100 percent of the contract price. A
‗payment bond‘ is one executed in connection with a contract to assure payment as required
by law of all persons supplying labor and material in the execution of the work provided for in
the contract.‖

24 CFR 85.36(i) Contract provisions.
A grantee‘s and subgrantee‘s contracts must contain provisions in paragraph (i) of this
section. Federal agencies are permitted to require changes, remedies, changed conditions,
access and records retention, suspension of work, and other clauses approved by the Office of
Federal Procurement Policy.




                                               27
1.     Administrative, contractual, or legal remedies in instances where contractors violate or
breach contract terms, and provide for such sanctions and penalties as may be appropriate.
(Contracts more than the simplified acquisition threshold)

2.    Termination for cause and for convenience by the grantee or subgrantee including the
manner by which it will be effected and the basis for settlement. (All contracts in excess of
$10,000)

3.     Compliance with Executive Order 11246 of September 24, 1965, entitled ―Equal
Employment Opportunity,‖ as amended by Executive Order 11375 of October 13, 1967, and
as supplemented in Department of Labor regulations (41 CFR chapter 60). (All construction
contracts awarded in excess of $10,000 by grantees and their contractors or subgrantees)

4.     Compliance with the Copeland ―Anti-Kickback‖ Act (18 U.S.C. 874) as supplemented
in Department of Labor regulations (29 CFR part 3). (All contracts and subgrants for
construction or repair)

5.    Compliance with the Davis-Bacon Act (40 U.S.C. 276a to 276a-7) as supplemented by
Department of Labor regulations (29 CFR part 5). (Construction contracts in excess of $2000
awarded by grantees and subgrantees when required by Federal grant program legislation)

6.     Compliance with Sections 103 and 107 of the Contract Work Hours and Safety
Standards Act (40 U.S.C. 327A 330) as supplemented by Department of Labor regulations (29
CFR part 5). (Construction contracts awarded by grantees and subgrantees in excess of
$2000, and in excess of $2500 for other contracts which involve the employment of
mechanics or laborers)

7.      Notice of awarding agency requirements and regulations pertaining to reporting.

8.      Notice of awarding agency requirements and regulations pertaining to patent rights
with respect to any discovery or invention which arises or is developed in the course of or
under such contract.

9.      Awarding agency requirements and regulations pertaining to copyrights and rights in
data.

10.    Access by the grantee, the subgrantee, the Federal grantor agency, the Comptroller
General of the United States, or any of their duly authorized representatives to any books,
documents, papers, and records of the contractor which are directly pertinent to that specific
contract for the purpose of making audit, examination, excerpts, and transcriptions.

11.     Retention of all required records for three years after grantees or subgrantees make
final payments and all other pending matters are closed.

12.     Compliance with all applicable standards, orders, or requirements issued under section
306 of the Clean Air Act (42 U.S.C. 1857 (h)), section 508 of the Clean Water Act (33 U.S.C.

                                               28
1368), Executive Order 11738, and Environmental Protection Agency regulations (40 CFR
part 15). (Contracts, subcontracts, and subgrants of amounts in excess of $100,000).

13.     Mandatory standards and policies relating to energy efficiency which are contained in
the state energy conservation plan issued in compliance with the Energy Policy and
Conservation Act (Pub. L. 94A 163, 89 Stat. 871).

29 CFR Part 3, - § 3.3 Weekly statement with respect to payment of wages
Each contractor or subcontractor engaged in the construction, prosecution, completion, or
repair of any public building or public work, or building or work financed in whole or in part
by loans or grants from the United States, shall furnish each week a statement with respect to
the wages paid each of its employees engaged on work covered by this part 3 and part 5 of
this title during the preceding weekly payroll period. This statement shall be executed by the
contractor or subcontractor or by an authorized officer or employee of the contractor or
subcontractor who supervises the payment of wages, and shall be on the back of Form WH
347, ―Payroll (For Contractors Optional Use)‖ or on any form with identical wording.

29 CFR Part 3, - § 3.4 Submission of weekly statements and the preservation and
inspection of weekly payroll records.
(a) Each weekly statement required under § 3.3 shall be delivered by the contractor or
subcontractor, within seven days after the regular payment date of the payroll period, to a
representative of a Federal or State agency in charge at the site of the building or work, or, if
there is no representative of a Federal or State agency at the site of the building or work, the
statement shall be mailed by the contractor or subcontractor, within such time, to a Federal or
State agency contracting for or financing the building or work. After such examination and
check as may be made, such statement, or a copy thereof, shall be kept available, or shall be
transmitted together with a report of any violation, in accordance with applicable procedures
prescribed by the United States Department of Labor.

(b) Each contractor or subcontractor shall preserve his weekly payroll records for a period of
three years from date of completion of the contract. The payroll records shall set out
accurately and completely the name and address of each laborer and mechanic, his correct
classification, rate of pay, daily and weekly number of hours worked, deductions made, and
actual wages paid. Such payroll records shall be made available at all times for inspection
by the contracting officer or his authorized representative, and by authorized representatives
of the Department of Labor.


29 CFR Part 5, Subpart A—Davis-Bacon and Related acts Provisins and Procedures -
Sec. 5.1 Purpose and scope (a) - The regulations contained in this part are promulgated
under the authority conferred upon the Secretary of Labor by Reorganization Plan No. 14 of
1950 and the Copeland Act in order to coordinate the administration and enforcement of the
labor standards provisions of each of the following acts by the Federal agencies responsible
for their administration and of such additional statutes as may from time to time confer upon
the Secretary of Labor additional duties and responsibilities similar to those conferred upon
the Secretary of Labor under Reorganization Plan No. 14 of 1950.

                                               29
Native American Housing Assistance and Self-Determination Act of 1996.

SEC. 104. Treatment of Program Income and Labor Standards.
(b) LABOR STANDARDS-
(1) IN GENERAL- Any contract or agreement for assistance, sale, or lease pursuant to this
Act shall contain a provision requiring that not less than the wages prevailing in the locality,
as determined or adopted (subsequent to a determination under applicable State, tribal, or
local law) by the Secretary, shall be paid to all architects, technical engineers, draftsmen, and
technicians employed in the development, and all maintenance laborers and mechanics
employed in the operation, of the affordable housing project involved; and shall also contain a
provision that not less than the wages prevailing in the locality, as predetermined by the
Secretary of Labor pursuant to the Act of March 3, 1931 (commonly known as the
Davis-Bacon Act; chapter 411; 46 Stat. 1494; 40 U.S.C. 276a et seq.), shall be paid to all
laborers and mechanics employed in the development of the affordable housing involved, and
the Secretary shall require certification as to compliance with the provisions of this paragraph
before making any payment under such contract or agreement.
(3) APPLICATION OF TRIBAL LAWS- Paragraph (1) shall not apply to any contract or
agreement for assistance, sale, or lease pursuant to this Act, if such contract or agreement is
otherwise covered by one or more laws or regulations adopted by an Indian tribe that requires
the payment of not less than prevailing wages, as determined by the Indian tribe.

Office of Native American Programs Guidance, No. 2003-04, February 5, 2003.

Developing and Enacting a TDW Law or Regulation: States, ―…NAHASDA now provides
that Davis-Bacon and HUD-determined rates shall not apply to a contract or agreement if the
contract/agreement is otherwise covered by a law or regulation adopted by an Indian tribe that
provides for the payment of not less than prevailing wages as determined by the tribe…tribes
are responsible for designing whatever monitoring and enforcement mechanisms they choose
to ensure compliance with their tribally determined prevailing wage rates.‖

HUD Notification: States, ―…IHBG recipients must annually certify as to their compliance
with Section 104(b)(1) of the Act.‖

The Authority‘s Contract Register Policy & Procedures Manual V.
E. Bookkeeper - Upon receipt of request for payment by contractor the bookkeeper shall
review the contract register for that specific contract. After review the bookkeeper will
determine if the specified percentage of work is completed and will determine this by
checking the following information.
A. Inspection section to see if the work has been inspected.
B. Percentage of work completed to see if the amount requested is reconciled with the
percentage of work actually completed.
C. Make sure that the Executive Director has approved the inspection form.




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