Issue Date
October 12, 2011
Audit Report Number
2012-FW-1002
TO: David Pohler, Director, Office of Public Housing, 6JPH
//signed//
FROM: Gerald R. Kirkland
Regional Inspector General for Audit, Fort Worth Region, 6AGA
SUBJECT: The Housing Authority of the City of Corpus Christi, TX, Generally
Administered Recovery Act Capital Funds in Compliance With the Recovery Act
HIGHLIGHTS
What We Audited and Why
In accordance with our goal to review funds provided under the American
Recovery and Reinvestment Act of 2009, we audited the Public Housing Capital
Fund Stimulus (formula) Recovery Act-funded activities of the Corpus Christi
Housing Authority in Corpus Christi, TX. Our objective was to determine
whether the Authority expended Recovery Act funds in accordance with
Recovery Act rules and regulations and submitted timely Recovery Act
performance reports.
What We Found
Generally, the Authority complied with Recovery Act requirements. However, it
used more than $6,000 in Recovery Act funds for ineligible and unsupported
purposes including (1) the purchase of furniture that was not made in America
and other furniture, the origin of which was unclear; (2) incidental relocation
expenses that it did not support with receipts; and (3) general purpose office
supplies. In addition, the Authority could better use more than $2,000 in
misallocated Recovery Act salary expenses and impending ineligible relocation
expenses. It also submitted one late quarterly performance report. These minor
exceptions occurred because the Authority’s program staff was not aware of
Recovery Act requirements and the Authority had not implemented effective
controls over cost eligibility, cost allocation, and payroll processing. The late
performance report was caused by competing work priorities.
What We Recommend
We recommend that the Director of the U. S. Department of Housing and Urban
Development’s (HUD) Office of Public Housing require the Authority to develop
and implement effective controls over its Recovery Act activities to ensure that
(1) its payroll processing, purchasing, cost eligibility, and cost allocation comply
with Recovery Act and HUD requirements; (2) its staff is aware of program
requirements; and (3) only allowable costs are charged to program accounts.
Also, the Authority should use non-Federal funds to reimburse $2,173 to the U. S.
Treasury, including $660 for furniture that was not made in America in violation
of program requirements, $1,450 for ineligible relocation payments, and $63 for
ineligible office supplies. Further, the Authority should provide support showing
that furniture at Ruthmary Price was made in America or reimburse $4,302 to the
U. S. Treasury. Finally, the Authority should change its relocation policy so that
it does not incur an additional $1,450 in ineligible relocation payments and
reallocate $411 in Recovery Act salaries that it misallocated to the low-rent
program and $557 that it misallocated among other Federal and non-Federal
programs as indicated by employee timesheets.
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 our discussion draft to the Authority on September 23, 2011, and
held an exit conference on September 28, 2011. We requested a written response
by September 28, 2011, and the Authority provided its response on September 30,
2011. The Authority agreed with some conclusions and disagreed with others.
The Authority provided explanations to support its position. We reviewed the
explanations and revised the report where appropriate. The complete text of the
Authority’s response, along with our evaluation of that response, can be found in
appendix B of this report.
2
TABLE OF CONTENTS
Background and Objective 4
Results of Audit
Finding: The Authority Generally Complied With Recovery Act Requirements 5
Scope and Methodology 9
Internal Controls 10
Appendixes
A. Schedule of Questioned Costs and Funds To Be Put to Better Use 11
B. Auditee Response and OIG’s Evaluation 12
C. Examples of Recovery Act-Funded Activities 16
3
BACKGROUND AND OBJECTIVE
The City of Corpus Christi established the Housing Authority of Corpus Christi, TX, in 1938.
The governing body of the Authority is its five-member board of commissioners appointed by
the mayor. The board hires an executive director to manage the Authority’s day-to-day
operations. The Authority provides low-cost housing for more than 4,000 people and has more
than 1,800 units. The Authority’s services include assistance to the elderly with daily living,
medical needs, and transportation, while its family assistance programs provide help with
childcare, transportation, counseling, dispute resolution, and housekeeping.
The American Recovery and Reinvestment Act of 2009 was signed into law on February 17,
2009. It provided $4 billion for public housing agencies to carry out capital and management
activities, including modernization and development of public housing. It allocated $3 billion
for formula grants and $1 billion for competitive grants. The Recovery Act required public
housing agencies to obligate 100 percent of the funds within 1 year of the date on which funds
became available to the agency for obligation and expend 60 percent within 2 years and 100
percent within 3 years of such date. The Authority received a little more than $3.5 million in
Recovery Act Public Housing Capital Fund program grant funds.
The Authority used Recovery Act funding for interior and exterior repairs to its public housing
units, infrastructure, and site improvements and to replace appliances. The Authority’s Recovery
Act activities for each of its properties are included in appendix C, along with pictures of some
of the activities.
Our objective was to determine whether the Authority expended Recovery Act funds in
accordance with the Recovery Act rules and regulations and submitted timely Recovery Act
performance reports.
4
RESULTS OF AUDIT
Finding: The Authority Generally Complied With Recovery Act
Requirements
The Authority generally complied with Recovery Act rules and regulations. It (1) met the time
deadlines for both obligations and expenditures, (2) used funding to address items identified on
its needs assessment and annual plan, (3) used appropriate methods to award professional service
and construction contracts in accordance with its amended procurement policy as required by the
Recovery Act, and (4) submitted all but 1 of its 14 Recovery Act reports1 in a timely manner.
However, the Authority did not fully comply with the Recovery Act because it was unaware that
some Recovery Act requirements differed from Authority policy and did not update all of its
procedures and controls to reflect the Recovery Act requirements. As a result, the Authority
incurred more than $6,000 in ineligible and unsupported costs and will incur more than $1,000 in
additional ineligible costs if it does not update its procedures and controls for Recovery Act
funds.
The Authority Obligated and
Expended Recovery Act Funds
by the Required Deadlines
By March 17, 2010, the Authority had obligated all of its Recovery Act grant funds
to address identified needs at nine properties. The obligations included three
architectural and engineering contracts and five construction contracts for site
improvements, roofing, windows, interior and exterior renovations, security
cameras, and security fencing. The interior renovations included new appliances,
while the exterior renovations included the installation of hurricane-resistant window
coverings. By March 31, 2011, the end of the audit period, the Authority had
expended 93 percent of its Recovery Act grant funding for these activities.
Examples and photographs of the Authority’s Recovery Act activities are in
appendix C.
The Authority Violated
Recovery Act Requirements
With a few minor exceptions, the Authority’s Recovery Act expenses were eligible,
supported, and reported in a timely manner. However, the Authority (1) did not
fully comply with the Recovery Act’s “made in America” requirements, (2) made
ineligible relocation payments to tenants, (3) misallocated salary expenses, (4)
1
Recovery Act Management Performance System reports
5
inappropriately used Recovery Act funds for general office supplies not used solely
for Recovery Act activities, and (5) submitted 1 of 14 performance reports late.
Furniture Was Not Made in America
The Authority paid $4,962 in Recovery Act funds to purchase furniture that it could
not show was made in America as required because program staff was unaware of
the “made in America” requirement. Although Section 1605 of the Recovery Act
requires manufactured goods to be made in America, a furniture sales representative
identified $660 in furniture items that were manufactured and assembled outside of
the United States. The Authority did not provide evidence to show that the
remaining furniture items, costing $4,302, were made in America.
Relocation Payments Were Ineligible
The Authority made $1,450 in ineligible relocation payments for incidental expenses
to assist 29 tenants in temporarily relocating from a property that it was renovating
with Recovery Act funds. According to the Authority, its policy did not require a
receipt for the incidental relocation payments and allowed the Authority to provide
additional assistance if the tenants submitted receipts. The Authority made the
ineligible payments because its policy conflicted with HUD requirements2 and its
program staff was unaware of the conflict. The Authority’s relocation policy
allowed it to provide $100 in relocation payments for incidental expenses to
temporarily displaced tenants without receipts. The Authority paid each of the 29
tenants $50 for incidental expenses related to the move out and expected to pay $50
to each tenant for incidental expenses related to each tenant’s return to a renovated
unit. The Authority’s program staff was unaware that HUD requires grant funds to
be used for reasonable, necessary, and adequately documented expenses. The
Authority will incur an additional $1,450 in ineligible relocation payments for
returning tenants unless it changes its policy.
Recovery Act Payroll Expenses Were Misallocated to Its Low-Rent Program
The Authority misallocated $411 in Recovery Act salary expenses to its low-rent
program and another $557 among the Authority’s other Federal and non-Federal
programs. This error occurred because the Authority did not accurately copy
timesheet information into its computerized payroll system and did not have an
independent review or reconciliation of payroll allocations. The Authority recently
changed its payroll processing procedures and consolidated payroll processing into a
single department. It should reevaluate its payroll processing controls to help ensure
that salary costs are accurately allocated among program accounts. It should also
use $411 in Recovery Act funds to repay its low-rent program and review employee
timesheets to determine to which program account the remaining $557 in Recovery
Act funding should be reallocated.
Recovery Act Funds Were Used for General Purpose Office Supplies
The Authority used $63 to purchase general use office supplies for the Capital Fund
program construction office. This was the Authority’s only purchase from an office
2
OMB Regulation, 2 CFR, Part 225 Attachment A Section C.1.
6
supply retailer using Recovery Act funds, and it occurred because the Authority’s
program staff did not know that grant costs are allowable for Federal reimbursement
only to the extent of benefits received or that Recovery Act funds could not be used
for operating expenses.
One of 14 Performance Reports Was Not Made in a Timely Manner
Despite a letter from HUD requiring the Authority to submit environmental reports
within 10 days of the end of the quarter, the Authority submitted its December 31,
2010, quarterly environmental report 18 days late. The quarterly report was due by
January 10, 2011 but the Authority submitted the report on January 28, 2011.
Authority staff members explained that they turned the report in late because they
had other priorities.
Conclusion
The Authority generally complied with Recovery Act rules and regulations.
However, Authority management did not implement effective controls over cost
eligibility and allocation and payroll processing, resulting in questioned costs and
funds than can be put to better use of nearly $9,000. Further, the Authority
submitted 1 of its 14 quarterly reports 18 days after it was due.
Recommendations
We recommend that the Director of the Office of Public Housing require the
Authority to
1A. Revise controls to include Recovery Act requirements and review payroll
processing procedures and revise as appropriate to ensure that salary
expenses are accurately allocated among its program accounts.
1B. Use non-Federal funds to repay $660 to the U. S. Treasury for furniture not
made in America.
1C. Provide support showing that furniture identified in this report was made in
America or repay $4,302 to the U. S. Treasury.
1D. Use non-Federal funds to repay $1,450 to the U. S. Treasury for ineligible
tenant relocation payments.
1E. Change its relocation policy to require receipts for all relocation payments
so that it does not incur $1,450 in additional ineligible relocation costs,
thereby putting the funds to better use for eligible and supported costs.
7
1F. Use non-Federal funds to repay $63 to the U. S. Treasury for ineligible
office supplies.
1G. Use $411 in Recovery Act funding to repay its low-rent program for
misallocated salary expenses.
1H. Reallocate $557 in Recovery Act funding to repay its Federal and non-
Federal programs for misallocated Recovery Act salary expenses as
recorded on employee timesheets.
8
SCOPE AND METHODOLOGY
We conducted our audit work at the Authority’s central office located at 3701 Ayers Street in
Corpus Christi, TX, and in the HUD Office of Inspector General’s (OIG) office in San Antonio,
TX. We performed our audit work between April 19 and September 9, 2011. The Audit covered
the period March 1, 2009, through March 31, 2011. We limited our scope to the Authority’s
Recovery Act reimbursements and related expenditures and program performance reporting
during the review period. We adjusted the scope as necessary to meet the audit objective.
To accomplish our objective, we performed the following steps as they related to the Authority’s
Recovery Act Capital Fund formula grant:
Reviewed relevant laws, regulations, and HUD guidance.
Reviewed applicable minutes of the Authority’s board of commissioners.
Reviewed the Authority’s audited financial statements for fiscal year 2009 and the
unaudited financial statements for fiscal year 2010.
Reviewed the Authority’s annual plan, 5-year action plan, and needs assessment.
Reviewed the Authority’s procurement records for all Recovery Act contracts.
Selected and reviewed a nonstatistical, representative sample of expenditures to
determine whether disbursements were adequately supported.
Interviewed Authority staff to determine its procedures for procurement, cost allocation,
accounts payable, and performance reporting.
Reviewed the Authority’s Recovery Act reporting for timeliness and accuracy.
Conducted site visits of and photographed representative activities to illustrate the
Authority’s use of formula grant funds.
Interviewed HUD Office of Public Housing staff in San Antonio and Fort Worth, TX,
and Washington, DC.
We selected a nonstatistical, representative sample of 26 of the Authority’s 131 Recovery Act
expenditures. The 26 samples, valued at more than $1 million, represented 31 percent of the
Authority’s total Recovery Act expenditures of more than $3.2 million. We used a nonstatistical
sample because we were evaluating the Authority’s payment procedures and not projecting a
dollar value of errors in its total expenditures.
Information system data was used for background or information purposes only. We obtained
payroll expense data from the Authority’s computerized payroll system and used source
documents to confirm the misallocated payroll expense amounts included in the finding. We did
not project results to the population.
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 the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.
9
INTERNAL CONTROLS
Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to
Effectiveness and efficiency of operations,
Reliability of financial reporting, and
Compliance with applicable laws and regulations.
Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.
Relevant Internal Controls
We determined that the following internal controls were relevant to our audit
objective:
Controls to ensure the Authority’s financial accounting accuracy.
Controls to ensure that the Authority submits accurate periodic reports of its
Recovery Act activities and accomplishments in a timely manner.
Controls to ensure that the Authority’s Recovery Act expenditures, including
the procurement of goods and services, comply with Recovery Act
requirements.
We assessed the relevant controls identified above.
A deficiency in internal controls exists when the design or operation of a control
does not allow management or employees, in the normal course of performing their
assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
impairments to effectiveness or efficiency of operations, (2) misstatements in
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
We did not note any items that we believe to be significant deficiencies.
10
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
AND FUNDS TO BE PUT TO BETTER USE
Recommendation Ineligible 1/ Unsupported 2/ Funds to be put
number to better use 3/
1B $660
1C $4,302
1D 1,450
1E 1,450
1F 63
1G 411
1H 557
Totals $2,173 $4,302 $2,418
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.
2/ 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.
3/ Recommendations that funds be put to better use are estimates of amounts that could be used more
efficiently if an OIG recommendation is implemented. These amounts include reductions in outlays,
deobligation of funds, withdrawal of interest, costs not incurred by implementing recommended
improvements, avoidance of unnecessary expenditures noted in preaward reviews, and any other
savings that are specifically identified. In recommendation 1E, the Authority will not incur $1,450 in
ineligible incidental relocation expenses if it changes its policy to disallow relocation expenses not
supported by receipts. In recommendations 1G and1H, the Authority should use Recovery Act funds
to repay the Federal and non-Federal programs to which it misallocated Recovery Act salary
expenses.
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Appendix B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
CORPUS CHRISTI HOUSING AUTHORITY
BOARD OF COMMISSIONERS Executive Offices
3701 Ayers Street
FRANK W. MONTESANO, Chairperson Corpus Christi, Texas 78415
WILLIAM D. BONILLA, Vice-Chairperson
PRISCILLA WALLER, Commissioner Office: 361-889-3350
ELMER C. WILSON, Commissioner Fax: 361-889-3391
PATRICIA MCDANIEL, Commissioner Website: www.hacc.org
September 30, 2011
Mr. Gerald R. Kirkland, Regional Inspector General for Audit
U.S. Department of Housing and Urban Development
Office of Inspector General, Region VI
819 Taylor Street, Suite 13A09
Fort Worth, TX 76102
Dear Mr. Kirkland:
Attached you will find our written response to the draft audit report of the Corpus Christi
Housing Authority’s administration of the Recovery Act Capital Funds grant. Although
we do not agree with all the findings contained in the report, we look forward to the
resolution of the disputed items.
Thank you for your consideration of our response, and we look forward to the issuance of
the final audit report with the requested adjustments.
Sincerely,
Joanna Moreno
Executive Vice President
12
Requested Responses to HUD OIG Draft Report Dated September 22, 2011
The Authority did not fully comply with the Recovery Act’s “made in America”
requirements.
The Authority paid $4,962 in Recovery Act funds to purchase furniture that it could not
show was made in America as required because program staff was unaware of the “made
in America” requirement.
Authority’s Response: Pursuant to PIH Notice 2009-31, PIH Implementation Guidance
for the Buy American Requirement of the American Recovery and Reinvestment Act of
2009 including Process for Applying Exceptions, issued August 21, 2009, Section 1605
(the “Buy American requirement) of the Recovery Act states that: “ ….for a project for
the construction, alteration, maintenance, or repair of a public building or public work
Comment 1 unless all of the iron, steel, and manufactured goods used in the project are produced in
the United States.” It is our contention that the “made in America” requirement is not
applicable in this instance. Furthermore, as noted in the same notice, Section V.4.
National (Categorical) Exceptions Granted, “Where the size of a contract funded with
CFRFC grant assistance is less than $100,000, regardless of the size of the PHA, the Buy
American requirement is not applicable.”
The Authority made ineligible relocation payments to tenants.
The Authority made $1,450 in ineligible relocation payments for incidental expenses to
assist 29 tenants in temporarily relocating from a property that it was renovating with
Recovery Act funds.
Authority’s Response: The Authority concedes that it was operating under an older
version of HUD Handbook 1378, Section 3.2 (c), Displaced Public Housing Tenants,
which states that in the case of a PHA election to move the tenant, at no cost to the
tenant, then in such a case, the tenant is entitled to a dislocation allowance of $50.
However, the updated version, effective April 2008, continues to allow for a payment
Comment 2 limited to $100 in the case of a residential move that is performed by the agency at no
cost to the tenant. The Authority will seek any training and technical assistance that
HUD can offer regarding relocation assistance. If it is determined that a policy change is
required, the Authority will modify its policy accordingly. Furthermore, if after further
review, it is HUD’s determination that this finding remain, then the Authority will
reimburse $1,450 for ineligible tenant relocation payments from non-federal funds, or if
permissible, from a current CFP grant.
The Authority misallocated salary expenses.
The Authority misallocated $411 in recovery Act salary expenses to its low-rent program
and another $557 among the Authority’s other Federal and non-Federal programs.
Authority’s Response: The Authority agrees with this statement. Although an effective
time-tracking allocation system, with an independent review of data, was in place, an
Comment 3
oversight of a data entry error did occur. The Authority will use non-federal funds to
reimburse $411 to the low-rent program and $557 to the correct program.
13
The Authority inappropriately used Recovery Act funds for general office supplies
not used solely for Recovery Act activities.
The Authority used $63 to purchase general office supplies for the Capital Fund program
construction office. This was the Authority’s only purchase from an office supply retailer
using Recovery Act funds. Recovery Act funds could not be used for operating expenses.
Authority’s Response: Pursuant to PIH Notice 2009-12, Information and Procedures for
Processing American Recovery and Reinvestment Act Capital Fund Formula Grants,
issued March 18, 2009, page 4 outlines Restrictions on Use of Funds, specifically, “All
expenditures from Account 1410 (Administration) are limited to 10 percent of the total
grant. A PHA may draw up to 10 percent of each expenditure reimbursement for
Comment 4 administration of the Recovery Act grant.” It is our contention that the restriction to the
use of Account 1406 Operations as outlined in this notice is the correct interpretation of
“used for operations or rental assistance activities.” It was noted that because the office
supplies were housed in the Capital Fund office (which is the office responsible for the
ARRA grant), a determination as to the use of the supplies, i.e. binder clips and ink
cartridges (were they used for ARRA purposes or the CFP program) could not be made.
Since the funds for the office supplies was drawn on Account 1410, and were used for the
administration of the Recovery grant, it is our contention that these funds were used
appropriately.
The Authority submitted 2 of 14 performance reports late.
Authority’s Response: As discussed at the exit conference, one of the two late reports
Comment 5 was cleared. The report for quarter ending March 31, 2011 was submitted on April 8,
2011, within the 10 day requirement. The Authority acknowledges the importance of
reporting deadlines, and continuously strives to ensure such requirements are met.
14
OIG Evaluation of Auditee Comments
Comment 1: The Authority stated that the “Buy American” requirement did not apply because
the furniture was purchased for less than $100 thousand. We disagreed because the furniture is a
manufactured good used in the project; therefore, subject to the “Buy American” requirement.
We did not change the recommendation.
Comment 2: The Authority stated that HUD Handbook 1378, Section 3.2(c) updated April 2008
allows payments limited to $100 when residential moves are performed by the agency at no cost
to the tenant. The Authority also stated it would seek further guidance from HUD on this issue.
We disagree. OMB Regulation, 2 CFR, Part 225 Attachment A Section C.1. requires costs to be
reasonable, necessary, and adequately documented. We did not change the recommendation.
Comment 3: The Authority agreed that its payroll costs were misallocated and agreed with the
recommendation.
Comment 4: The Authority contended that the funds for office supplies were used appropriately.
We disagreed because the Authority could not show that the office supplies were used
exclusively for the Recovery Act program. We did not change the recommendation.
Comment 5: The Authority admitted that one of its reports was late but disagreed that a second
report was late. We reviewed the report dates, agreed that the second report was timely, and
made appropriate changes to the report.
15
Appendix C
EXAMPLES OF RECOVERY ACT-FUNDED ACTIVITIES
The Authority used Recovery Act funding for interior and exterior repairs, new appliances, and
infrastructure and site improvements as noted in the table below. The table shows examples of
completed Recovery Act activities.
Project name and development number Recovery Act-funded activity
Wiggins TX 08-01 Security fences, water, sewer, and gas lines
Ruthmary Price TX 08-11 Windows with hurricane protection, interior
renovations, security cameras, security fencing, and
concrete parking
Treyway Terrace TX 08-10 Windows with hurricane protection, security
cameras, and roofing
Leeward Homes TX 08-14 Windows with hurricane protection, security
cameras, and roofing
Clairelane Gardens Phase IV TX 08-08 Interior and exterior renovations, security cameras,
security fences, gas ranges, and refrigerators
Parkway Homes I, TX 08-09 Concrete parking
Navarro Place TX 08-02 Security fences
Andy Alaniz I & II TX 08-15 Security cameras
McKinzie Manor I & II TX 08-12 Interior and exterior renovations, security cameras,
and security fences
New windows and security cameras at Ruthmary Price
16
Interior renovations at Clairelaine
Security fencing at Navarro
Concrete parking at Parkway I
17
The Housing Authority of the City of Corpus Christi, TX, Generally Administered Recovery Act Capital Funds in Compliance With the Recovery Act
Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-10-12.
Below is a raw (and likely hideous) rendition of the original report. (PDF)