oversight

Vancouver, WA, Housing Authority Did Not Always Manage or Report on Recovery Act Funds in Accordance With Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2011-12-21.

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

                                                                Issue Date
                                                                         December 21, 2011
                                                                
                                                                Audit Report Number
                                                                             2012-SE-1002




TO:        Joy McCray, Director, Portland Office of Public Housing, 0EPH

           //signed//
FROM:      Ronald J. Hosking, Regional Inspector General for Audit, 0AGA

SUBJECT: The Vancouver, WA, Housing Authority Did Not Always Manage or Report on
           Recovery Act Funds in Accordance With Requirements


                                  HIGHLIGHTS

 What We Audited and Why

            We selected the Vancouver Housing Authority as part of our annual audit plan,
            which includes reviewing funds provided under the American Recovery and
            Reinvestment Act of 2009. We audited the Authority to determine whether it was
            managing and reporting its three awarded Recovery Act Capital Fund grants in
            accordance with requirements.

 What We Found
            The Authority did not manage the construction funded with Recovery Act Capital
            Fund grants in accordance with requirements. It paid for renovations that did not
            comply with Uniform Federal Accessibility Standards, for a roof that did not meet
            contract requirements, and for contracted work that was not completed. The
            Authority also approved change orders that did not meet U.S. Department of
            Housing and Urban Development requirements and allowed contractors to
            purchase goods manufactured outside the United States.

            In addition, the Authority did not accurately report the Recovery Act Capital Fund
            grant information in FederalReporting.gov. Specifically, it did not correctly


                                            1
           report the grant funds received or invoiced and the number of jobs created or
           retained for two of the four reports reviewed.


What We Recommend

           We recommend that HUD require the Authority to (1) make the 15 upgraded units
           at the Van Vista project compliant with UFAS or repay $530,000, (2) obtain a 30-
           year warranty for the Van Vista roof or repay $120,000, (3) obtain a change order
           for the entry doors and boards under sinks at the Van Vista project or repay
           $17,651, (4) return $10,963 for the ineligible change order, (5) provide support
           for the unsupported positive change orders or return $135,552, (6) provide
           support for unsupported negative change orders or return $26,995, (7) obtain a
           waiver from HUD for the foreign goods purchased or return $420,872, and (8)
           develop and implement procedures to effectively monitor grant funds. In
           addition, HUD should require the Authority to correct the amount of grant funds
           received or invoiced entered into FederalReporting.gov.

           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 the discussion draft of the audit report to the Authority on
           November 23, 2011, and request its comments by December 8, 2011. The
           Authority provided its written response on December 8, 2011 and 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 Objective                                                           4

Results of Audit
        Finding 1: The Authority Did Not Adequately Manage Its Recovery Act        5
                   Funding
        Finding 2: The Authority Did Not Accurately Report on Recovery Act Funds   12

Scope and Methodology                                                              14

Internal Controls                                                                  15

Appendixes
   A.   Schedule of Questioned Costs                                               16
   B.   Auditee Comments and OIG’s Evaluation                                      17
   C.   Criteria                                                                   23
   D.   Ineligible and Unsupported Costs                                           24




                                             3
                       BACKGROUND AND OBJECTIVE

Vancouver Housing Authority

The Vancouver Housing Authority is governed by a six-member board of commissioners. Since
the 1960s, it has subsidized housing for low-income families, the elderly, and disabled people. It
provides affordable housing and housing assistance for more than 12,000 residents of Clark
County, WA, and owns and operates 575 low-rent public housing units.

The Authority’s mission is to provide opportunities to people who experience barriers to housing
because of income, disability, or special needs in an environment which preserves personal
dignity and in a manner which maintains the public trust.

Recovery Act Capital Fund Grants

The Recovery Act included a $4 billion appropriation for the Public Housing Capital Fund
program under the U.S. Department of Housing and Urban Development’s (HUD) Office of
Public and Indian Housing (PIH). The Capital Fund program provides funds annually to public
housing agencies for the development, financing, modernization, and management improvements
of public housing developments. The Recovery Act required $3 billion to be distributed as
formula grant funds with the remaining $1 billion to be distributed through a competitive
process. There were four categories of competitive grants that housing authorities could apply:

   A.   Improvements addressing the needs of the elderly and persons with disabilities,
   B.   Public housing transformation,
   C.   Gap financing for projects that were stalled due to financing issues, and
   D.   Creation of energy-efficient, green communities.

The Recovery Act requires reports on the use of Recovery Act funding by recipients no later than
the tenth day after the end of each calendar quarter. The recipient enters project and job
information, subaward information, grant funds received or invoiced, and the number of jobs
created or retained into FederalReporting.gov. It is important for the recipients to report this
information accurately and in a timely manner because it is necessary for implementing the
accountability and transparency reporting requirements of the Recovery Act.

The Authority received a formula grant of almost $1.2 million, which it used to replace the roof
and gutters at its Skyline Crest property and replace the roof and plumbing at its Van Vista
property. The Authority also received two competitive grants: a more than $1.4 million grant
awarded to complete renovations to create an energy-efficient, green community at its Skyline
Crest property and a $530,000 grant to make 10 dwelling units at its Van Vista property fully
accessible in accordance with Uniform Federal Accessibility Standards, but was sufficient to
renovate 15 units.

Our objective was to determine whether the Authority managed and reported its Recovery Act
capital funds in accordance with requirements.


                                                4
                               RESULTS OF AUDIT

Finding 1: The Authority Did Not Adequately Manage Its Recovery Act
           Funding
The Authority did not manage construction funded with Recovery Act Capital Fund grants in
accordance with requirements. This condition occurred because the Authority lacked adequate
procedures for monitoring grant funds. As a result, it spent $830,198 on unsupported and
$431,835 on ineligible expenditures.



 Deficient Construction
 Management

              The Authority did not manage construction funded with Recovery Act Capital Fund
              grants in accordance with Recovery Act requirements. It paid for renovations that
              did not comply with Uniform Federal Accessibility Standards (UFAS), a roof that
              did not meet contract requirements, and contracted work that was not completed.
              The Authority also approved change orders that did not meet HUD requirements and
              allowed contractors to purchase goods manufactured outside the United States.

 Renovations Did Not Comply
 With UFAS

              The Authority paid for renovations that did not comply with UFAS. It received a
              grant to modify dwelling units at the Van Vista project to comply with UFAS.
              However, the project manual for the renovations omitted these standards. We
              noted the following discrepancies from UFAS during our inspection of the
              property:

                    Kitchen cabinets were too high from the floor in all 10 units inspected.
                     UFAS 4.34.6.10(1) requires kitchen cabinets be a maximum of 48 inches
                     above the floor.




             54 inches




                                              5
   Entry doors had incorrect door knobs and peep-
    hole height in all 10 units inspected. UFAS
    4.13.9 requires that doors be operated by
    hardware that is easy to grasp or push, such as
    lever or push-button type latches. UFAS
    indicates an average eye level of an adult in a
    wheelchair to be between 43 and 51 inches.


                    60 inches



   Wall-hung lavatories did not have enough
    wheelchair clearance in all 10 units
    inspected. UFAS 4.19.2 requires that the
    lavatory provide a clearance of 8 inches
    minimum depth from the front of the
    lavatory toward the back.
             4 inches in depth



   Bathroom medicine cabinets with mirrors were
    hung at incorrect heights in all 10 units
    inspected. UFAS 4.19.6 requires the bottom of
    the mirror to be no higher than 40 inches from
    the floor.

                    Greater than 40 inches
                    from the floor



   Five of the showers were the wrong dimensions.
    UFAS 4.21.2 requires that the size of showers
    be either 36 by 36 inches, to ease transferring
    from a wheelchair to a shower seat, or 30 by 60
    inches, to wheel into the shower. Also, shower
    components did not meet other requirements
    relating to the two required sizes.


               36 by 46 inches




                             6
                  The refrigerator doors in five units did not have enough clearance on the
                   door handle side. The required wheelchair clearance is 18 inches for the
                   pull side of the refrigerator doors.




                                                                           10 inches




           The Authority inspector did not document any of the above deficiencies in his
           inspections.


Insufficient Roof Warranty

           The Authority paid for a roof that did not meet contract requirements. The
           Authority entered into a $360,000 contract to replace the roof at its Van Vista
           project. The project manual required a 30-year warranty for the new roof.
           However, the construction file for the roof replacement contained a certificate for
           a 20-year warranty that only covered two-thirds of the required useful life.


Incomplete Work Paid For


           The Authority paid for contracted work that was not completed. The Authority’s
           contracts referred to technical specifications in each project manual. According to
           24 CFR (Code of Federal Regulations) 85.36(b)(2), grantees must ensure that
           contractors perform in accordance with their contracts.

           The Van Vista renovation project manual included the installation of new entry
           doors. The 15 modified units did not contain new entry doors. Additionally, the
           renovation blueprint showed the installation of a baffle board under the kitchen
           sink to protect occupants in wheelchairs from hot pipes. In all 15 units, the
           underside of the sink had an insulated sleeve on the hot water pipe instead of the
           baffle board. There was no insulation on the drain pipes or garbage disposal
           units, which also may become hot.




                                            7
            There were no change orders removing the entry doors from the scope of work or
            replacing the baffle board with insulated sleeves.


Change Order Deficiencies


            The Authority approved change orders that did not meet form HUD-5370 contract
            change order requirements (see appendix C). Contractors submitted change order
            proposals to the Authority’s construction director and its inspector for approval.

            The Skyline Crest roofing contract was for 59 roofs detailed in the bidding
            documents. The contractor submitted a change order proposal stating that it
            “failed to include two buildings” in its bid. The Authority approved the change
            order, although the contract encompassed all 59 of the roofs.

            The Authority lacked supporting documentation required under 24 CFR
            85.36(f)(1) and form HUD-5370(29) for 18 of the 22 change orders reviewed (see
            appendixes C and D). Specifically, it did not

               Perform an independent cost estimate to determine the cost reasonableness of
                8 change orders,
               Negotiate contractor profit for 12 change orders,
               Limit contractors to charging profit and overhead at or below safe harbor
                standards for 7 change orders,
               Decline to pay contractors profit on the subcontractors profits on 3 change
                orders, and
               Require the contractor to credit profit with reductions in the scope of work or
                products for 1 change order.

 Noncompliant Goods Purchased

            The Authority allowed contractors to purchase goods manufactured outside the
            United States. It approved the purchase of Kohler toilets made in various



                                             8
           countries and Mitsubishi heat pumps made in Japan and Thailand for the Skyline
           Crest property.




           Section 1605 of the Recovery Act requires that all of the manufactured goods
           used in a project be produced in the United States. PIH Notice 2009-31 states that
           a grantee may request a determination from HUD if an exception applies.
           However, the Authority did not acquire such waivers from HUD, although it was
           aware that contractors were installing non-American-made products.


Inadequate Procedures

           The Authority lacked adequate procedures for monitoring grant funds.

              The Authority did not have written procedures for monitoring contractor
               performance. Section 10 of the Authority’s procurement policy stated that a
               system of contract administration would be maintained to monitor contractor
               performance. It did not provide procedures to ensure that construction
               projects complied with the specifications in project manuals and followed
               HUD requirements.



                                           9
                The Authority did not have adequate change order review procedures. Under
                 contract modifications in section 6 of its procurement policy, the only
                 requirement was for a cost analysis to be conducted. This policy did not cover
                 all of the HUD change order requirements (see appendix C).

                The Authority did not have written procedures for applying the buy American
                 requirement. Amendment 1 to its procurement policy, applicable only to
                 Recovery Act funds, stated that the Authority “shall follow Buy American
                 requirements of section 1605 of the Recovery Act.” However, it did not list
                 procedures to ensure that contractors only purchased American-made goods.

Ineligible and Unsupported
Expenditures

           The Authority spent $431,835 on ineligible expenditures and more than $830,198
           on unsupported expenditures. The following chart depicts these expenditures.

      Ineligible Unsupported Grant                Description
        $10,963              Formula              A change order for the Skyline Crest
                                                  project should have been rejected.
                      $530,000 Competitive –      The 15 units at its Van Vista property
                               disability         were not fully assessable and safe for
                               improvements       tenants in accordance with the grant
                                                  awarded.
                      $120,000 Formula            The roof at Van Vista had a warranty
                                                  for only two-thirds of the required 30-
                                                  year life.
                       $17,651 Competitive –      The entry doors and baffle boards at
                               disability         Van Vista were not installed or removed
                               improvements       from the scope of work.
                      $135,552 Formula and        The change orders increasing the
                               both               contracts were not supported by
                               competitive        independent cost estimates and did not
                                                  follow profit requirements.
                       $26,995 Competitive –      The change orders decreasing the
                               green              contracts did not contain support to
                               communities        show that the contract had been reduced
                                                  by a reasonable amount.
      $420,872                 Competitive –      The Authority did not obtain HUD
                               green              waivers for the heat pumps and toilets
                               communities        manufactured outside the United States.
      $431,835        $830,198 Total




                                             10
Recommendations


          We recommend that the Director of HUD’s Portland Office of Public Housing
          require the Authority to

                  1A.   Make the 15 upgraded units at Van Vista fully compliant with
                        UFAS or return $530,000 from non-Federal funds to the U.S.
                        Treasury.

                  1B.   Obtain a 30-year warranty for the Van Vista roof or return
                        $120,000, a third of the contract amount, from non-Federal funds
                        to the U.S. Treasury. The Authority provided the 30-year warranty
                        after fieldwork completion; therefore this recommendation will be
                        closed upon report issuance.

                  1C.   Obtain a change order crediting the project for the entry doors and
                        baffle boards at Van Vista or return $17,651 from non-Federal
                        funds to the U.S. Treasury.

                  1D.   Return $10,963 for the ineligible change order from non-Federal
                        funds to the U.S. Treasury.

                  1E.   Provide support for the unsupported positive change orders or
                        return $135,552 from non-Federal funds to the U.S. Treasury.

                  1F.   Provide support for the unsupported negative change orders or
                        return $26,995 from non-Federal funds to the U.S. Treasury.

                  1G.   Obtain a waiver from HUD for the materials purchased contrary to
                        the Buy American Act or return $420,872 from non-Federal funds
                        to the U.S. Treasury.

                  1H.   Develop and implement procedures to monitor grant funds in
                        accordance with requirements.




                                         11
                                 RESULTS OF AUDIT

Finding 2: The Authority Did Not Accurately Report on Recovery Act
           Funds
The Authority did not accurately report Recovery Act Capital Fund grant information in
FederalReporting.gov. It did not accurately report its Recovery Act grant funds received or
invoiced and the number of jobs created or retained. The Authority did not understand how to
accurately report the grant information. As a result, the public did not have access to accurate
information about the Authority’s use of Recovery Act capital funds.



 Inaccurate Reporting

               The Authority did not accurately report Recovery Act Capital Fund grant
               information in FederalReporting.gov. In two of the four quarterly reports reviewed,
               the Authority did not accurately report its Recovery Act grant funds received or
               invoiced. In addition, it did not accurately calculate the number of jobs created or
               retained for one of the four reports.

               Inaccurate Grant Funds Received or Invoiced
               For the second quarter of 2010, the Authority overreported its formula grant funds
               received or invoiced by $147,778. For the second quarter of 2011, it underreported
               its Skyline Crest competitive grant funds received or invoiced by $45,413.
               According to the Recipient Reporting Data Model for Recovery Act reporting, the
               definition of grant funds received or invoiced is the total amount of Recovery Act
               grant funds drawn down, reimbursed, or invoiced. The following table lists what
               was reported in FederalReporting.gov, the actual grant funds drawn down from
               HUD, and the difference between the two amounts.

                                 Total grant funds invoiced or received
                Grant            Quarter ending     Reported          Actual    Difference
               Formula             6/30/2010     $ 952,280.83 $ 804,502.45 $ (147,778.38)
       Skyline Crest competitive   6/30/2011     $ 1,231,253.98 $ 1,276,666.77 $ 45,412.79

               Inaccurate Number of Jobs Created or Retained
               The Authority did not accurately calculate the number of jobs created or retained
               for one of the four quarterly reports reviewed. For example, in the second quarter
               of 2010, the Authority reported 1.12 jobs created or retained with its formula
               grant funds. However, based on the supporting documentation, the reported
               number of jobs created or retained was 1.92. The Authority understated the
               number of jobs by 42 percent.



                                                12
           Office of Management and Budget (OMB) guidance M-10-08 required the
           Authority to report the number of jobs created or retained by the Recovery Act as
           “full-time equivalents.” In calculating a full-time equivalent, the number of
           actual hours worked in funded jobs is divided by the number of hours in a full
           work schedule.


The Authority Did Not
Understand Requirements

           The Authority did not understand how to accurately report the grant information.
           The staff member responsible for grant reporting did not receive formal training
           on how to properly report required Recovery Act grant information in
           FederalReporting.gov. The staff member was confused by the
           FederalReporting.gov reporting fields and guidance. In addition, a lack of
           communication between the Authority’s finance and construction offices
           contributed to the inaccurate reporting.


Access to Accurate Information
Not Provided

           The public did not have access to accurate information about the Authority’s use
           of Recovery Act capital funds. As a result, the Authority’s use of Recovery Act
           capital funds was not fully transparent.


Recommendations

           Since the Authority had nearly completed its Recovery Act program, we did not
           provide recommendations related to the causes for this finding. However, we do
           recommend that the Director of the Portland Office of Public Housing

           2A.    Require the Authority to correct the amount of grant funds received or
                  invoiced entered into FederalReporting.gov.




                                           13
                        SCOPE AND METHODOLOGY

We performed our onsite audit work between June and October 2011 at the Authority’s main
office located at 2500 Main Street, its construction office located at 500 Omaha Way, and the
selected Van Vista and Skyline Crest public housing developments in Vancouver, WA. The
audit covered the period March 1, 2009 through June 30, 2011.
To accomplish our objective, we obtained and reviewed applicable sections of the Recovery Act,
Federal Register notices, OMB memorandums, HUD regulations, HUD PIH notices and
handbooks, and UFAS.

We reviewed the Authority’s three Recovery Act Capital Fund grants totaling more than $3.1
million. Our review included interviewing Authority staff and reviewing procurement records
and project files. We reviewed all of the applications, bids, contracts, change orders, and buy
American certifications for each of the grants. We selected and reviewed the most recent
quarterly report of the 16 reports submitted to HUD for the competitive grants and the last 2 of
the 7 reports submitted to HUD for the formula grant. We traced the first and most recent of the
39 HUD Line of Credit Control System (LOCCS) draw requests to the supporting
documentation. We reviewed the contractor payroll records that supported the 4 HUD reports
and the most recent of the 36 requests for payment submitted by the contractors.

The HUD OIG appraiser inspected the two upgraded projects to determine the quality of
construction, compliance with plans and specifications, and compliance with UFAS. At Skyline
Crest, he inspected the green improvements of 17 of 150 units and the roof and gutters from the
ground. Originally, the appraiser was going to inspect 10 percent of the units; however, he had
time to inspect two additional units. At Van Vista, he inspected the roof, plumbing, and UFAS
compliance upgrades in 10 of the 15 accessible units. We selected 100 percent of the UFAS
upgraded units for inspection and gave notice to the tenants. However, we were only granted
access by the tenants to 10 of the units.

We did not use computer-generated data to support our audit conclusions. We compared the
source documentation maintained in the Authority’s files to data reported in LOCCS and
FederalReporting.gov. 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
objective. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objective.




                                               14
                              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 over managing Recovery Act capital funds.
                  Controls over properly reporting Recovery Act information.

               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.

 Significant Deficiencies


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

                  The Authority did not develop and implement adequate procedures to manage
                   its Recovery Act capital funds in accordance with requirements (finding 1).
                  The Authority did not adequately train its staff to ensure its understanding of
                   how to accurately report Recovery Act Capital Fund information (finding 2).




                                                 15
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                  Recommendation           Ineligible 1/   Unsupported 2/
                      number
                                 1A                              $530,000
                                 1B                              $120,000
                                 1C                               $17,651
                                 1D            $10,963
                                 1E                              $135,552
                                 1F                               $26,995
                                 1G           $420,872
                                              $431,835           $830,198


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.




                                             16
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                        Auditee Comments

             Vancouver Housing Authority (VHA) Responses to Office of Inspector General (OIG)
             Findings:

             We thank the Office of Inspector General for their time and effort in reviewing the
             Authority’s Recovery Act funds. We commit to remedy all noncompliant deficiencies
             and make process improvements in construction management and reporting.

             Finding 1: The Authority Mismanaged Its Recovery Act Funding

             Response to Authority’s Finding 1

             Renovations Did Not Comply with UFAS:

                 1. Kitchen Cabinets do not meet UFAS requirements. Upper kitchen
                    cabinets are installed too high. VHA relies on the Architect to provide
                    documents that meet code requirements. The Architect’s documents were
                    deficient. VHA is currently taking steps with the Architect and the Contractor
                    to ensure that all of the kitchen cabinets are brought into full compliance.

                 2. Entry Doors do not meet UFAS requirements. Entry Doors were originally
                    scheduled to be replaced with new hardware. This project requirement was
                    altered during the submittal process, deleting the doors but retaining the
                    additional hardware requirements necessary to meet UFAS standards. The
                    Architect and VHA failed in following through with appropriate credit change
                    order for deleting the doors. This issue is being rectified with the Contractor
                    and a credit will be issued prior to closing out of the project. VHA is currently
                    taking steps with the Architect and the Contractor to ensure that all entry
                    doors are brought into full compliance.

                 3. Wall Hung Lavatories do not meet UFAS requirements. The lavatories
                    specified, purchased, and installed purport to be ADA compliant in
                    manufacturer literature. VHA is currently taking steps with the Architect, the
                    Contractor, and the Manufacturer to ensure installed lavatories are brought
                    into full compliance. If the installed lavatories cannot meet UFAS
                    requirements, new lavatories will be purchased and installed to ensure full
                    compliance.

                 4. Medicine Cabinets do not meet UFAS requirements. VHA inquired of the
                     Architect during construction if the mirrors scheduled for installation above the
                     bathroom sinks could be changed to medicine cabinets to allow more storage
                     capacity for tenants. The Architect provided Architect’s Supplemental



                                                17
Ref to OIG Evaluation                        Auditee Comments

                     Instructions (ASI) for the medicine cabinets without verifying that the cabinets
                     could be installed to meet UFAS, or ADA, requirements. VHA relied on
                     Architect’s knowledge of codes to ensure cabinets were appropriate. The
                     cabinets cannot be installed to code height without conflict with the sink
                     handle. VHA is currently taking steps with the Architect and the Contractor to
                     relocate the medicine cabinets and will reinstall the original or new mirrors to
                     ensure full compliance with UFAS requirements.

                 5. Shower Units wrong dimensions. The shower units in question are in five
Comment 1
                    (5) additional unit conversions which are “assisted living” where the initial ten
                    (10) room conversions are not. WA State DSHS requires larger shower units
                    in “assisted living” for caregivers and nursing aides to assist tenants with
                    bathing. This requirement is more stringent than the minimum 36”x36” UFAS
                    shower requirement. The existing space cannot accommodate a full 30”x60”
                    wheel-in shower due to existing utility chases that extend thru the full ten (10)
                    floors of the structure. VHA is required to build to the most stringent code(s).
                    Therefore the State requirement supersedes the Federal standard in this case
                    and should be accepted as compliant.

                 6. Refrigerator Door clearance on opening side does not meet UFAS
                    requirements. The refrigerator door clearance in the kitchens are only
                    present in the five (5) additional unit conversions in “assisted living” units
                    where the increased shower size (see note 5 above) reduces the kitchen
                    dimension creating the non-compliant condition. VHA relied on the Architect
                    to provide documents that meet code requirements for fully accessible
                    kitchens. The Architect’s documents are deficient. VHA is currently taking
                    steps with the Architect and the Contractor to ensure that the refrigerator door
                    clearance requirements are brought into full compliance.

             Insufficient Roof Warranty:

                 Roof Warranty provided by the Contractor’s subcontract did not match
Comment 2        specification requirements regarding life of warranty. VHA has received a
                 corrected warranty with the correct warranty lifespan.

             Incomplete Work Paid For:

Comment 3        1. New Entry Doors missing. Entry Doors were originally scheduled to be
                    replaced with new doors and hardware. This project requirement was altered
                    during the submittal process, deleting the new doors, retaining existing doors,
                    but keeping additional hardware requirements as necessary to meet UFAS
                    standards. The Architect and VHA failed to follow through with appropriate
                    credit change order for deleting the doors. This issue is being rectified with
                    the Contractor and VHA will issue a negative change order prior to closing out
                    of the project.
                 2. Sink Baffle Boards. It was reported that during construction a field directive
                    was given by the VHA construction manager to insulate the supply and waste
                    lines under the kitchen sink in lieu of installing the protective “baffle board”.


                                               18
Ref to OIG Evaluation                        Auditee Comments

                 3. The fact that the supply and waste lines are insulated provides credence to
                    this statement as the lines would not be insulated if the “baffle board(s)” were
                    to be installed. The insulation of supply and waste lines is an acceptable
                    UFAS standard. All parties failed in providing adequate documentation of this
                    field directive and potential cost impacts, if any. VHA is currently working with
                    the Architect and the Contractor to provide proper documentation and review
                    cost impacts. VHA will issue an appropriate additive or deductive change
                    order prior to project closeout.

             Change Order Deficiencies:
Comment 4        1. Skyline Crest Roofs. The Pre-construction meeting minutes note that the
                    Contractor informed VHA they had missed two (2) of the fifty-nine (59) roofs
                    in their estimate and subsequent bid. The Contractor agreed to install all fifty-
                    nine roofs for the bid quote. Had the Contractor asked to withdraw his bid
                    due to the error, the next lowest bid would have increased the overall project
                    price by $37,275. At the end of the project the Contractor requested if, in
                    good faith, they could recover the lost cost of the two (2) roofs in the amount
                    of $11,088. VHA honored the Contractor’s request. VHA will work with HUD
                    to come to an agreeable resolution on this matter, which may include
                    returning funds from non-Federal sources to the U.S. Treasury.

                 2. No Independent Cost Estimate eight (8) Change Orders. VHA will
                    perform independent cost estimates on all eight (8) change orders in
                    question. Any deviation in pricing will be reflected in a final change order
                    prior to project closeout.

                 3. Negotiate Contractor Profit for twelve (12) change orders. VHA did not
                    negotiate Contractor profit margins on any change orders. It is too late to
                    reasonably pursue remediation of this issue with the Contractor. VHA is
                    taking steps including, but not limited to, developing new policies and
                    procedures for better communication of funding requirements to clearly
                    identify and manage all project conditions and requirements. VHA will work
                    with HUD to come to an agreeable resolution on this matter, which may
                    include returning funds from non-Federal sources to the U.S. Treasury.

                 4. Contractor Profit / Overhead higher than Safe Harbor standards for
                     seven (7) change orders. There is no specification or contractual
                     requirement with the Contractor tied to Safe Harbor standards. VHA is taking
                     steps including, but not limited to, developing new policies and procedures for
                     better communication of funding requirements to clearly identify and manage
                     all project conditions and requirements. VHA will develop a matrix of costs to
                     identify any payment in excess of Safe Harbor standards for all of the seven
                     (7) change orders in question. VHA will work with HUD to come to an
                     agreeable resolution on this matter, which may include returning funds from
                     non-Federal sources to the U.S. Treasury.




                                                19
Ref to OIG Evaluation                         Auditee Comments

                 5. Decline to pay Contractors profit on subcontractor’s profit on three (3)
                    change orders. There are specification requirements that address exclusion
                    of Contractor profit on subcontractor profit on change orders. VHA did not
                    enforce this contractual requirement, however as the project is still open, VHA
                    will issue a negative change order to recover the additional profit per
                    contractual requirements and prior to project closeout.

                 6. Decline to pay Contractors profit on three (3) negative change orders.
                    There are specification requirements that address inclusion of Contractor
                    profit on negative change orders. VHA did not enforce this contractual
                    requirement, however as the project is still open, VHA will issue a negative
                    change order to recover the missing profit per contractual requirements and
                    prior to project closeout.

             Non-compliant Goods Purchased:

                 1. Kohler Toilet Substitution not in compliance with “American made”
                    requirement. The original toilets specified met American-made requirements,
                    but conflicted with ADA spatial requirements due to existing construction.
                    The Contractor and their plumbing subcontractor, both of whom were aware
                    of the American made requirements, submitted a substitute toilet that could
                    meet American made requirements, but required them to specifically specify
                    “American made” when purchasing. The Contractor and their plumbing sub
                    failed to specify “American made” when the purchase was made. VHA will
                    work with HUD to come to an agreeable resolution on this matter, which may
                    include returning funds from non-Federal sources to the U.S. Treasury.

                 2. Mitsubishi Mini-Split Heat Pumps do not comply with “American Made”
                    requirement.
                    We were aware of the American made requirement but did not submit the
                    proper waiver to HUD. We are currently working with the local HUD office to
                    submit the appropriate waiver request.


             Finding 2: The Authority Did Not Accurately Report on Recovery Act Funds

             Response to Authority’s Finding 2

             We are always striving to produce complete and accurate reports as required by laws
             and regulations and are committed to improving our internal processes to achieve this
                                  OIG Evaluation of Auditee
             goal. That said, we feel that this finding is rather misleading as it does not reflect the
             fact that most of the errors noted by IOG represent simple human mistakes as
Comment 5    opposed to process deficiencies. In general, we feel this finding is unfair and should
             not be included in the report for a number of reasons.

                 1. The newly designed Recovery.gov reporting system was difficult to use. We
Comment 6           showed evidence to OIG where HUD itself had instructed us to enter an
                    incorrect amount for one of the reporting periods mentioned in the OIG report.




                                                20
Ref to OIG Evaluation                       Auditee Comments

                 2. We had to dispute OIG staff’s calculation of the number of jobs created in one
Comment 7           quarterly report and convince them of their error. The number of jobs
                    methodology in Recovery.gov follows a certain non-exact statistical model
                    and to expect the Authority to be correct to double digit decimal is
                    unreasonable.

                    Inaccurate Grant Funds Received and Invoiced

             We agree with the OIG on their calculation of grant funds invoiced and received. We
             note that the two incorrect quarterly reports represent approximately 5% of reports
             filed. We also note that the differences shown are cumulative numbers and do not
Comment 5    cover only the expenditures of that quarter. The dollar amounts reported in total were
             more than 95% accurate.

                       Inaccurate Number of Jobs Created or Retained

             After review we concur with the OIG on their calculation of number of jobs reported.
Comment 8    However, we are disappointed to see the statement “understated jobs by 42%”. We
             believe it would be more accurate to describe this error as “understated jobs by 0.8
             FTEs”. We are talking about the difference between 1.12 and 1.92 jobs created within
             a three month period on one of the three grants audited. The discrepancy represents
             5% of total jobs created and was likely a simple typing error.




                                               21
                               OIG Evaluation of Auditee

Comment 1   The Authority should have contacted HUD to address the space restriction if the
            30”x60” showers specified by UFAS could not be installed.

Comment 2   We acknowledged the corrected warranty in recommendation 1B.

Comment 3   We edited recommendation 1C based on the Authority's response that the entry
            doors and baffle board were not to be installed.

Comment 4   Form HUD 5370 states that a change order makes changes within the scope of the
            contract including changes in the specifications; method of performance;
            facilities, equipment, materials, services, or site; or acceleration in the work
            performance. Failing to include items in a contractors bid does not qualify as a
            change order since the contract included all 59 roofs.

Comment 5   The Recovery Act requires accurate reporting. We discovered errors in two of the
            four reports reviewed; therefore we are required to report on any inaccurate
            reporting.

Comment 6   We acknowledge that some of the report comments from HUD were confusing.
            However, the comments did state “HUD has identified 2 possible error(s) in your
            report. Please double-check the relevant entries in your report. If needed, please
            submit a corrected report no later than July 30.” This comment only directs the
            Authority to check the amounts reported.

Comment 7   When we asked the Authority to support the formula grant’s number of jobs
            calculation, we were provided the payroll documents and were not given the
            Authority’s methodology for calculating the number of jobs created. We
            amended our report to reflect the methodology used by the Authority once it was
            given to us.

Comment 8   Underreporting the number of jobs by 0.80 FTEs when the correct number of jobs
            to report was 1.92 FTEs is a material error.




                                            22
Appendix C

                                    CRITERIA


  A.   PIH Notice 2009-12 provides procedures for processing Recovery Act Capital Fund
       formula grants, including the requirement to follow 24 CFR Part 85.

  B.   The Updated Notice of Funding Availability for HUD’s Capital Fund Recovery
       Competition Grants, Docket Number FR-5311-N-02, states that:

              Applicants must certify that they will administer the grant in accordance with
               all requirements of the notice and public housing, including the Housing Act
               of 1937, Recovery Act, HUD regulations, annual contributions contract, and
               all other Federal requirements, and

              Costs must be reasonable, comparable to industry standards, and subject to
               HUD’s cost control and safe harbor standards, including limiting the
               contractor’s fee or profit to 6 percent and overhead to 2 percent of the change
               order amount.

  C.   According to 24 CFR 85.36(b)(2), grantees must maintain a contract administration
       system which ensures that contractors perform in accordance with the terms,
       conditions, and specifications of their contracts.

  D.   According to 24 CFR 85.36(f)(1), grantees must perform a cost or price analysis with
       every procurement action including contract modifications. Grantees must make
       independent estimates before receiving bids or proposals.

  E.   Form HUD-5370 is required for construction contracts greater than $100,000 that are
       awarded by public housing agencies. Under clause 29 applicable to contract changes,
       a change order makes changes within the scope of the contract, including changes in
       the specifications; method of performance; or facilities, equipment, materials,
       services, or site; or acceleration in the work performance. It requires contractors to
       provide a written change order proposal with an itemized breakdown of all increases
       and decreases to the contract. It further requires the amount of profit to be negotiated
       and stipulates that contractors cannot profit on the profit received by a subcontractor.
       In the case of deleted work, the change order must include a credit for profit and may
       include a credit for indirect costs.

  F.   Uniform Federal Accessibility Standards are for the design, construction and
       alteration of buildings so that physically handicapped persons will have access to and
       use of them in accordance with the Architectural Barriers Act. UFAS embodies the
       standards used by several governmental agencies, including HUD, to minimize any
       differences.


                                            23
Appendix D

                          INELIGIBLE AND UNSUPPORTED COSTS

                                       No                          Profit &      Profit on
                           Change independent      No profit    overhead over subcontractors' No reduction Change         Questioned
Contract                   order  cost estimate   negotiation    safe harbor      profit        in profit  order total    costs
Ineligible change orders
Skyline Crest roof [1]           2                                                                           $ 11,086.90 $ 10,962.90
Total ineligible change orders                                                                                            $ 10,962.90


Unsupported change orders
Skyline Crest roof               1                                                                          $ 5,356.25 $     2,920.99
Van Vista plumbing               1                                                                         $ 1,657.00 $     1,657.00
Van Vista plumbing               2                                                                         $ 1,780.00 $     1,780.00
Skyline Crest green              1                                                                         $ 16,162.88 $    2,025.00
Skyline Crest green              4                                                                         $ 6,015.45 $      780.00
Skyline Crest green              5                                                                        $ 66,450.78 $ 64,733.15
Skyline Crest green [2]          6                                                                        $ 57,561.18 $ 46,982.66
Van Vista UFAS phase 1           1                                                                          $ 5,575.94 $     5,575.94
Van Vista UFAS phase 1           2                                                                         $ 14,673.98 $    1,936.84
Van Vista UFAS phase 1           3                                                                          $ 2,415.29 $      131.04
Van Vista UFAS phase 1           4                                                                          $ 9,378.03 $      508.80
Van Vista UFAS phase 1           5                                                                         $ 9,751.25 $      547.17
Van Vista UFAS phase 1           6                                                                          $   588.34   $     31.92
Van Vista UFAS phase 2           1                                                                        $ 26,449.58 $    3,310.38
Van Vista UFAS phase 2           2                                                                          $ 1,460.65 $     1,460.65
Van Vista UFAS phase 2           3                                                                         $ 9,345.36 $     1,170.12
Total positive unsupported change orders                                                                                  $135,551.66


Skyline Crest green              2                                                                          $(10,000.00) $ (10,000.00)
Skyline Crest green              3                                                                          $(80,500.00) $ (12,075.00)
Skyline Crest green [2]          6                                                                          $ (4,920.00) $ (4,920.00)
Total negative unsupported change orders                                                                                  $ (26,995.00)



For details on the change orders above see finding 1, The Authority Mismanaged Its Recovery
Act Funding, under the inadequate change orders section.

1) The second Skyline Crest roof change order included the amount of the two forgotten roofs.

2) The sixth Skyline Crest green renovation change order included both increases and decreases
to the contract.




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