oversight

The Housing Authority of the City of Little Rock, AR, Generally Complied With Recovery Act Funding Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-11-21.

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

                                                                Issue Date
                                                                         November 21, 2011
                                                                Audit Report Number
                                                                             2012-FW-1003




TO:         Johnny Wooley, Director, Office of Public Housing, 6FPH

            //signed//
FROM:       Gerald R. Kirkland
            Regional Inspector General for Audit, Fort Worth Region, 6AGA

SUBJECT: The Housing Authority of the City of Little Rock, AR, Generally Complied With
         Recovery Act Funding Requirements


                                   HIGHLIGHTS

 What We Audited and Why

             We audited the Housing Authority of the City of Little Rock’s American
             Recovery and Reinvestment Act of 2009 funding. The Authority received more
             than $6.5 million in Recovery Act funds through three grants: one formula and
             two competitive. We selected the Authority based upon our risk assessment and
             subsequent discussion with the U. S. Department of Housing and Urban
             Development (HUD). Our objectives were to determine whether the Authority
             (1) obligated and expended its Recovery Act funding in accordance with HUD
             rules and regulations and (2) followed Recovery Act reporting requirements.

 What We Found

             The Authority generally complied with Recovery Act requirements. However, it
             did not always follow the Buy American provision or reporting requirements.
             Specifically, the Authority purchased $31,725 in products manufactured and
             assembled outside the United States for Recovery Act-funded projects. Also, for
             one grant, the Authority did not accurately report the number of jobs created.
What We Recommend


           We recommend the Arkansas Director of Public Housing require the Authority to
           repay $31,725 from non-Federal funds that was misspent on products
           manufactured and assembled outside the United States. Further, the Authority
           should implement controls to ensure it complies with the Buy American provision
           requirements. Also, the Authority should correct the number of jobs created in its
           next quarterly report.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We provided a discussion draft to the Authority on November 1, 2011. We held
           an exit conference on November 10, 2011. The Authority provided its response
           on November 16, 2011. The Authority generally agreed with the findings. The
           complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report.




                                            2
                           TABLE OF CONTENTS

Background and Objectives                                                          4

Results of Audit
      Finding : The Authority Generally Administered Its Recovery Act Funding in   5
      Compliance With Requirements

Scope and Methodology                                                              8

Internal Controls                                                                  10

Appendixes
   A. Schedule of Questioned Costs                                                 11
   B. Auditee Comments and OIG’s Evaluation                                        12




                                            3
                          BACKGROUND AND OBJECTIVES

 The Housing Authority of the City of Little Rock was chartered in 1937. A five-member board of
 commissioners governs the Authority. The Authority provides housing through traditional public
 housing, mixed finance sites, and housing choice vouchers.

 On February 17, 2009, the President signed the American Recovery and Reinvestment Act of
 2009 into law. 1 The Recovery Act 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 2 and $1 billion for competitive grants. 3 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 U. S. Department of Housing and Urban Development (HUD) granted more than $6.5
 million to the Authority for one Recovery Act Public Housing Capital Fund formula grant and
 two competition grants. 4 The following table shows the statutory deadlines for each grant.

                        Table 1. Statutory deadline for the Authority’s grants
                                                                          60 percent              100 percent
                         Date grant               Obligation             expenditure              expenditure
      Grant
                          available                deadline                deadline                 deadline
Formula grant         March 18, 2009           March 17, 2010          March 17, 2011           March 17, 2012
Competitive
grant, category 4,    September 23, 2009 September 22, 2010 September 22, 2011 September 22, 2012
option 1
Competitive
grant, category 4,    September 24, 2009 September 23, 2010 September 23, 2011 September 23, 2012
option 2

 HUD required the Authority to use its Recovery Act grants on eligible activities already
 identified in either its annual statement or 5-year action plan. The HUD-approved plans set forth
 all of the Authority’s physical and management improvement needs for its public housing
 developments and must demonstrate long-term physical and social viability of proposed projects,
 including cost reasonableness. If the Authority decided to undertake work items not in its
 approved plans, HUD required it to amend its approved plans.

 Our audit objectives were to determine whether the Authority (1) obligated and expended its
 Recovery Act funding in accordance with HUD rules and regulations and (2) followed Recovery
 Act reporting requirements.

 1
     Public Law 111-5
 2
     Catalog of Federal Domestic Assistance number 14.885
 3
     Catalog of Federal Domestic Assistance number 14.884
 4
     The Authority received $2,630,644 under its formula grant; $2,251,731 in competitive grant, category 4, option
     1; and $1,664,976 in competitive grant, category 4, option 2.


                                                         4
                                        RESULTS OF AUDIT

Finding: The Authority Generally Administered Its Recovery Act
Funding in Compliance With Requirements
The Authority generally complied with the Recovery Act for its three grants. 5 It obligated and
expended its Recovery Act funds for its Capital Fund activities within the required deadlines.
However, it did not always follow the Buy American provision of the Recovery Act. It lacked
adequate controls to ensure it purchased American-made products. As a result, the Authority
misspent at least $31,725 for products made outside the United States. It also underreported the
number of jobs created for one of its competitive grants in the second quarter of 2011.


    The Authority Obligated and
    Expended Its Recovery Act
    Funds Within Deadlines
                  The Authority obligated its Recovery Act funds in accordance with the Recovery
                  Act and Federal requirements. It planned and selected activities from its annual
                  statement and 5-year action plan. In addition, it obligated 100 percent of its
                  funding before the Recovery Act deadlines. The Authority supported its
                  expenditures with appropriate vouchers, checks, and invoices. As of June 22,
                  2011, it had expended 100 percent of the Recovery Act formula grant, 67 percent
                  of the Recovery Act competitive grant (category 4, option 1), and more than 99
                  percent of the Recovery Act competitive grant (category 4, option 2). The
                  Authority should meet the expenditure deadlines. 6


    The Authority Did Not Always
    Follow Buy American
    Requirements

                  The Authority did not always ensure that it purchased American-made products. 7
                  Specifically, it bought floor tiles, washer-dryer combinations, and refrigerators
                  manufactured and assembled outside the United States. The Authority did not
                  have adequate controls in place to ensure it purchased American-made products.
                  While the Authority was responsible for following the Buy American provision, it
                  relied on its contracted architect to select the products for its Recovery Act-
5
     The purposes of the three grants were (1) construction and rehabilitation of public housing units (formula
     grant), (2) construction of green communities (competitive grant, category 4, option 1), and (3) moderate
     rehabilitation and creation of green communities (competitive grant, category 4, option 2).
6
     See table 1 for the dates.
7
     Recovery Act, Title XVI of Subtitle D, Section 1605, required the Authority to use funds appropriated by the
     Act for projects in which all of the iron, steel, and manufactured goods used in the project were produced in the
     United States.


                                                          5
                  funded projects. The Authority’s contracted architect relied on the location of the
                  company instead of where the company manufactured and assembled the
                  products. Moreover, the architect believed replaceable items, such as washers,
                  dryers, and refrigerators, did not have to meet the Buy American provision. As a
                  result, the Authority misspent at least $31,725 8 for products manufactured and
                  assembled outside the United States for Recovery Act-funded activities. Due to
                  the lack of controls, the Authority could not assure it purchased American-made
                  products.


    The Authority Did Not
    Accurately Report the Number
    of Jobs Created

                  The Authority did not always accurately report its Recovery Act activities as
                  required. 9 For the reporting period ending June 30, 2011, the Authority
                  underreported the number of jobs created at 13.31 jobs for the Recovery Act
                  competitive grant (category 4, option 1). The Authority inadvertently excluded
                  job hours in calculating the number of jobs created for the project. As a result, it
                  underreported the number of jobs created by 2.04 jobs. The Authority should
                  correct this error in its next quarterly report.

    Conclusion


                  The Authority generally complied with the Recovery Act for its three grants.
                  However, it did not always meet the Buy American requirement and inadvertently
                  underreported the number of jobs for its Recovery Act activities. As a result, the
                  Authority incurred at least $31,725 in ineligible costs.




8
     We computed the amount by adding the cost of tiles ($1,625), the cost of refrigerators ($9,147), and the cost of
     washers and dryers ($20,953) for a total amount of $31,725.
9
     Recovery Act, Title XII of Subtitle A, Section 1512, required the Authority to submit quarterly reports showing
     a detailed list of all projects for which it had expended Recovery Act funds, including an assessment of the
     number of jobs created and retained by the project.


                                                          6
Recommendations

          We recommend the Arkansas Director of Public Housing require the Authority to

          1A. Repay from non-Federal funds $31,725 that was misspent on products
              manufactured and assembled outside the United States.

          1B. Implement controls to ensure it complies with the Buy American provision
              requirements including retaining supporting documentation to ensure
              products used in its Recovery Act-funded activities were made in the United
              States.

          1C. Correct the number of jobs created in its next quarterly report.




                                           7
                              SCOPE AND METHODOLOGY

We conducted the audit at the Authority’s office located in Little Rock, AR, and our office in
Oklahoma City, OK, from June through October 2011. Our audit scope was March 2009
through May 2011. We expanded our scope to June 30, 2011, for reporting activities.

To accomplish our objectives, we performed the following related to the Authority’s Recovery
Act grant funds:

     •   Reviewed relevant laws, regulations, and HUD guidance;
     •   Reviewed the Authority’s policies and procedures;
     •   Reviewed and analyzed the Authority’s Recovery Act grant agreements, annual
         statement, and 5-year action plan;
     •   Reviewed 100 percent of the Authority’s Recovery Act contracts to ensure the Authority
         met its obligation requirements;
     •   Reviewed six Recovery Act contracts to ensure the Authority met procurement
         requirements (table 2);
     •   Reviewed nine Capital Fund Recovery Act grant vouchers (for 2009, 2010, and 2011)
         listed under the Line of Credit Control System (table 3);
     •   Reviewed the Authority’s Recovery Act reporting for the second quarter of 2011;
     •   Interviewed HUD staff, the Authority’s staff, the Authority’s contracted architect, and a
         contractor’s project manager; and
     •   Conducted site visits 10 and photographed the Recovery Act projects in Little Rock, AR.


                 Table 2. Authority’s Recovery Act contract selection
           Grant type          Total contracts 11  Selected contracts                             Amount
     Formula grant                     17                 2 12                                   $1,670,600
     Competitive grant                               3                         2 13               2,653,624
     (category 4, option 1)
     Competitive grant                               4                         2 14               2,055,000
     (category 4, option 2)
     Totals                                         24                          6               $6,379,224 15




10
     We selected the sites based on the selected contracts.
11
     The Authority’s Recovery Act contracts identified as of June 21, 2011
12
     We selected the highest and third highest contract amounts. We selected the third highest amount instead of the
     second highest amount to avoid selecting the same vendor twice.
13
     We selected the two highest contract amounts.
14
     We selected the highest dollar contract and a contract with a “per task” basis contract amount.
15
     The sample totaled $6,379,224 and was 77.9 percent of the $8,188,998 total contract amounts.


                                                         8
                   Table 3. Authority’s Recovery Act expenditures
           Grant type          Total vouchers 16 Selected vouchers 17                         Amount
     Formula grant                    47                 4 18                                 $600,794

     Competitive grant                            11                       2 19                607,420
     (category 4, option 1)
     Competitive grant                            10                       3 20                932,915
     (category 4, option 2)
     Totals                                       68                        9               $2,141,128 21

We did not project the results of our review.

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.




16
     The Authority’s vouchers identified as of June 22, 2011.
17
     We selected the expenditures from the selected contracts.
18
     Two of the four vouchers were the largest and second largest voucher combination in 2010. The remaining two
     vouchers included the largest voucher combination in 2010 and 2011.
19
     The largest voucher combination in 2010 and 2011.
20
     The largest voucher combination in 2010 and 2011 and one voucher with the selected contractors.
21
     The sample totaled $2,141,128 and was approximately 37 percent of the $5,792,427 total voucher amounts.


                                                       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
               objectives:

               •   Policies and procedures that the Authority’s management implemented to
                   reasonably ensure that its program met its objectives.
               •   Procurement policies and procedures established and followed by the Authority.
               •   Policies and procedures that the Authority’s management implemented to
                   reasonably ensure that its resource use was consistent with laws and regulations
                   and that its resources were safeguarded against waste, loss, and misuse.

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




                                                10
                                             APPENDIXES

Appendix A

                       SCHEDULE OF QUESTIONED COSTS

                                   Recommendation                 Ineligible 1/
                                       number
                                            1A                         $31,725




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.




                                                        11
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                       Auditee Comments
                                  100 South Arch St. • Little Rock, AR 72201   (501) 340-4821 • Fax (501) 340-4845




                                            Shelly Ehenger, Executive Director

            November 16, 2011

            Mr. Gerald R. Kirkland
            Regional Inspector General for Audit
            U. S. Department of Housing and Urban Development
            Region VI, Office of Inspector General
            819 Taylor Street, Suite 13A09
            Fort Worth, Texas 76102

            RE:    Audit Report Number: 2012-FW-100X

            Dear Mr. Kirkland:

            The Little Rock Housing Authority respectfully submits this correspondence in
            response to the above referenced matter. Our agency is pleased to partner with the
            U. S. Department of Housing and Urban Development in our combined mission to
            create strong, sustainable, inclusive communities and quality affordable homes for
            all.

            In accordance with the Annual Contributions Contract (ACC), our agency is
            committed to abiding by the letter and as importantly, the spirit, of regulations,
            notices and procedures of the Department.

            We are also extremely proud of the excellent working relationship we have with
            the Arkansas Field Office Public Housing team. They have provided the
            leadership and guidance necessary for the accomplishments of our quasi-
            governmental entity.

            The entire LRHA staff worked diligently to secure and utilize the American
            Recovery and Reinvestment Act (ARRA) funding. Both the formula and
            competitive grants awarded to our agency were demonstrably beneficial to the




                                               12
            citizenry of Little Rock. Regrettably, the newly instituted, Buy American Requirement
            was not always properly implemented. For that we take full responsibility and agree to
            the single finding in the audit report. We provide with this our proposed plan to address
            the finding.

            Response to Specific Recommendations:

            1A. The Authority will repay to the Capital Fund Program from non-federal funds the
                $31,725. The PHA will work with the field office to have this matter resolved by
Comment 1       12/31/2011.

            1B.   The PHA will develop and implement additional internal controls related to the
                  Buy American provision of the ARRA statue.

Comment 2   1C.   With the most recent ARRA reporting period (October 2011), the Authority
                  corrected the number of jobs created to reflect the 2.04 jobs noted in the report.
                  Documentation and a certifying statement of the corrective action taken will be
                  submitted to the FO.

            The Authority takes pride in the proper awarding of 24 ARRA related contracts totaling
            more than $7,000,000, in an 18 month timeframe. These funds resulted in the new
            construction of green affordable housing for seniors, retrofitting for increased energy
            efficiency for a 168 unit high-rise apartment community, and numerous other capital
            projects that will improve the quality of life for affordable housing program participants.

            We were able to keep small businesses open and afloat while the economy steadied itself.
            We were able to demonstrate to the general public that the government was doing all
            things possible to meet the community housing needs during a very difficult period for
            our country.

            This was all accomplished with limited additional staff and minimal overhead expense.
            The positive result of the funds will be part of the positive paradigm shift of the agency
            for decades.




                                               13
  Thank you for affirming that LRHA is on the right path to building a brighter future for
  all!

  Respectfully Submitted,



  Shelly Ehenger
  Executive Director


  cc:            LRHA Board of Commissioners
                 Arkansas Field Office PIH




                   Legacy Homes at Granite Mountain
                           Senior Housing
                         ARRA Funded Project




Park Central Apartment Homes in the Historic Central High Neighborhood.
              Partially funded ARRA Construction Project
                 Building Communities. Building Lives.




                                    14
                           OIG Evaluation of Auditee Comments

Comment 1     We appreciate the Authority's actions toward addressing the recommendations
              and its willingness to develop and implement additional controls related to the
              Buy American provision of the Recovery Act.

Comment 2: We appreciate the Authority taking the necessary steps to correct the number of
           jobs reported. HUD will need to confirm that the number is accurately reported.




                                              15