oversight

HUD's Oversight of Public Housing Authorities' Energy Performance Contracting in New York and New Jersey Had Not been Sufficient, but HUD Had Taken Appropriate Steps to Improve Controls

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-02-01.

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

                                                                        Issue Date
                                                                               February 1, 2011
                                                                        Audit Report Number
                                                                               2011-NY-0001




TO:              Donald J. Lavoy, Deputy Assistant Secretary for Field Operations, PQ


FROM:            Edgar Moore, Regional Inspector General for Audit, New York/New Jersey, 2AGA

SUBJECT: HUD’s Oversight of Public Housing Authorities’ Energy Performance
         Contracting in New York and New Jersey Had Not been Sufficient, but HUD Had
         Taken Appropriate Steps To Improve Controls

                                             HIGHLIGHTS

    What We Audited and Why

                   We audited the U.S. Department of Housing and Urban Development’s (HUD)
                   oversight of public housing authorities’ (authority) energy conservation
                   procedures through energy performance contracting (EPC) in the states of New
                   York and New Jersey (Region 21). We initiated the audit as part of the activities
                   in our 2010 annual plan.

                   Our objectives were to determine whether HUD had adequate controls to ensure
                   that (1) the costs of EPC had been properly repaid from the savings from energy
                   conservation and/or add-on subsidy incentives, (2) utility cost savings on
                   measurement and verification (M&V) reports had been reported in a timely
                   manner, (3) utility cost savings were accurately calculated and energy service
                   companies guaranteed utility cost savings were achieved, and (4) its EPC
                   inventory data were accurate and complete.


    What We Found

                   HUD’s Office of Public and Indian Housing (PIH) staff did not always adequately
                   monitor the authorities with EPC or verify reported information regarding energy

1
    HUD’s Region 2 consists of the states of New York and New Jersey.
           cost savings. Specifically, HUD did not have adequate controls in place to ensure
           that (1) the costs of EPC had been properly repaid from the savings from energy
           conservation and/or add-on subsidy incentives, (2) utility cost savings had been
           reported on M&V reports in a timely manner, (3) utility savings had been
           accurately calculated and guaranteed utility cost savings were achieved, and (4)
           its EPC inventory data were accurate and complete. We attribute this condition to
           a lack of adequate controls and training of staff to ensure compliance with the
           published review procedures and regulations. Therefore, HUD may not have
           assurance that utility cost savings as guaranteed by the energy service companies
           was achieved. HUD’s PIH headquarters officials were aware of the control
           weaknesses and had taken corrective actions including making organizational
           changes to provide additional training and technical support to field office staff
           and participating authorities.

What We Recommend
           We recommend that the Deputy Assistant Secretary for Field Operations (1)
           establish and implement controls to ensure that the costs of EPC have been
           properly repaid from the savings from energy conservation and/or add-on subsidy
           incentives, (2) establish and implement controls to ensure that M&V reports are
           submitted in a timely manner and that data are verified for accuracy, (3) establish
           and implement controls to verify that actual energy cost savings achieved are
           equal to or greater than the energy service companies’ guaranteed energy savings
           and/or the add-on subsidy incentive amount, (4) provide mandatory training to the
           appropriate headquarters and field office staff and participating authorities to
           ensure that they comply with the current and upcoming regulations related to
           EPC, and (5) establish and implement necessary control procedures to ensure that
           the EPC database is complete and accurate.

           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 discussed the results of our review with HUD officials during the audit and at
           an exit conference held on January 7, 2011. We provided the discussion draft to
           HUD on December 13, 2010, and requested a response by January 7, 2011.
           HUD provided a response on January 7, 2011. HUD officials generally agreed
           with the finding and recommendations.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix A of this report.




                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                         4

Results of Audit
      Finding: HUD’s Oversight of Authorities’ EPC Had Not Been Sufficient, but   5
               HUD Had Taken Appropriate Steps To Improve Controls

Scope and Methodology                                                             11

Internal Controls                                                                 13

Appendixes
   A. Auditee Comments and OIG’s Evaluation                                       15




                                            3
                             BACKGROUND AND OBJECTIVES

The progress report, entitled ―Implementing HUD’s Energy Strategy,‖ which was published in
December 2008 and submitted to Congress pursuant to Section 154 of the Energy Policy Act of
2005, indicated that the U.S. Department of Housing and Urban Development (HUD) had
developed a benchmarking tool that would assist public housing authorities (authority) in
addressing utility costs as they shifted to asset management and implemented a vigorous training
and capacity-building initiative for energy performance contracting (EPC) in public housing.
HUD reported total estimated energy savings of $33 million for 2007, and $32.2 million in
estimated energy savings was from EPC in public housing. HUD also reported that it did not
have tracking systems to monitor energy savings for its overall inventory of public and assisted
housing.

EPC, HUD’s tool for the energy savings in public housing, is an innovative financing technique
that uses cost savings from reduced energy consumption to repay the cost of installing energy
conservation measures2 without using other Federal funds from the Public Housing Capital Fund
program or the American Recovery and Reinvestment Act of 2009 (ARRA). HUD listed the
advantages of this financing technique as follows:

            he ability to allow authorities to achieve energy savings without upfront capital
           expenses;
            he ability to allow authorities to use the energy savings, which are guaranteed by the
           performance contractor (energy service company) for the costs of the energy
           improvements; and
           The ability to use a single contractor to perform necessary energy audits and retrofit and
           guarantee the energy savings from a selected series of conservation measures.

EPC is all about saving measurable quantities of energy. Under an energy service agreement,3
an energy service company guarantees that after energy conservation measures are installed at an
authority, energy use will be reduced by a quantifiable amount. In many respects, the success of
an EPC project hinges on verifying that the amount of energy saved closely matches the energy
savings estimated and/or guaranteed in the energy service company’s solicitation.

Our objectives were to determine whether HUD had adequate controls to ensure that (1) the costs
of EPC had been properly repaid from the savings from energy conservation and/or add-on
subsidy incentives, (2) utility cost savings had been reported on measurement and verification
(M&V) reports in a timely manner, (3) utility cost savings were accurately calculated and energy
service companies guaranteed utility cost savings were achieved, and (4) its EPC inventory data
were compiled accurately and completely.


2
  According to 10 CFR (Code of Federal Regulations) 435.302(k), the term ―energy conservation measure‖ means ―a building
material or component whose use will affect the energy consumed for space heating, space cooling, domestic hot water or
refrigeration.‖
3
  The energy service agreement is a written agreement between a housing authority and an energy service company that provides
for the performance of services for the design, acquisition, installation, testing, operation, and when appropriate, maintenance and
repair of energy conservation measures at one or more locations.
                                                                 4
                                 RESULTS OF AUDIT

Finding: HUD’s Oversight of Authorities’ EPC Had Not Been
         Sufficient, but HUD Had Taken Appropriate Steps To Improve
         Controls
HUD’s Office of Public and Indian Housing (PIH) staff did not always adequately monitor
authorities with EPC or verify reported information regarding the energy cost savings.
Specifically, HUD did not have adequate controls in place to ensure that (1) the costs of EPC had
been properly repaid from the savings from energy conservation and/or add-on subsidy
incentives as required by regulations, (2) utility cost savings had been reported on M&V reports
in a timely manner, (3) utility savings had been accurately calculated and guaranteed utility cost
savings were achieved, and (4) its EPC inventory data were accurate and complete. We attribute
this condition to a lack of adequate controls and a need for training of staff to ensure compliance
with the published review procedures and regulations. Therefore, HUD did not have assurance
that utility cost savings as guaranteed by the energy service companies had been achieved.
HUD’s PIH headquarters officials were aware of the control weaknesses and had taken
corrective actions including making organizational changes to provide additional training and
technical support to field office staff and participating authorities.



 An EPC Loan Was Not Repaid
 From Add-On Subsidy
 Incentives Included in the
 Operating Subsidy Funds

               Although the Long Branch Housing Authority (Long Branch) received add-on
               subsidy incentives, Long Branch officials used capital funds to pay the cost of
               financing the energy improvements made under an energy performance contract.

               Since 2006, Long Branch had received a fixed annual add-on subsidy incentive of
               $210,587 to repay more than $1.87 million spent on energy improvements
               including new boilers and weatherization under an energy performance contract,
               which was part of bond proceeds (approximately $4 million) initially approved
               under the Capital Fund Financing Program (CFFP). Therefore, for the period
               between 2006 and 2009, HUD paid add-on subsidy amounts totaling $842,348
               ($210,587 for 4 years) to Long Branch for repayment of a loan related to EPC;
               however, the total amount of the bond was being repaid with annual capital funds.

               After deducting the energy service company’s total monitoring fee of $138,544
               ($34,636 for 4 years), which was the direct cost related to an energy performance
               contract and had been paid by the low-rent program operating subsidy, the


                                                5
                  remaining add-on subsidy amount of $703,8044 should have been used to
                  amortize the cost of the loan for the energy conservation measures as required by
                  24 CFR (Code of Federal Regulations) 990.185(a)(3). However, Long Branch
                  used capital funds to amortize the cost of the loan related to an energy
                  performance contract.

                  Consequently, $703,804 in capital funds was ineligibly used for the contract debt
                  service instead of being used to improve the quality and condition of the public
                  housing units. This error was the result of HUD’s inadequate monitoring and lack
                  of verification of reported information regarding the type and amount of
                  incentives.

    Utility Cost Savings Were Not
    Reported in a Timely Manner

                  According to the HUD Field Office Review Procedure – Energy Performance
                  Contracting, dated July 31, 2005, and the updated current procedure, dated
                  February 24, 2006, authorities are required to submit an annual M&V report to
                  their HUD field office within 45 days of their fiscal year end, and the HUD field
                  office is required to review and approve the annual M&V report within 30 days
                  after receipt of the report regardless of the type of incentives. In addition, PIH
                  Notices 2008-22 and 2009-16 require authorities to provide an annual M&V audit
                  to the local field office reconciling the documented savings to the annual utility
                  expense calculator (form HUD-527225) and the authorities’ operating subsidy
                  calculator (form HUD-527236). The PIH notices also indicate that the authorities’
                  annual submission of the M&V report and reconciliation constitutes a certification
                  that the savings are true and accurate. However, three of five authorities
                  (Irvington, Long Branch, and New York City) reviewed did not receive the M&V
                  reports from their energy service companies in a timely manner and did not
                  submit the M&V reports to their HUD field offices, although the authorities had
                  paid the companies an annual average amount of $30,000 to prepare annual M&V
                  reports.

                  Verification of the performance of energy conservation measures is critical to all
                  parties involved in EPC because verification confirms that the project is a success
                  and that energy conservation measures are saving funds. However, the Newark,
                  NJ, and New York City field office staff did not have procedures to ensure that
                  participating authorities’ M&V reports were submitted in a timely manner. In
                  addition, the Buffalo, NY, field office staff requested the M&V reports only for
                  the authorities approved for add-on subsidy incentives and not for authorities that

4
  $842,348 ($210,587 for 4 years from 2006 to 2009) - $138,544 ($34,636 of annual energy service company’s
monitoring fee for 4 years) = $703,804
5
   Form HUD-52722 is the utility expense level calculator (Microsoft-Excel), which is intended to provide guidance
   and assistance in arriving at the utility expense level for an authority.
6
   Form HUD-52723 is the operating fund calculation of operating subsidy (operating expense analysis worksheet),
   which is intended to provide guidance and assistance in arriving at the eligible operating subsidy for an authority.

                                                           6
            were approved for other incentives. This condition occurred because HUD field
            office staff was not familiar with HUD rules related to EPC. Therefore, HUD
            officials could not provide assurance that the annual utility expense information
            and savings reported on annual M&V reports had been properly reconciled with
            the annual utility expense reports and that the participating authorities were
            saving utility costs.


Utility Cost Savings Were Not
Calculated Accurately and
Guaranteed Utility Savings
May Not Always Have Been
Achieved

            Some M&V reports documented inaccurate and overstated amounts of energy
            cost savings. For example, the Irvington Housing Authority (Irvington) provided
            the energy service company with the actual consumption data for fiscal year 2008
            for 12 nonconsecutive months, and the company used these incorrect data to
            compute the cost savings for the fiscal year 2008 M&V report. Recomputation of
            Irvington’s savings using the actual consumption data for the 12-month period
            revealed that the M&V report was overstated by $47,131. These incorrectly
            reported savings were not corrected because no one verified the reported energy
            consumption data. Therefore, HUD did not have adequate procedures to ensure
            that authorities achieved the utility cost savings, estimated and guaranteed by the
            energy service company, due to the inaccurate reporting and lack of validation of
            the energy consumption data.

            Verification of Long Branch’s M&V report prepared by the energy service
            company revealed that Long Branch failed to reduce the utility saving calculation,
            although the equipment had been purchased with CFFP funds and only labor costs
            of $87,100 had been charged to the energy performance contract. Since the
            amount charged for labor was one-third of the total cost of $268,491 to install two
            steam boilers to one project, the amount of the savings allocable to the contract
            should have been one-third of the amount of the reduction in energy consumption
            costs. However, Long Branch officials reported all of the savings as being
            allocable to the contract and overstated the amount of savings by $46,667.
            According to the HUD Field Office Review Procedure – Energy Performance
            Contracting, all equipment installed or removed with Federal funds (capital funds
            and CFFPs) must not be used to generate reported utility savings, or the saving
            calculations must be reduced to account for the use of these funds.

            In addition, Long Branch officials failed to reduce the reported energy savings by
            the savings that resulted from units’ being demolished. Instead, the M&V report
            showed the total decreased amount in utility costs for this project as the cost
            savings that resulted from EPC. PIH Notice 2006-06, Guidance on Energy
            Performance Contacts With Terms up to 20 Years, indicates that HUD will make

                                             7
the appropriate adjustments to the amount of energy loan amortization subsidy if
the number of units changes due to disposition or demolition. However, HUD
could not make appropriate adjustments because of the inadequate reporting of
energy savings that resulted from units’ being demolished.

After Long Branch was approved for EPC, the authority also applied for the
HOPE VI program to demolish one of five projects (162 of 515 units), which
were scheduled to have energy improvements under the energy performance
contract. Within 2 years after the completion of the contract, half of the 162-unit
project had been demolished, and the other half was demolished a year later.
According to the energy service agreement between the authority and the energy
service company, the company was supposed to annually verify the occupancy of
the project sites and compare it to the occupancy for the baseline period. If the
occupancy changed by more than 3 percent in a given year, the energy service
company was supposed to make an adjustment in calculating the actual
consumption to obtain the accurate cost savings compared to the baseline.
However, the company failed to adjust the actual consumption of water and the
cost savings, although the cost savings for water were mainly from the reduced
occupancy due to relocation of the tenants more than a year and a half before the
demolition of the project. Without adjusting for the correct monthly occupancy,
the water savings from the contract might not have been accurately computed or
reported.

This condition occurred because HUD did not have adequate controls
implemented to ensure that the reported energy savings were accurate and prevent
energy improvements from being made for a building that would be demolished
within 3 years after the energy improvements were completed. Consequently, the
required utility cost savings may not have been realized since HUD had not
implemented adequate procedures for ensuring that housing authorities submit
accurate and timely M&V reports to be matched with annually submitted HUD
forms—HUD-52722 (operating fund calculation of utilities expense level) and
HUD-52723 (operating fund calculation of operating subsidy)—as required by
PIH Notices 2008-22 and 2009-16.

Obtaining accurate and timely verification of the cost savings from an authority
approved for an add-on subsidy incentive is crucial to HUD because regulations at
24 CFR 990.185(a)(3)(iii) require that the difference between the actual cost
savings for any year during the contract period and the add-on subsidy should be
offset against the authority’s operating subsidy for the following year. Therefore,
to hold the energy service company and authority accountable for the guaranteed
energy savings in the future and ensure that the add-on subsidy amount for the
next year is reduced if the required savings are not achieved, HUD needs to have
procedures to ensure that the energy savings are accurately calculated and
properly reduced for the energy improvements that were completed with the use
of other Federal funds and the amount of savings that were attributable to
disposed or demolished units.

                                 8
EPC Inventory Data Were Not
Accurate and Complete

          The HUD report submitted to Congress pursuant to Section 154 of the Energy
          Policy Act of 2005 in 2008 stated that in 2007, HUD documented an estimated
          energy savings of $32.2 million in EPC in public housing. HUD’s estimated $32.2
          million in energy savings in public housing was based on its inventory data. PIH
          Notices 2008-22 and 2009-16 require field offices to provide the Office of Public
          Housing Programs an update of the EPC inventory (the required cost,
          consumption, and ancillary data) for HUD’s report to Congress, departmental
          energy action plan, and management goals. However, HUD’s latest inventory data
          were not accurate and complete. Of five authorities selected for review from
          Region 2, the incentive types of Long Branch and Irvington were incorrectly
          reported and, therefore, the add-on subsidy incentive amounts for these two
          authorities were not documented. In addition, for the energy performance contract,
          phase I, of the Buffalo Municipal Housing Authority, the new financing term,
          which was extended from 12 to 20 years, and the total and annual repayment
          amounts due to refinancing had not been updated. Further, some information for
          other authorities, such as the term of the contracts, the amounts of the guaranteed
          and actual savings, the contract dates, or the first repayment dates, was missing.
          HUD’s inadequate monitoring and weak control over maintaining accurate and
          complete EPC data for the participating authorities appeared to be the cause. Since
          the reported amounts of the energy savings, estimated or actual, must be supported
          with complete and accurate documentation, HUD needs to develop procedures to
          ensure that its inventory of public housing EPC data is complete and accurate.


HUD Took Corrective Actions

           A new ―Energy Center‖ was created under the Office of Field Operations in
           January 2010. The Energy Center is tasked with developing guidance for field
           office staff and providing necessary training to headquarters and field office staff.
           The HUD Field Office Review Procedure – Energy Performance Contracting has
           been updated with new checklists and guidance to enable field office staff to
           understand the whole EPC process. The regulations at 24 CFR Part 990 were
           revised in 2009, and the regulations at 24 CFR Part 965 are being revised. HUD
           awarded two contracts—one for the East Coast and the other for the West
           Coast—for EPC review in November 2009. HUD officials stated that the tasks of
           these contractors included auditing of the existing energy performance contracts
           and conducting yearly verifications of energy cost savings; therefore, these
           reviews would function as a quality control process to verify the accuracy of
           existing data. These two EPC review contracts also required the contractors to
           provide additional training and technical assistance to HUD field office staff.



                                             9
Conclusion

             HUD’s PIH staff did not always adequately monitor authorities with energy
             performance contracts or verify reported information regarding the energy cost
             savings. Specifically, HUD did not always follow up with corrective action
             because it did not have adequate controls in place to ensure that (1) the costs of
             EPC had been properly repaid from the savings from energy conservation and/or
             the add-on subsidy incentives, (2) utility cost savings had been reported on M&V
             reports in a timely manner, (3) utility savings had been accurately calculated and
             guaranteed utility cost savings were achieved, and (4) its EPC inventory data were
             compiled accurately and completely. As a result, HUD could not provide
             assurance that utility cost savings as guaranteed by energy service companies had
             been achieved. We attribute this condition to a lack of adequate controls and
             training of staff to ensure compliance with HUD’s regulations and guidelines.
             Nevertheless, HUD officials were aware of weaknesses in program controls and
             had taken corrective action including monitoring the previous energy performance
             contracts and making organizational changes to provide additional technical
             support to headquarters and field office staff and participating authorities.

Recommendations

             We recommend that the Deputy Assistant Secretary for Field Operations

                A. Establish and implement controls to ensure that the costs of EPC are
                   properly repaid with energy cost savings or incentives and not with other
                   Federal funds.

                B. Establish and implement controls to ensure that M&V reports are
                   submitted in a timely manner and verified for accuracy.

                C. Establish and implement controls to verify that actual energy cost savings
                   achieved are equal to or greater than the energy service company’s
                   guaranteed energy savings and/or the add-on subsidy incentive amount.

                D. Provide mandatory training to the appropriate headquarters and field
                   office staff and participating authorities to ensure that they comply with
                   the current and upcoming regulations related to EPC.

                E. Establish and implement the necessary control procedures to ensure that
                   the EPC inventory database is complete and accurate.




                                             10
                         SCOPE AND METHODOLOGY

To accomplish the audit objectives, we performed the following steps:

               Obtained an understanding of the HUD’s energy conservation program, especially
               EPC, through the review of HUD’s regulations, policies, and guidelines.

               Reviewed prior audits and reviews of HUD’s EPC with housing authorities
               including Office of Inspector General (OIG), Government Accountability Office,
               and HUD reports.

               Reviewed previous and current EPC review contracts and analyzed information
               and reports including the energy service agreements submitted to HUD by
               participating authorities and HUD’s approval letters.

               Conducted interviews with HUD PIH field office and headquarters and authority
               officials.

               Selected five authorities and reviewed (1) their supporting documents for the
               procurement of their energy performance contracts (e.g., energy audit,
               construction, and monitoring); (2) the expense and/or obligation list and vouchers
               of the annual capital funds and ARRA funds; and (3) the actual amount of utility
               savings including the accuracy of the computation of the M&V reports, their
               supporting utility statements, and the forms for calculating the operating subsidy
               (form HUD-52723), the utility expense level calculator (form HUD-52722), and
               the adjustment for utility consumption and rates (form HUD-52722-B).

We performed our audit fieldwork from January through August 2010 at the Newark, NJ, New
York City, NY, and Buffalo, NY, field offices and at five authorities: Long Branch and
Irvington in New Jersey and New York City, Buffalo, and Binghamton in New York.

According to HUD’s EPC inventory data as of February 2009, there were 18 authorities that had
completed EPC in Region 2. The total energy performance contract amount of housing
authorities approved for frozen rolling base incentive was $62.8 million, and the total contract
amount of housing authorities approved for add-on subsidy incentive was $32.3 million.

We selected five authorities, which completed their energy performance contracts during our
audit period. Of nine authorities with at least one phase of the contract approved for frozen
rolling base incentives, we selected two authorities (Buffalo Municipal and Binghamton) with a
total contract amount of $26 million. Of 10 authorities with at least 1 phase of the contract
approved for add-on subsidy incentives, we selected 3 authorities (Long Branch, Irvington, and
New York City) with a total contract amount of $18.4 million. Overall, we tested 7 of 23
contracts consisting of 4 of 14 contracts with add-on subsidy incentives and 3 of 9 contracts with
frozen rolling base incentives. The results of our review only apply to the housing authorities
selected and cannot be projected to the universe or population.

                                                11
Our review covered the authorities’ program years 2005 to 2009, but we extended the period as
necessary.

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.




                                               12
                              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:

                      Program operations – Policies and procedures that management has
                      implemented to reasonably ensure that a program meets its objectives.

                      Validity and reliability of data – Policies and procedures that management
                      has implemented to reasonably ensure that valid and reliable data are
                      obtained, maintained, and fairly disclosed in reports.

                      Compliance with laws and regulations – Policies and procedures that
                      management has implemented to reasonably ensure that resource use is
                      consistent with laws and regulations.

                      Safeguarding of resources – Policies and procedures that management has
                      implemented to reasonably ensure that resources are safeguarded against
                      waste, loss, and misuse.

               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 the effectiveness or efficiency of operations, (2) misstatements in
               financial or performance information, or (3) violations of laws and regulations on a
               timely basis.

                                                 13
Significant Deficiency


            Based on our review, we believe that the following item is a significant deficiency:

                   HUD’s PIH staff did not always adequately monitor authorities with
                   energy performance contracts and verify reported information as required
                   (see finding).




                                             14
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         15
Ref to OIG Evaluation   Auditee Comments




Comment 2




                         16
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 2




                         17
Ref to OIG Evaluation   Auditee Comments




Comment 3




                         18
Ref to OIG Evaluation   Auditee Comments




Comment 2




Comment 2




                         19
Ref to OIG Evaluation   Auditee Comments




                         20
                         OIG Evaluation of Auditee Comments

Comment 1   HUD officials’ agreed with the audit and welcomed recommendations that improve
            the program. We acknowledge their comments and appreciate their cooperation
            throughout the audit and willingness to implement corrective actions.

Comment 2   HUD officials’ comments and proposed actions are responsive to the finding and
            our recommendations.

Comment 3   HUD officials’ proposed the deletion of ―and that action is taken to obtain the
            guaranteed savings when necessary‖ because the EPC contract is signed between
            a housing authority and an Energy Service Company and is not within HUD’s
            statutory or regulatory authority to enforce. We agreed with HUD official’s
            comments and deleted the phrase from recommendation C. Nevertheless, HUD
            official’s comments and proposed corrective actions are responsive to the finding
            and recommendation.




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