oversight

Trinidad Housing Authority Did Not Always Follow Requirements When Expending and Reporting Information About Its Recovery Act Capital Funds

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-11-29.

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

                                                                  Issue Date
                                                                           November 29, 2011
                                                                  
                                                                  Audit Report Number
                                                                               2012-DE-1002




TO:         Carol Ann Roman, Director, Denver Office of Public Housing, 8APH

            //signed//
FROM:       Ronald J. Hosking, Regional Inspector General for Audit, 8AGA


SUBJECT: Trinidad Housing Authority Did Not Always Follow Requirements When
            Expending and Reporting Information About Its Recovery Act Capital Funds


                                    HIGHLIGHTS

 What We Audited and Why

             We reviewed the Trinidad Housing Authority, located in Trinidad, CO. We
             selected the Authority for review based on a comparison of certain characteristics,
             like Recovery and Reinvestment Act of 2009 funding amounts, with other
             housing authorities in the region. Our objective was to determine whether it
             obligated and expended its formula Recovery Act capital funds in accordance
             with Recovery Act rules and regulations and whether it properly reported
             Recovery Act information in FederalReporting.gov.

 What We Found


             The Authority generally obligated its Recovery Act funds in accordance with
             Recovery Act rules and regulations, but did not always expend the funds in
             accordance with Recovery Act rules and regulations. Specifically, it did not
             perform cost estimates before receiving bids or proposals on its Recovery Act
             contracts and procurements. Additionally, the Authority used Recovery Act funds
             to purchase five refrigerators that it did not use.




                                              1
           The Authority did expend at least 60 percent of its grant funds within two years
           and will expend 100 percent of the grant within three years as required.

           The Authority accurately reported the number of jobs created, but it did not
           accurately report required Recovery Act grant information in
           FederalReporting.gov.

What We Recommend


           We recommend that the Director of the Denver Office of Public Housing (1)
           provide technical assistance to the Authority to ensure it understands that it is
           required to perform cost estimates before receiving bids or proposals, (2) require
           the Authority to send its procurement staff to training to improve proficiency in
           the procurement process, (3) require the Authority to provide support to show that
           the costs were reasonable for its Recovery Act Capital Fund contracts and
           procurements, (4) require the Authority to develop and implement procedures to
           properly manage its equipment purchases, (5) require the Authority to repay
           $2,360 to the U.S. Department of Housing and Urban Development (HUD) for
           one missing and four inoperable refrigerators, and (6) require the Authority to
           provide documentation to support the costs it reported in FederalReporitng.gov.

           The Denver Office of Public Housing concurred with the recommendations and
           provided its management decisions on November 14, 2011.

Auditee’s Response


           We provided the discussion draft of the audit report to the Authority on October
           28, 2011, and requested a response by November 10, 2011. The Authority
           generally concurred with the findings and did not provide written comments.




                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                           4

Results of Audit
      Finding 1: The Authority Did Not Perform Cost Estimates Before Receiving      5
                 Bids or Proposals
      Finding 2: The Authority Purchased Five Refrigerators With Recovery Act       7
                 Funds That It Did Not Use
      Finding 3: The Authority Did Not Accurately Report Recovery Act Information   9

Scope and Methodology                                                               12

Internal Controls                                                                   13

Appendixes
   A. Schedule of Questioned Costs                                                  15




                                           3
                      BACKGROUND AND OBJECTIVES

The Trinidad Housing Authority was established to provide adequate housing for low-income
persons in an area that has a shortage of affordable housing. A five-member board of
commissioners governs the Authority, and an executive director manages its daily operations.
The Authority’s administrative offices are located at 128 West First Street, Trinidad, CO.

On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act
of 2009. This legislation included a $4 billion appropriation of capital funds to carry out capital
and management activities for public housing agencies as authorized under Section 9 of the
United States Housing Act of 1937. The Recovery Act requires that $3 billion of these funds be
distributed as formula grants and the remaining $1 billion be distributed through a competitive
grant process. On March 18, 2009, the U.S. Department of Housing and Urban Development
(HUD) awarded the Authority a $444,654 Public Housing Capital Fund stimulus (formula) grant
that was Recovery Act funded.

The Recovery Act imposed additional reporting requirements and more stringent obligation and
expenditure requirements on the grant recipients beyond those applicable to the ongoing Public
Housing Capital Fund program grants. For example, the Authority was required to obligate 100
percent of its formula grant funds by March 18, 2010. It is required to expend 100 percent of the
grant funds by March 18, 2012. Additionally, the Recovery Act requires reports on the use of
Recovery Act funding by recipients no later than the 10th day after the end of each calendar
quarter. The recipient enters project and job information, subaward information, and vendor
transaction information into FederalReporting.gov. It is important for the recipients to report this
information accurately and in a timely manner, because it is necessary to effectively implement
the accountability and transparency reporting requirements of the Recovery Act.

The objectives of the audit were to determine whether the Authority obligated and expended its
formula Recovery Act capital funds in accordance with Recovery Act rules and regulations and
whether it properly reported Recovery Act information in FederalReporting.gov.




                                                 4
                                RESULTS OF AUDIT

Finding 1: The Authority Did Not Perform Cost Estimates Before
             Receiving Bids or Proposals
The Authority did not perform cost estimates before receiving bids or proposals on its Recovery
Act contracts and procurements. This condition occurred because the Authority did not know
that these analyses were required. As a result, it could not be assured that the amount paid for
more than $353,000 in contracts and procurements was reasonable.



 The Authority Did Not Perform
 Cost Estimates

              The Authority did not perform cost estimates before receiving bids or proposals
              on its Recovery Act contracts and procurements. To determine price
              reasonableness, the Authority was required by 24 CFR (Code of Federal
              Regulations) 85.36(f)(1) to perform a cost analysis for every procurement action
              including contract modifications. At a minimum, the Authority was required to
              make independent estimates before receiving bids or proposals. All 10 of the
              Authority’s contracts and procurements did not contain an independent cost
              estimate or other documentation showing that the Authority determined that the
              cost was reasonable before receiving bids or proposals. The following are the
              Authority’s 10 contracts and procurements and the amounts of those contracts and
              procurements.

                              Contracts and procurements                        Amount
                Retaining walls, basements, and slabs                             $161,563
                Kitchen cabinet procurement                                        $48,312
                Sewer realignment                                                  $24,900
                Electrical work                                                     $6,240
                Accessible walkway contract                                         $7,170
                Architectural and engineering contract                             $14,085
                Refrigerator procurement                                           $77,626
                Plumbing work contract                                              $6,204
                Accessibility remodel materials - two contracts                     $7,241
                                                                    Total         $353,341




                                                5
The Authority Did Not Know
That Cost Estimates Were
Required

            The Authority did not know that it was required to perform a cost estimate before
            receiving bids or proposals. It believed that receiving bids and accepting the
            lowest bid showed that the costs were reasonable.


 The Authority Could Not
 Assure Price Reasonableness

            The Authority could not be assured that the amount paid for more than $353,000
            in contracts and procurements was reasonable. It needs to provide support
            showing that these costs were reasonable. For any portion of the funds that the
            Authority cannot support, it should be required to refund HUD with non-Federal
            funds.

 Recommendations



            We recommend that the Director of the Denver Office of Public Housing

             1A. Provide technical assistance to the Authority to ensure that it understands
                 that it is required to perform a cost estimate before receiving bids or
                 proposals.

             1B.   Require the Authority to send its procurement staff to training to improve
                   proficiency in the procurement process.

             1C.   Require the Authority to provide support to show the costs were
                   reasonable for its Recovery Act Capital Fund contracts and procurements
                   totaling $353,341. For any portion of this amount that the Authority
                   cannot support, the Authority should refund HUD with non-Federal funds.




                                            6
Finding 2: The Authority Purchased Five Refrigerators With Recovery
             Act Funds That It Did Not Use
The Authority spent Recovery Act funds to purchase five refrigerators that it did not use. The
Authority did not have adequate procedures to effectively manage its equipment purchases. As a
result, it incurred $2,360 in unreasonable costs and could not provide reasonable assurance that
these Recovery Act funds were used effectively and efficiently.


 The Authority Purchased
 Refrigerators That It Did Not
 Use


              The Authority used Recovery Act funds to purchase five refrigerators that it did
              not use. Regulations at 2 CFR 215.21(b)(3) state that recipients shall adequately
              safeguard assets and ensure that they are used for only authorized purposes.

              Of the 198 refrigerators purchased by the Authority using Recovery Act funds, it
              could not locate one refrigerator and received four inoperable refrigerators from
              the vendor. Instead of returning the inoperable refrigerators and receiving
              working replacements or a refund, the Authority stored them in its maintenance
              warehouse.


 The Authority Did Not Have
 Adequate Procedures


              The Authority did not have adequate procedures to effectively manage its
              equipment purchases. It did not have procedures to ensure that purchased items
              were properly safeguarded. One of the new refrigerators was left unattended
              overnight before being placed into service, and it disappeared. The Authority also
              did not have adequate procedures to resolve problems with its equipment
              purchases. Four of the refrigerators were received in inoperable condition and
              should have been exchanged or returned for a refund. Instead, they were placed
              in the Authority’s warehouse. Adequate procedures would have prevented these
              problems by assigning responsibility to specific employees and directing
              appropriate actions for those employees to take.




                                               7
The Authority Incurred
Unreasonable Costs


           The Authority incurred $2,360 in unreasonable costs, and it could not provide
           reasonable assurance that these Recovery Act funds were used effectively and
           efficiently. It paid $2,360 for the five refrigerators that it purchased with
           Recovery Act funds and did not use. These costs are disallowed as the Authority
           did not act prudently to protect tax-payer interest.


Recommendations


           We recommend that the Director of the Denver Office of Public Housing

            2A.   Require the Authority to develop and implement procedures to properly
                  manage its equipment purchases.

            2B.   Require the Authority to repay $2,360 to HUD with non-Federal funds for
                  the one missing and four inoperable refrigerators.




                                           8
Finding 3: The Authority Did Not Accurately Report Recovery Act
             Information
The Authority did not accurately report Recovery Act Capital Fund grant information in
FederalReporting.gov. This condition occurred because the Authority did not have adequate
controls over maintaining documentation to support and track the costs associated with the
Recovery Act grant. As a result, the public did not have access to accurate information related to
the Authority’s expenditures of Recovery Act capital funds.


Authority Did Not Accurately
Report Required Information

               The Authority did not accurately report Recovery Act Capital Fund grant information
               in FederalReporting.gov. Recovery Act grant recipients are required to report the
               following information to FederalReporting.gov:

                      Amount of the Recovery Act grant award,
                      Project information for use of the grant funds,
                      Number of jobs created or retained with the Recovery Act grant,
                      Funds invoiced,
                      Funds received,
                      Expenditure amounts,
                      Listing of vendors receiving Recovery Act funds, and
                      Vendor transactions and payments.

               For all of the eight quarterly reports submitted during our audit period, the Authority
               underreported the total amount expended and the number of payments to vendors of
               less than $25,000. The Authority underreported the total amount of payments to
               vendors of less than $25,000 in seven quarters and overreported this category in one
               quarter. For the total amount and number of payments to venders of greater than
               $25,000, the Authority underreported in one quarter and overreported in six quarters,
               and accurately reported in one quarter.

               The following tables list what was reported in FederalReporting.gov, the actual
               expenditures, and the difference between the two numbers.




                                                 9
                                    Total expenditures
                        Expenditures reported in                               Reporting
 Quarter ending date                                  Actual expenditures
                         FederalReporting.gov                                 differences *
      09/30/2009                    $0                      $7,814                 ($7,814)
      12/31/2009                  $89,252                  $102,018               ($12,766)
      03/31/2010                 $250,714                  $267,359               ($16,645)
      06/30/2010                 $356,204                  $ 408,189              ($51,985)
      09/30/2010                 $392,021                  $418,355               ($26,334)
      12/31/2010                 $403,574                  $420,083               ($16,509)
      03/31/2011                 $437,784                  $449,811               ($12,027)
      06/30/2011                 $437,384                  $449,811               ($12,027)
*( ) = underreported

      Total aggregate number & amount of payments to vendors less than $25,000
                                                                   Number of
                 Expenditures                                      payments to        Actual
    Quarter       reported in         Actual        Reporting        vendors         number
  ending date       Federal        expenditures    differences*    reported in          of
                 Reporting.gov                                       Federal        payments
                                                                  Reporting.gov
  09/30/2009           $0            $7,814         ($7,814)           0                3
  12/31/2009           $0           $16,004        ($16,004)           0               8
  03/31/2010         $26,336        $42,122        ($15,786)           6               28
  06/30/2010         $54,412        $98,593        ($44,181)           25              48
  09/30/2010        $192,247        $105,382        $86,865            40              57
  12/31/2010         $71,196        $105,382       ($34,186)           36              57
  03/31/2011         $80,283        $105,382       ($25,099)           40              57
  06/30/2011         $86,333        $105,382       ($19,049)           51              57
*( ) = underreported

    Total aggregate number & amount of payments to vendors greater than $25,000
                                                                   Number of
                 Expenditures                                      payments to
                                                                                  Actual
    Quarter       reported in         Actual        Reporting        vendors
                                                                                number of
  ending date       Federal        expenditures    differences*    reported in
                                                                                payments
                 Reporting.gov                                       Federal
                                                                  Reporting.gov
  09/30/2009            $0             $0             $0               0                0
  12/31/2009            $0          $76,829        ($76,829)           0                1
  03/31/2010         $229,984       $203,648        $26,336            9                4
  06/30/2010         $333,703       $272,827        $60,876            14               6
  09/30/2010         $354,533       $272,827        $81,706            15               6
  12/31/2010         $360,134       $272,827        $87,307            18               6
  03/31/2011         $360,134       $272,827        $87,307            18               6
  06/30/2011         $374,785       $272,827       $101,958            24               6
*( ) = underreported




                                    10
The Authority Did Not Have
Adequate Controls

           The Authority did not have adequate controls over maintaining documentation to
           support and track the costs associated with the Recovery Act grant. The executive
           director used a spreadsheet to track the amounts she entered into
           FederalReporting.gov quarterly. However, when comparing this spreadsheet to
           the supporting documentation, the amounts reported did not always match the
           support.


 The Public Did Not Have
 Access to Accurate Grant
 Information

           The public did not have access to accurate information related to the Authority’s
           expenditures of Recovery Act capital funds. As a result, the Authority’s use of
           Recovery Act capital funds was not transparent. Since the Authority has reported
           that it expended all of its Recovery Act capital funds, it needs to provide adequate
           documentation to support the costs it reported.


Recommendations


           We recommend that the Director of the Denver Office of Public Housing

            3A.   Require the Authority to provide you with documentation to support the
                  costs it reported in FederalReporitng.gov.




                                            11
                        SCOPE AND METHODOLOGY

Our audit period was March 1, 2009, through June 30, 2011. We performed our onsite audit
work in August 2011 at the Authority’s office at 128 West First Street, Trinidad, CO.

To accomplish our objectives, we

      Interviewed the Authority’s staff.
      Interviewed HUD Office of Public Housing staff in Denver, CO.
      Reviewed the Authority’s Recovery Act procurement policies, procurement and contracting
       files, financial records, and supporting documentation.
      Reviewed the Authority’s annual and 5-year plans, minutes from the board of directors
       meetings, Capital Fund budgets, annual audited financial statements, and correspondence
       with HUD.
      Reviewed Federal regulations, the Recovery Act, and HUD requirements.

The Authority was awarded $444,654 in Recovery Act funds. We reviewed 100 percent of the
Authority’s Recovery Act obligations and expenditures.

To determine whether the Authority properly entered Recovery Act information into
FederalReporting.gov, we examined all quarterly expenditures during our audit period. We then
compared that information to what was reported in FederalReporting.gov.

We did not use computer-generated data as audit evidence or to support our audit conclusions.
We used source documentation maintained by the Authority. We compared the source
documentation to data reported in FederalReporting.gov and data reported in HUD’s Line of
Credit Control System. All conclusions were based on source documentation reviewed during
the audit.

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:

                     Controls to ensure that the Authority performed cost estimates before
                      receiving bids or proposals.
                     Controls to ensure that the Authority properly managed its equipment
                      purchases.
                     Controls to ensure that the Authority reported Recovery Act grant
                      information in FederalReporting.gov.

               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.




                                                 13
Significant Deficiencies


             Based on our review, we believe that the following items are significant deficiencies:
                   The Authority did not have adequate procedures to effectively manage its
                    equipment purchases (finding 2).
                   The Authority did not have adequate controls over maintaining
                    documentation to support and track Recovery Act grant information reported
                    in FederalReporting.gov (finding 3).




                                              14
                                    APPENDIXES


Appendix A

               SCHEDULE OF QUESTIONED COSTS

                 Recommendation      Unsupported cost        Unreasonable
                        number                     1/              cost 2/
                               1C            $353,341
                               2B                                   $2,360

    1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured
    program or activity when we cannot determine eligibility at the time of the audit.
    Unsupported costs require a decision by HUD program officials. This decision, in
    addition to obtaining supporting documentation, might involve a legal interpretation or
    clarification of departmental policies and procedures.

    2/ Unreasonable/unnecessary costs are those costs not generally recognized as ordinary,
    prudent, relevant, and/or necessary within established practices. Unreasonable costs
    exceed the costs that would be incurred by a prudent person in conducting a competitive
    business.




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