OFFICE OF AUDIT
Region 1
Boston, MA
Lowell Housing Authority, Lowell, MA
Public Housing and Recovery Act Capital Fund
Programs
2013-BO-1003 SEPTEMBER 04, 2013
Issue Date: September 04, 2013
Audit Report Number: 2013-BO-1003
TO: Marilyn B. O’Sullivan,
Director, Office of Public Housing, Boston Hub, 1APH
//SIGNED//
FROM: Edgar Moore
Regional Inspector General for Audit, Boston Region, 1AGA
SUBJECT: The Housing Authority of the City of Lowell, MA, Did Not Always Operate Its
Public Housing and Recovery Act Capital Fund Programs in Compliance With
HUD Regulations and Its Own Policies
Attached is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG) final results of our review of the Lowell Housing Authority, Lowell,
MA’s Public Housing and Recovery Act Capital Fund programs, including the force account
program.
HUD Handbook 2000.06, REV-4, sets specific timeframes for management decisions on
recommended corrective actions. For each recommendation without a management decision,
please respond and provide status reports in accordance with the HUD Handbook. Please furnish
us copies of any correspondence or directives issued because of the audit.
The Inspector General Act, Title 5 United States Code, section 8L, requires that OIG post its
publicly available reports on the OIG Web site. Accordingly, this report will be posted at
http://www.hudoig.gov.
If you have any questions or comments about this report, please do not hesitate to call me at
(212) 264-4174.
September 04, 2013
f
The Housing Authority of the City of Lowell, MA, Did
Not Always Operate Its Public Housing and Recovery
Act Capital Fund Programs in Compliance With HUD
Regulations and Its Own Policies
Highlights
Audit Report 2013-BO-1003
What We Audited and Why What We Found
We audited the Lowell Housing The Authority did not always operate its
Authority’s Public Housing and Recovery Act force account modernization program in
Capital Fund programs, including its force account compliance with HUD regulations. This
activities. We initiated this audit based on news condition occurred because Authority
articles identifying concerns with the Authority’s officials failed to establish adequate
use of force account labor. Our overall audit management controls for the force
objective was to determine whether the Authority account program to ensure that funds
(1) administered its force account modernization were used in an economical and efficient
program in accordance with U.S. Department of manner. As a result, more than $6.7
Housing and Urban Development (HUD) rules million in Federal capital funds and $2.5
and regulations and (2) followed HUD million in Federal American Recovery
procurement regulations and its own procurement and Reinvestment Act funds expended
policy. for the force account program were
unsupported.
What We Recommend
In addition, Authority officials did not
always follow proper procurement
We recommend that the Director of HUD’s procedures. This condition occurred
Boston Office of Public Housing require Authority because of ineffective management
officials to conduct an independent cost analysis controls over the procurement process.
for each of the 14 force account activities for As a result, officials could not assure
which the Authority failed to perform initial cost HUD that their procurement process was
estimates and maintain construction records and fair and equitable and that they obtained
modernization files to ensure that more than $6.7 the most favorable prices or best quality
million in capital funds and $2.5 million in for items totaling more than $2.2 million,
Recovery Act funds charged to Federal programs including $262,513 in American
were reasonable and supported. In addition, we Recovery and Reinvestment Act funds
recommend that Authority officials conduct a that were charged to Federal programs.
review to determine whether more than $2.2
million in procurement costs charged to the
Federal capital fund and Recovery Act programs
were reasonable and supported. Any costs
determined to be unreasonable or ineligible
should be reimbursed from non-Federal funds to
HUD or the U.S. Treasury in accordance with the
appropriate capital fund regulations.
TABLE OF CONTENTS
Background and Objective 3
Results of Audit
Finding 1: The Authority Did Not Operate Its In-House Force Account 4
Program In Compliance With HUD Regulations
Finding 2: The Authority Did Not Always Follow Proper Procurement 12
Procedures
Scope and Methodology 16
Internal Controls 19
Appendixes
A. Schedule of Questioned Costs 21
B. Auditee Comments and OIG’s Evaluation 22
C. Cost of Labor and Materials for Force Account – Capital Funds 32
D. Cost of Labor and Materials for Force Account – Recovery Act Funds 33
E. Unsupported Procurement Costs – Capital Funds 34
F. Unsupported Procurement Costs – Recovery Act Funds 35
2
BACKGROUND AND OBJECTIVE
The United States Housing Act of 1937 established the Federal framework for government-
owned affordable housing and was amended by the Quality Housing and Work Responsibility
Act of 1998. The Office of Capital Improvement is under the U.S. Department of Housing and
Urban Development’s (HUD) Deputy Assistant Secretary for Public Housing Investments. The
office administers the Public Housing Capital Fund program, which provides funds annually via
a formula to public housing agencies across the country. Public housing agencies may use
Capital Fund grants for development, financing, modernization, and management improvements.
The Lowell Housing Authority was founded in 1937 as part of President Franklin Delano
Roosevelt’s New Deal to provide safe, sanitary, and affordable housing for moderate- and low-
income persons. The Authority is a municipal corporation located in Lowell, MA, and was
established under chapter 121B of Massachusetts General Law.
The mission of the Authority is to provide decent, safe, and sanitary housing, thereby improving
the quality of life of low-income families, elderly, and disabled individuals. The Authority’s
portfolio consists of 1,698 units of Federal public housing and 198 units of State public housing.
The Authority also administers 1,246 Section 8 vouchers, 50 Department of Mental Health rental
subsidies, 50 Lowell Rental Assistance Fund Program subsidies, and 43 Massachusetts Rental
Voucher Program units.
The Authority was authorized $14.45 million in capital funds from 2008 through 2012, and $3.7
million in American Recovery and Reinvestment Act of 2009 (Recovery Act) funds. During the
period October 1, 2008, through September 30, 2012, Authority officials used capital funds and
Recovery Act funds for force account activities at 14 projects. Force account labor consisted of
unionized laborers, plumbers, carpenters, and masons. Some of the force account activities
included rehabilitation of units; kitchen and bathroom modernization, including handicap
conversions; replacement of siding and windows; and site work, such as landscaping. The total
costs were $10.6 million, with approximately 60 percent of those costs used for unit renovations
at North Common Village.
Authority officials’ decision to use the force account program was based on their judgment that
the scope of work was not complex or repetitive in nature. The overall benefit to the local
community in employing the local labor force was also taken into consideration as an important
factor when determining to use the force account program. All of the 14 force account activities
have been completed except for the ongoing unit renovations at North Common Village and the
bathroom and kitchen modernization at the George Flanagan Development.
Our overall audit objective was to determine whether the Authority (1) administered its force
account modernization program in accordance with HUD rules and regulations, and (2) followed
HUD procurement regulations and its own procurement policy.
3
RESULTS OF AUDIT
Finding 1: The Authority Did Not Operate Its In-House Force
Account Program In Compliance With HUD Regulations
The Lowell Housing Authority did not always operate its force account modernization program in
compliance with HUD regulations. Specifically, Authority officials did not (1) perform adequate
upfront planning, including preparing cost estimates and analyses; (2) maintain adequate
construction records and modernization files; and (3) provide sufficient leadership and oversight.
These problems occurred because Authority officials failed to establish adequate management
controls for the force account program to ensure that modernization funds were used in an
economical and efficient manner. As a result, work at the North Common Village development
was delayed, resulting in significant vacancy losses at the development; Authority officials were
unaware of the upfront costs of jobs; and it was difficult to assess the modernization work
performed. Also, there were deviations in the specifications of some construction work;
irregularities with purchase orders and invoices; unsupported costs; and weak controls over its
inventory of fixed assets, materials, and supplies. Therefore, we considered more than $6.7
million in capital funds and $2.5 million in Recovery Act funds expended for the force account
program to be unsupported.
Inadequate Upfront Planning
There was no evidence that Authority officials performed adequate upfront
planning after deciding to use the force account program. Authority officials
failed to (1) adequately perform cost estimate analyses for force account
activities, and (2) properly plan renovation work to mitigate vacancy loss.
Therefore, the Authority failed to operate its projects in such a manner as to
promote efficiency and economy.
Cost Estimate Analyses Not Adequately Performed
There was a lack of documentation showing how the Authority substantiated the
estimated cost, number of workers to be hired, estimated timeframe for
completion of work, and total scope of work to be performed or the quantity of
materials needed for force account activities. Although the quality of the work
performed appeared good, it was impossible to determine whether it was more
cost efficient to use force account labor or a general contractor because proper
initial job cost estimates were not made. A cost analysis would benefit the
Authority by establishing an upfront price and timeframe for completion of the
work and should be used to establish performance standards for the progress of
the work. The Authority’s procurement policy requires that a cost or price
analysis shall be performed for all procurement actions.
4
Of the 14 force account activities reviewed, only 1 had a cost analysis performed.
However, the analysis was incomplete and, therefore, not entirely useful in
determining whether using force account labor was more cost effective than
hiring a general contractor. An engineering firm hired by the Authority selected a
sample of 11 units to calculate the construction labor cost estimate to complete
kitchen and bath renovations at the George Flanagan development, comparing the
force account labor method to the general contractor method. This estimate
included salaries and benefits for force account workers only, but other important
components, such as costs of materials, project manager or superintendent
salaries, and workers compensation and unemployment insurance were not
factored into the estimate under the force account labor method. For example,
unemployment benefits were paid to force account workers whose employment
had been terminated during the past three years, but these benefits were not taken
into consideration when the Authority planned its payroll expenses. It is
important to include all potential costs in the estimated cost for a job before the
force account work starts because the Authority might find it is more economical
to use a general contractor in certain instances.
Improperly Planned Renovation Work Resulting in an Estimated Loss of
$272,598
Authority officials did not properly plan renovation work, which resulted in
vacancy losses. There were units at North Common Village that remained vacant
for extended periods during major renovations. A total of 116 units remained
vacant for 180 days or longer with only 11 units being off-line for less than 180
days. Authority officials stated that a 90-day cushion for renovation and
occupancy was not unreasonable because at one time the Authority gutted,
renovated, and had units ready for occupancy in 6 weeks. Based on current rents
and allowing for a 90-day cushion to complete renovations and have a unit ready
for occupancy, we estimated that the loss of revenue due to these vacancies was
$272,598 for fiscal years 2009 through 2012. 1 This amount represents funds that
could have been used for operational activities. This problem occurred because
units were taken offline before the force account staff was ready to begin working
on the units. Authority officials stated that too much control and decision making
was relegated to the lead carpenter, who took responsibility for providing
direction to laborers and masons and deciding which units to take offline and
schedule for renovations. HUD regulations dictate that a specific responsibility of
any public housing authority is to operate its projects in such a manner as to
promote efficiency and economy. 2
1
The potential loss of revenue estimate is based on the number of days a unit was vacant, minus the 90-day cushion,
multiplied by the rent per day.
2
Section 4 of the annual contributions contract.
5
Inadequate Construction
Records and Modernization
Files
The Authority had no formal modernization files and records available to show
ongoing activities and what was accomplished with force account labor. For
example, there were no reports showing the progress of the work, construction
specifications, and weekly operational updates or meeting minutes. The work at
North Common Village and the handicap conversions at Bishop Markham Village
involved significant construction work and the replacement of most interior items.
The work including comprehensive modernization work, electrical work, unit
gutting, plumbing replacement, carpentry, flooring, and painting was performed
by force account labor. We expected the same level of documentation for this
type of work as would be maintained by a contractor if hired by the Authority.
Therefore, Authority officials should have recorded which work items were
performed in each unit and the scope or quantity of the work.
HUD states that a housing authority may undertake modernization activities using
force account labor where it is cost effective and appropriate to the scope and type
of physical improvements.3 HUD further requires housing authorities to perform a
cost or price analysis for each procurement. In addition, a housing authority
should establish a system to enforce both specifications and timelines. A housing
authority should also ensure that progress meetings are held on a regular basis to
discuss work progress and any problems or deficiencies noted and prepare a
written record of the items discussed at each meeting.4 HUD also states that a
housing authority must maintain records that identify the source and application of
funds in such a manner as to allow HUD to determine that all funds are and have
been expended in accordance with each specific program regulation and
requirement. 5
Because the Authority did not develop a formal planning process, including
determining the cost of using the force account program, and because the
Authority had no formal modernization files and records available to show
ongoing activities and what was accomplished with force account labor, we
considered the total costs of more than $6.7 million (appendix C) in Federal
capital funds and $2.5 million (appendix D) in Federal American Recovery and
Reinvestment Act funds attributed to the 14 force account activities covering
the period October 1, 2008, to September 30, 2012, to be unsupported.
3 HUD Handbook 7485.3G 10-2(A)
4 HUD Handbook 7460.8 REV 2, Sections 10-3, 11-3(D) and 11-2(B)
5
Section 9(c) of the annual contributions contract
6
Insufficient Leadership and
Oversight
Authority officials did not provide adequate leadership and oversight of the
Authority’s force account activities. Specifically, some construction work was
not completed as designed, purchase orders were not adequately prepared, trash
removal costs were unsupported, prevailing wage rates were not followed, a
possible conflict of interest existed, and inventory was not properly maintained.
Therefore, Authority officials could not assure HUD that their force account
program was properly administered. Details are described below.
Unauthorized Deviation from Specifications
The lack of oversight and weak management resulted in deviation from
construction specifications. The failure of the Authority’s facilities coordinator
for special maintenance projects to follow the architect’s drawings and
specifications for a kitchen and bathroom handicap conversion at the Bishop
Markham project resulted in a unit not meeting the American Disabilities Act
requirements. The final construction varied from the original drawings because
the facilities coordinator changed certain installations in the bathroom area of one
unit without consulting the architect or his immediate supervisor. Authority
officials expressed concern regarding this matter because significant funding was
already expended to create the handicap units and additional costs between $6,000
and $10,000 will be required to bring the Bishop Markam unit into full
compliance with American Disabilities Act requirements. HUD stipulates that
“each grantee must provide, by contract or otherwise, adequate and competent
supervisory and inspection personnel to ensure work quality and progress during
modernization, whether work is performed by contract or force account labor and
with or without the services of an architect or engineer". 6
Inadequate Purchase Orders
Authority officials did not consistently follow established purchase order and
invoice procedures relating to expenditures charged to the force account Capital
Fund program. A total of 11 of 17 purchase orders reviewed had an invoice date
earlier than that of the purchase order. For 13 of the 17 vendor purchases, the
invoices and purchase orders lacked detail to substantiate what materials and
supplies were purchased or the number of hours charged. HUD regulations
require that a public housing authority maintain proper records of its small
purchases and that it is crucial that the purchase order clearly specify the
purchased items, services, and terms and conditions of the purchase.7
6
24 CFR (Code of Federal Regulations) 968.140
7
HUD Handbook 7460.8, paragraphs 5-2(A) and 5-9(B)
7
Unsupported Trash Removal Costs
Authority officials’ failure to maintain controls over the trash removal contractor
used for force account work resulted in $52,212 in unsupported overage costs.
The overage charges associated with the disposal of construction waste at North
Common Village consistently exceeded the base cost, and the majority of those
overage charges were unsupported. For example, an invoice, dated August 11,
2009, detailed a base cost of $1,095 for three trash containers and unexplained
overage charges of $1,344. The contractor began to consistently provide backup
invoices for the overages in July of 2010, but before that, $52,212 in overage
charges was unsupported.
Prevailing Wage Rates Not Followed
Authority officials did not enforce HUD labor standards for 10 companies
providing building products and supplies. We were informed that two of the
Authority’s subcontractors paid salaries below the prevailing wage rate.
Although Authority officials were not aware that this noncompliance had
occurred, they did not request payroll documentation to substantiate hourly wages
from the 10 companies. HUD requires public housing agencies to monitor
enforcement of labor standards for the payment of prevailing wage rates in all
contracts over $2,000 involving Federal funds. 8 Policies regarding prevailing
wage rates are also included in written contracts between public housing agencies
and contractors, but Authority officials failed to ensure that contracts were in
place for the 10 companies in question (See finding 2).
Possible Conflict of Interest
The son of the Authority’s facilities coordinator was hired by two of the
Authority’s subcontractors. Although the executive director took immediate
action when informed about this conflict-of-interest violation, Authority officials
failed to ensure that contractors were fully informed regarding conflict- of-
interest rules and regulations. Conflict-of-interest rules and regulations are
thoroughly addressed in contracts between public housing agencies and
contractors; however, as previously noted in our discussion of prevailing wage
rates, contracts were not in place.
Inadequate Inventory Controls
Authority officials did not maintain an adequate inventory system to allow proper
accountability for office equipment, appliances, materials, and supplies. There
8
HUD Handbook 1344.1, Labor Standards Enforcement, section 8-8
8
were inconsistencies between the Authority’s practices and its written policies and
procedures, and also between the Authority’s practices and HUD requirements 9.
The Authority policy dictated that when physical counts were complete, a
reconciliation of variances between the inventory values and the trial balances
should be performed. The latest inventory count, performed on September 30,
2011, showed a variance of $53,270, and there was no evidence that a
reconciliation had been performed. We attempted to locate a sample of washers
and dryers, stoves, and refrigerators that should have been easily tracked to units.
However, an appliance inventory listing for appliances located in the units did not
exist and was, therefore, not included in any physical count. In addition, we
requested an inventory listing of the Authority’s computers, but an updated
inventory listing was not available. This deficiency showed that Authority officials
did not have procedures to keep an inventory for computers. Due to the inadequate
inventory records, the Authority had no assurance that important assets were
properly used or had not been misappropriated. We considered the $53,270 in
inventory variance to be unsupported.
Conclusion
Authority officials did not always operate their force account modernization
program in compliance with HUD regulations. Specifically, a lack of adequate
planning delayed completion of force account activities and caused significant
vacancy losses at North Common Village; cost estimates and analyses were not
prepared before work was started, and the Authority’s force account activities were
not supported with construction records and modernization files, making it difficult
to assess the modernization work performed. In addition, poor leadership and
oversight led to deviations from construction specifications and contributed to
irregularities with purchase orders, invoices, trash removal services, labor standards,
conflict of interest issues, and inventory controls. We attribute these deficiencies to
Authority officials’ failure to establish adequate management controls for the force
account program to ensure that modernization funds were used in an economical and
efficient manner.
Recommendations
We recommend that the Director of HUD’s Boston Office of Public Housing
require Authority officials to
1A. Develop policies and procedures to adequately plan force account program
activities in accordance with HUD regulations, including substantiating
the cost effectiveness of using force account labor by performing cost
estimate analyses, which include salaries and applicable benefits of force
9
24 CFR 84.34(3)
9
account workers, project managers, and superintendents and the cost of
materials and supplies.
1B. Conduct an independent cost analysis for each of the 14 force account
activities for which the Authority officials failed to perform cost estimates
and maintain construction records and modernization files to ensure that
$6,738,796 in capital funds charged to federal programs was reasonable
and supported. For any amounts not reasonable and supported, HUD
should require Authority officials to reimburse the program from non-
Federal funds.
1C. Conduct an independent cost analysis for each of the 14 force account
activities for which the Authority officials failed to perform cost estimates
and maintain construction records and modernization files to ensure that
$2,527,524 in Recovery Act funds charged to federal programs was
reasonable and supported. For any unreasonable amounts, HUD should
require Authority officials to reimburse the program from non-Federal
funds.
1D. Establish and implement policies and procedures to properly schedule
force account activities to prevent future losses in revenue, such as the
$272,598 loss in revenue that occurred at North Common Village,
attributed to unnecessary and extended vacancies.
1E. Establish procedures to ensure that adequate records are maintained for
modernization activities, including the detailed specifications of work
performed at the developments.
1F. Strengthen monitoring controls over construction projects to ensure the
quality and progress of modernization work.
1G. Develop controls to ensure that (1) purchase orders are prepared before
expenditures are made, (2) purchase orders and invoices clearly specify
service(s) needed, and (3) written contracts are properly executed for each
procurement.
1H. Provide documentation to support the $52,212 in overage charges
associated with the disposal of construction waste at North Common
Village. If adequate support cannot be provided these charges should be
reimbursed from non-Federal funds.
1I. Strengthen monitoring controls over the enforcement of labor standards to
ensure that prevailing wage rates are paid in relation to all contracts over
$2,000 involving Federal funds.
10
1J. Ensure that contractors are fully informed regarding conflict-of-interest
rules and regulations.
1K. Reconcile the $53,270 variance from the September 30, 2011, inventory
count and support the reconciliation. Any unsupported costs determined
to be ineligible should be reimbursed from non-Federal funds.
1L. Develop procedures to ensure that when the physical inventory of
materials and supplies is complete, a reconciliation of variances between
the inventory values and the trial balances is performed and perform
periodic inventory counts for appliances located in units and for office
computers.
11
Finding 2: The Authority Did Not Always Follow Proper Procurement
Procedures
Contrary to regulations, Authority officials did not always follow proper procurement practices
and procedures. The types of deficiencies noted included that (1) procurements were awarded
without full and open competition, (2) independent cost estimates were not supported, (3)
requests for proposals were not prepared, (4) written contracts were not maintained, and (5)
change orders were not approved in a timely manner. These conditions occurred because
Authority officials did not implement effective management controls over the procurement
process. As a result, officials could not assure HUD that their procurement process was fair and
equitable and that they obtained the most favorable prices or best quality for items totaling more
than $1.9 million in capital funds, and $262,513 in Recovery Act funds that were charged to
Federal programs.
Procurements Awarded
Without Competition
Authority officials could not provide documentation to substantiate that the
Authority solicited price or rate quotations from an adequate number of sources
when procuring building products and supplies. For the period October 1, 2008,
through September 30, 2012, Authority officials paid more than $1.9 million in
capital funds (appendix E) and $262,513 in Recovery Act funds (appendix F) to
10 vendors for building products and supplies. However, they did not adequately
document that procurement procedures were followed allowing full and open
competition. Regulations require that Authority officials conduct all procurement
in a manner to provide full and open competition. 10 Also, Authority officials
must maintain records to show the history of procurement 11 and solicit price
quotations from an adequate number of qualified sources. 12 In addition, the
Authority’s procurement policy required soliciting price quotations to not only
achieve the most reasonable price, but also to provide increased fair access to the
economic opportunities created through its procurement process.
Independent Cost Estimates
Were Not Supported
Authority officials did not provide adequate documentation to support that
independent cost estimates were performed for five of the eight construction
contracts reviewed. These contracts included replacement of windows, roof
10
24 CFR 85.36(c)(1)
11
24 CFR 85.36(b)(9)
12
24 CFR 85.36(d)(1)
12
replacement and repairs, installation of heating and hot water systems, and a
security gate upgrade. An independent cost estimate prepared before the receipt
of bids or proposals ensures that the costs are reasonable. HUD regulations
require that a cost or price analysis be performed in connection with every
procurement action before bids or proposals are received.13 In addition, the
Authority’s policy dictated that an independent cost estimate be prepared before
each solicitation.
Requests for Proposals Were
Not Prepared
Authority officials failed to prepare requests for proposals while procuring four
architect/engineering firms; thus, these firms were not procured in accordance
with HUD’s procurement procedures. As a result, we considered
$85,092 in capital funds and $13,800 in Recovery Act funds charged to federal
programs as unsupported for these four firms. HUD regulations dictate that when
a procurement is made by competitive proposal, the following requirements
apply: “(i) requests for proposals will be publicized and identify all evaluation
factors and their importance; (ii) proposals will be solicited from an adequate
number of qualified sources; and, (iii) a method must exist for conducting
technical evaluations of the proposals received and for selecting awardees.” 14
Written Contracts Not
Obtained
Authority officials failed to maintain written contracts or agreements with the 10
companies providing building products and supplies. Without a contract, it was
not possible to determine whether the contractor’s invoices were properly
submitted or whether the costs incurred by the Authority were reasonable. A
contract not only serves to support the agreed-upon cost, but also defines services
expected and describes the responsibilities of each party. Authority officials also
must maintain source documents and files that support the financial transactions
recorded in the books of account and provide an adequate audit trail. These
documents include such items as contracts, which were not maintained. 15
Change Orders Not Approved
in a Timely Manner
Authority officials had not established a change order policy, and change orders
were not approved in a timely manner for four construction projects. The change
orders for the four projects totaled $72,748. These projects included the
13
24 CFR 85.36(f)
14
24 CFR 85.36(d)(3)
15
Public and Indian Housing Low-Rent Technical Accounting Guidebook 7510.1, section II(8)
13
replacement of an emergency generator, roof replacement and repairs, and
landscaping upgrades.
The replacement of an emergency generator at the Francis Gatehouse Mill
Development required one change in the amount of $6,456 to install wiring and
conduits, which was incorrectly marked on the original panel schedules. This
change order was not approved in a timely manner since it was approved by
Authority officials after the contract completion date.
The roof replacement at Bishop Markham Village required two change orders
totaling $35,492. Change order one in the amount of $7,949 was to install a
temporary rubber roof because the existing concrete sub roofing was causing
water damage and there was an approaching storm. Change order two was to
address the damaged concrete sub roofing at a cost of $27,543. These two change
orders were not approved in a timely manner since they were approved by
Authority officials after the contract completion date. In addition, roof repair
work at North Common Village required a change order in the amount of $1,800
to replace the existing vent pipe flashing for 18 plumbing vents, and this change
order also was not approved in a timely manner.
The unforeseen landscape upgrades at North Common Village required two
change orders and increased the contract price by $29,000. Change order one for
landscaping upgrades at North Common Village added 21 calendar days and was
approved by the contractor and architect on December 8, 2009, but was not
approved by Authority officials until January 13, 2010, which was after the
contract completion date of December 16, 2009, and more than 30 days after
December 8, 2009. Contrary to the General Conditions for Construction
Contracts, the Authority did not act on change order one within 30 days, and the
contractor went ahead with the work before approval from the contracting
officer 16. In addition, change order two increased the time by 132 days. The
adjusted completion date of the contract was January 6, 2010, and change order
two extended the completion date until May 18, 2010. However, change order
two was not approved by the contractor and the architect until June 4, 2010, and
was not approved by Authority officials until June 16, 2010; thus, all of the
approvals were well after the adjusted contract completion date of January 6,
2010. Accordingly, we considered $37,256 in capital funds and $35,492 in
Recovery Act funds paid for change orders to be unsupported costs.
Conclusion
Authority officials did not always follow proper procurement procedures.
Specifically, Authority officials did not (1) award procurements with full and
open competition, (2) provide adequate documentation to support that
independent cost estimates were performed, (3) prepare requests for proposals,
16
General Conditions for Construction Contracts, form HUD-5370, clause 29(h)
14
(4) maintain written contracts, and (5) approve change orders in a timely manner.
As a result, there was no assurance that the Authority’s procurement process was
fair and equitable and that it obtained the most favorable prices or best quality for
items totaling more than $1.9 million, including $262,513 in Recovery Act funds,
which were charged to Federal programs. These violations occurred because
Authority officials did not implement effective management controls over the
Authority’s procurement process.
Recommendations
We recommend that the Director of HUD’s Boston Office of Public Housing
require Authority officials to
2A. Develop and implement procedures to ensure that the Authority documents
that independent cost estimates are performed, solicits price quotes or bids,
publicizes requests for proposals, and maintains sufficient documentation
supporting the basis for contract awards.
2B. Develop and implement procedures to ensure that written contracts are
properly executed.
2C. Develop and implement a change order policy in compliance with Federal
procurement requirements.
2D. Conduct a review to determine whether the $1,959,594 in procurement costs
charged to the Federal capital fund program was reasonable and supported.
Any costs determined to be unreasonable or ineligible should be reimbursed
from non-Federal funds to HUD or the U.S. Treasury in accordance with the
appropriate capital fund regulations.
2E. Conduct a review to determine whether the $262,513 in procurement costs
charged to Federal Recovery Act program was reasonable and supported.
Any costs determined to be unreasonable or ineligible should be reimbursed
from non-Federal funds to HUD or the U.S. Treasury in accordance with the
appropriate capital fund regulations.
15
SCOPE AND METHODOLOGY
We performed our onsite audit work at the Authority’s main office located at 350 Moody Street,
Lowell, MA, from October 2012 to April 2013. Our audit generally covered the period October
1, 2009, to September 30, 2012, and was extended when necessary to meet our objective. We
relied in part on computer-processed data primarily for obtaining background information on the
Authority’s expenditure of capital funds. We performed a minimal level of testing and found the
data to be adequate for our purposes.
To accomplish our audit objective, we
• Reviewed applicable laws, regulations, HUD handbooks, HUD notices, and the Authority’s
policies and procedures.
• Conducted discussions with Authority officials to gain an understanding of the Authority’s
financial structure, procurement practices, Capital Fund program, and force account process.
.
• Reviewed Real Estate Assessment Center inspection reports to identify physical
deficiencies that may require an increased need for capital expenditures.
• Evaluated internal controls and reviewed computer controls to identify potential
weaknesses related to our objective.
• Reviewed records of the Authority’s board minutes, independent public auditor’s reports,
and written HUD monitoring reviews of the Authority’s Capital Fund program.
• Evaluated the Authority’s allocation plan to determine whether the allocation of costs
between HUD and State programs was reasonable.
• Reviewed credit card charges for assurance that charges were reasonable, eligible, and
adequately supported.
• Determined whether the Authority generally complied with its 5-year action plans and
expended funds in accordance with its annual statements.
• Determined whether the Authority’s identification of modernization needs was consistent
with significant facts and data pertaining to the physical and operational condition of the
developments or management and operations of the Authority.
• Reviewed the Authority’s practices for handling inventory of nonexpendable equipment,
materials, and supplies to determine whether the Authority managed and controlled its
inventory effectively and efficiently.
16
• Ensured that the Authority obtained building permits and performed inspections as
required by the Massachusetts Building Code and determined whether there was
improper handling of asbestos and lead paint.
• Evaluated the Authority’s procurement practices by selecting for review a sample of five
procurements (totaling more than $1.7 million) based on high dollar amounts from a
universe of 25 procurements (totaling more than $3 million) for the period October 1,
2008 to September 30, 2012.
• We selected a sample of 16 units for inspection to ensure the quality and consistency of
the force account work. Using a random number generator, we selected 9 units to
inspect from a universe of 132 units renovated at North Common Village and selected 4
units to inspect from a universe of 24 units renovated at the George Flanagan
development. We decided to select a nonstatistical sample of three of the total universe
of six handicapped units renovated at Bishop Markham Village. The nonstatistical
sample represented a sample of units selected without conscious bias.
• We also selected a sample of 17 cost items (totaling $126,027) from a universe 433 cost
items (totaling $643,664), representing 4 vendors that the Authority reported were not
following proper procurement procedures. The selection was based on the largest cost
items for four vendors providing materials, supplies, and services for force account
activities for the period October 1, 2008, to September 30, 2012. We evaluated the cost
items to determine whether charges were properly supported with purchase orders,
invoices, and checks and whether the Authority executed contracts and solicited price
quotes and bids.
• In addition, we selected a sample of 33 cost items (totaling $189,440) from a universe of
3,802 cost items (totaling $1,601,921) representing an additional 6 vendors that the
Authority reported were not following proper procurement procedures. The selection
was based on the largest cost items for six vendors providing materials, supplies, and
services for force account activities for the period October 1, 2008, to September 30,
2012. We evaluated the cost items to determine whether charges were properly
supported with purchase orders, invoices, and checks and whether the Authority executed
contracts and solicited price quotes and bids.
• For review of salaries, we decided to concentrate on Recovery Act funds due to the
attention the Recovery Act receives from HUD’s Office of Inspector General (OIG) and
the 2008 program year funds because these were the oldest funds identified in the
financial records covering the period October 1, 2008, to September 30, 2012. We
identified the salaries charged to completed force account activities for Recovery Act and
2008 program funds. Of the eight completed activities, we focused on the three activities
with the largest salaries to determine whether the salaries were adequately supported. We
selected a sample of 6 weekly payrolls, representing salaries totaling $58,187, from a
universe of 161 weekly payrolls, representing salaries totaling $870,218. The sample
selection was based on the largest two weekly payrolls for each of the three force account
activities for the period October 1, 2008, to September 30, 2012.
17
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.
18
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:
• Program operations – Policies and procedures that management has
implemented to reasonably ensure that a program meets its objectives.
• Compliance with laws and regulations – Policies and procedures that
management has implemented to reasonably ensure that the use of funds is
consistent with laws and regulations.
• Safeguarding resources – Policies and procedures that management has
implemented to reasonably ensure that funds are safeguarded against
waste, loss, and misuse.
We assessed the relevant controls identified above.
A deficiency in internal control exists when the design or operation of a control does
not allow management or employees, in the normal course of performing their
assigned functions, the reasonable opportunity to prevent, detect, or correct (1)
impairments to effectiveness or efficiency of operations, (2) misstatements in
financial or performance information, or (3) violations of laws and regulations on a
timely basis.
19
Significant Deficiencies
Based on our review, we believe that the following items are significant deficiencies:
• Authority officials did not have adequate controls over program
operations when they failed to develop a formal planning process,
including preparing upfront cost estimates for the Authority’s force
account activities, and did not maintain adequate construction or
modernization records and files regarding its force account activities. In
addition, Authority officials’ lack of oversight of force account labor
resulted in deviation from field specifications (see finding 1).
• Authority officials did not have adequate controls over compliance with
laws and regulations when they failed to follow purchase order
procedures, prevailing wage rates, conflict-of-interest regulations, and
Federal procurement regulations (see findings 1 & 2).
• Authority officials did not have adequate controls over safeguarding
resources because they charged unsupported costs to Federal programs,
awarded procurements without competition, and failed to maintain an
adequate inventory system to allow for proper accountability of office
equipment, appliances, materials, and supplies (see findings 1 & 2).
20
APPENDIXES
Appendix A
SCHEDULE OF QUESTIONED COSTS
Recommendation Unsupported
number 1/
1B $6,738,796
1C $2,527,524
1H $52,212
1K $53,270
2D $1,959,594
2E $262,513
Total $11,593,909
1/ Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
or activity when we cannot determine eligibility at the time of the audit. Unsupported
costs require a decision by HUD program officials. This decision, in addition to
obtaining supporting documentation, might involve a legal interpretation or clarification
of departmental policies and procedures.
21
APPENDIX B
AUDITEE COMMENTS AND OIG’S EVALUATION
Ref to OIG Evaluation Auditee Comments
Lowell Housing Authority
350 Moody Street, PO Box 60
Lowell, Massachusetts 018353-0060
August 7, 2013
Mr. Edgar Moore
Regional Inspector General for Audit
U.S. Department of Housing and Urban Development
Office of Inspector General
New York-New Jersey Office
26 Federal Plaza- Room 3430
New York, NY 10278-0068
Dear Mr. Moore:
Thank you for sending a copy of the Office of Inspector General for
Audit’s draft audit report, and for meeting with us on July 31, 2013 to review
its contents. We appreciate the time and effort that your staff has devoted to
developing the draft report. We thank you for the opportunity to provide a
written response.
To be clear, the Lowell Housing Authority concurs with a number of
the items contained in the report. These include issues our agency identified
through its own audit and oversight procedures prior to this audit
engagement. While the Lowell Housing Authority acknowledges the two (2)
audit findings, we will provide documentation and evidence both in this
response and subsequently to our HUD field office that demonstrates we
have acted on many of the audit issues. We have provided, as an
attachment, two relatively brief responses, one for each of the two findings in
the report. We believe this information will validate that the Board of
Commissioners and Executive staff have exercised leadership and taken the
necessary steps to address modernization and procurement issues.
This response is written from the perspective that a number of events
occurred at the Lowell Housing Authority during the four-year audit period of
2008 through 2012. We feel it is necessary to understand this context in
assessing the items mentioned and the measures instituted by the LHA
22
Ref to OIG Evaluation Auditee Comments
prior to the audit report. In retrospect, more attention should have been
focused on systems rather than relying on the knowledge and experience of
individuals in leadership positions whose credentials would convey possession
of the experience and judgment required while overseeing the activities in
question, but who proceeded with too much informality and degree of freedom.
It should be noted that former personnel believed they were acting in the best
interest of the LHA and that no fraudulent use of funds has been alleged or
found.
In the Report a number of recommendations are listed starting on page 9
of the document. Some of the issues that underlay these recommendations
have already been addressed in manners that will avoid their repletion. We
anticipate that even though done on a post audit basis, the LHA will be able to
confirm that choices made and the value obtained through the use of a force
account approach did maximize overall value and were more cost effective than
a formal bidding process that relied on third party general contractors with their
mark-ups and overhead factors. Going forward, should we determine to use
force account methods again to stretch our limited resources or to be
responsive to a “lumpy” pipeline of work such as that created by relying on unit
vacancies rather than relocation with all its added costs and complexities, we
have moved towards an overall system that will allow us to connect the dots
from the first decision to the last action. This would not be just to protect the
agency from outside criticism, an important consideration at all times, but more
so for our own benefit as frontline decision-makers.
These measures demonstrate our leadership and commitment to
improving LHA procurement and modernization practices. We are confident
that the LHA will adequately address and substantiate unsupported costs that
the audit report notes. We look forward to working with HUD to ensure that the
LHA operates at the highest level of efficiency and regulatory compliance with
matters of procurement and modernization.
Sincerely,
// SIGNED //
Dr. Gary K. Wallace
Executive Director
23
Ref to OIG Evaluation Auditee Comments
Attachment 1
Lowell Housing Authority Response to Audit Finding 1 – The Authority
Did Not Always Operate Its in-house Force Account Program in
Compliance with HUD Regulations.
This finding consisted of three subparts:
Inadequate Upfront Planning
Inadequate Construction Records and Modernization Files
Insufficient Leadership and Oversight
In 2008, the Lowell Housing Authority initiated a major renovation at
the North Common Village Development, the oldest public housing
development in the Commonwealth of Massachusetts using amounts from
our Capital Fund Program (CFP) Grants with a total value of $6,676,931.
The scope of work included a complete renovation of the units in
three story buildings within the development. The goal of this project was
to remediate mold issues, improve ventilation, and modernize plumbing
and electrical systems to improve the quality of life of our residents. Other
major projects performed during the period of the Audit included
replacement of all windows at North Common Village and Bishop Markham
Village, exterior siding replacement at the George Flanagan Development
and extensive site improvements and the creation of additional handicap
accessible units at various developments. This work was funded by both
Capital Fund Program Grants and the American Reinvestment and
Recovery Act (ARRA) modernization Grant.
The key issue which seems to underlay the three major components
Comment 1 of this finding is the lack of suitable documentation to allow the Auditors to
determine value of the choices made by the LHA when compared to other
choices.
There is no question that in many locations including Section 9C of
the current version of the Consolidated Annual Contribution Contract (form
HUD 53012A) it is stated that an “HA shall maintain records that identify the
source and application of funds in such a manner as to allow HUD to
determine that all funds are and have been expended in accordance with
each specific program regulation and requirement”. However, the
recordkeeping requirements for different
Page 1
24
Ref to OIG Evaluation Auditee Comments
activities vary in terms of the nature of the activity and specific HUD guidance.
In the narrative for the sub-finding of inadequate construction and records
and modernization files, the Finding cites HUD Handbook 7417.1, which is the
Development Handbook. This Handbook, first published in 1980, has been
Comment 2 canceled by HUD and is not even carried as guidance or for reference in
HUDCLIPS, which is the HUD maintained database for program reference
materials including current regulations, Handbooks, Guidebooks, Administrative
Notices and current OMB cleared forms. The Development handbook pertains to
new construction or acquisition rehabilitation of units being brought into the
program for the first time. The Development handbook does not nor was
intended to cover modernization activities or extraordinary maintenance activities.
Development is not modernization, and we would never use a force account
approach for development.
We do not dispute that the force account program should have been
initiated with fully formed documentation systems so that an exact scope could be
documented for each unit or project assigned to the force account program.
However, the assertion that all the activities funded out of modernization sources
Comment 3 required documents “similar to those for new construction” as well as full formal
written specifications broken down into trade categories, while true of new
construction or substantial rehab of units being acquired under 24 CFR 941,
these requirements are not true of a force account program.
This is not to say that development of a scope of work, a cost estimate and
full documentation of labor, labor payments and materials expended on each unit
is not necessary and appropriate. The LHA should have been more complete in
its recordkeeping in the time frame covered by the Audit, but force account is a
method to allow an HA to serve as its own general contractor for “vanilla” or
Comment 4 standard physical renewal projects – standard in that no major structural
modifications were required and existing items were replaced with new but
essentially identical items. Maintenance staff members commonly replace unit
elements such as kitchens and bathrooms in full or in part as part of their
standard duties. They also, within their skill sets, do extensive renovations when
merited including wall board replacement, flooring replacement, siding
replacement and window replacement. Many large HAs have licensed
maintenance staff that can perform electrical and plumbing work on an
extraordinary maintenance basis without use of outside contractors. This work is
often done without architectural specifications and drawings if the activity involves
replacing existing design elements with new but essentially
Page 2
25
Ref to OIG Evaluation Auditee Comments
Identical elements. Force account is essentially extraordinary maintenance with
staff levels supplemented by project specific additional staff.
Through the Force Account labor program, the LHA sought to achieve the
dual goals of maximizing the ability to target dollars to materials and direct trades
labor and to minimize resources lost to mark-ups such as fees and overhead.
Inspections performed by architectural and engineering firms and the receipt of
certificates of occupancy from the City of Lowell Division of Inspectional Services,
verified that the work was of good quality and code compliant.
We recognize that from the top down more emphasis should have been
Comment 5 placed on the development of better formal internal controls to allow the Executive
Office to evaluate that the intended goals of using force account were being met
and to be able to justify the use of force account to 3rd parties such as HUD’s
auditors and others, but the flow of renovated units at North Common Village and
the other projects that were ongoing at the same time were providing proven
results. The downside of being your own general contractor is that when errors are
made, they must be absorbed internally. Nevertheless, the LHA is ready to follow
the recommendations on page 9 of the Audit Report and to work closely with the
local Field Office to substantiate and support the value of the work done through
the use of Force Account.
Lowell Housing Authority Response to Audit Finding 2 –
The Authority Did Not Always Follow Proper Procurement Procedures
This finding consisted of five subparts:
Procurement Awarded Without Competition
Independent Cost Estimates Were Not Supported
Requests for Proposal Were Not Prepared
Written Contracts Were Not Prepared
Change Orders Not Approved in a Timely Manner
Our response to Finding #1 identifies that an expectation that all
modernization should be subject to full development of specification and bid
documents by 3rd parties is not always relevant to how modernization work is done
by HAs nor required for the modernization program. This is instantiated by the
Comment 3 information in Chapter 10 of 7485.3G, the Capital Grant Program Guidebook in
which Force Account is listed as an acceptable method for use of modernization
funds. A requirement for full development of bid documents is not found in the
Guidebook in
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26
Ref to OIG Evaluation Auditee Comments
terms of a requirement for the use of force account. This does not mean that
upfront planning and ongoing determinations of the cost effectiveness of force
Comment 6 account rather than full invitation for Bid (IFB) was not pertinent and was
certainly a weakness at the onset of the review period back in 2008 when the
availability of ARRA resources required a very fast process for obligation and
expenditures.
We add to the point that force account documentation did not have to
rise to the level of IFB documentation with a second point that pertains to HUD’s
small purchase threshold of $100,000 as described in 24 CFR 85.36(d). Small
Comment 7 purchases, as defined by HUD, do not require formal requests for proposals or
invitation for bid. The Authority is also subject to the more stringent
requirements of Massachusetts, specifically MGL 30B, where three verbal
quotes for purchases up to $25,000 is a permitted practice. There are at least
four items listed in Appendix C that fall below the $25,000 threshold just by the
total shown, as well as two of the four A/E contracts referenced in Appendix E
and F.
There are certainly individual activities that exceed the small purchase
threshold listed in Appendix C. Small purchases do not require formal contracts.
They can be documented using a purchase order format. We raise these points
because we find that the report narrative does not seem to acknowledge that
Comment 8 there are streamlined and less burdensome procurement methods allowed
under federal regulation than promoted in the Audit Report. In addition, the
presentation of the dollar amounts listed in Appendix C does not provide a clear
understanding that the events over the four year period covered by the Audit
Report have in most cases been rolled up into the large sums shown. The
Comment 9 actual purchases are a series of smaller procurements, most under the $25,000
level. This is certainly the case for the unit renovations at North Common
Village, which is shown as a lump sum in Appendix C of over $6.7M. The
procurement needs arose as units became vacant on an unpredictable and
random basis over time.
Despite the above comments, the LHA did recognize starting in 2009 that
improvements were needed in the overall procurement process, some of which
were systems and some of which were having the correct staff skills and attitude
in the correct locations within the pertinent line departments. HUD’s asset
management systems and guidance promote decision making on purchases and
expenditures to be as decentralized as possible. Decentralization creates
Comment 10 internal control challenges. Within this same year, internal control issues related
to procurement and force account were identified by the Executive Director,
Assistant Executive Director and the
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27
Ref to OIG Evaluation Auditee Comments
Chief Financial Officer. At that time, a comprehensive review was undertaken
and followed by corrective action plans to provide better oversight, improve
communication and establish formalized practices and procedures to ensure
compliance.
Beginning in July, 2010, a Best Practice Audit was performed by the Chief
Financial Officer and resulted in a proposal to completely overhaul then existing
Comment 10 procurement and modernization practices and procedures. As a result of this
study and recommendation, the Executive Director and Assistant Executive
Director adopted a key proposal and created a new position, Auditor and
Compliance Officer, to test administrative systems for weaknesses, establish
policy, internal controls and implement improvements.
Also in 2010, the Executive Director and Board of Commissioners
established agency goals to train staff on State and Federal procurement laws.
This included training and certification through the Massachusetts Office of the
Comment 10
Inspector General, Massachusetts Operational Services Division and advanced
HUD procurement and contracting training offered by industry experts. The
Authority hosted a HUD procurement seminar that was attended by key LHA
staff as well as other Public Housing Authorities from various states.
In early 2011, the Authority began its next level of refinement which
included a reorganization of positions and responsibilities within the
procurement and facilities departments that was triggered by the departures of
departmental leaders in key areas that relied heavily on procurement policy and
procedures, materials management and modernization administration. Key
positions that were vacated included the Deputy Director of Facilities and
Capital Planning, the Purchasing and Inventory Officer and the Executive
Comment 10
Secretary of Facilities. Additionally, duties of other Facilities Departmental staff
were redistributed to improve segregation of duties and internal controls.
At the conclusion of the data collection period for this Audit Report, the
Authority hired a highly experienced, certified public procurement official with a
law degree to assume the daily duties of Chief Procurement Officer. The
Authority also created a new position of Assistant Director of Capital Planning
and hired a professional who possesses a valid construction supervisor’s
Comment 10 license and holds a degree in construction management.
Our team of newly hired and credentialed professionals in combination
with our organizational realignment of the procurement and construction
management functions addresses the weaknesses that his Audit Report
documented in our procurement and
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Ref to OIG Evaluation Auditee Comments
modernization departments. We are ready to implement additional improvements to
existing policy and procedures to fulfill the recommendations offered in the Audit
Report.
We believe that the actions described above demonstrate that our leadership is
Comment 10 responsive to our challenging and changing operating environment and our
commitment to improving LHA procurement and modernization procedures. We are
confident that the LHA will working in tandem with the local Field Office Staff address
and substantiate the unsupported costs documented in this Audit Report.
Page 6
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Evaluation of Auditee Comments
Comment 1 Authority officials believe that their key issue is the lack of adequate
documentation. However, while there was inadequate documentation, we also
found inadequate planning, construction work that was not completed as designed,
lost revenue due to extended vacancies, purchase orders dated after invoices,
unsupported costs, and inadequate inventory records.
Comment 2 Based on the Authority’s concerns, we adjusted the report to reflect the criteria at
handbook 7485.3G and 7460.8.
Comment 3 Authority officials interpret the finding as saying that all activities funded with
modernization funds should be documented similar to those in new construction,
which they believe is not true for the force account program. However, the
renovations at North Common Village and the handicap conversions at Bishop
Markham Village involved significant construction work including comprehensive
modernization work, electrical work, unit gutting, plumbing replacement,
carpentry, flooring, and painting. Regulations require the same level of
documentation for this type of work as would be maintained by any contractor
hired by the Authority. Our audit determined that the Authority lacked records
that showed what was accomplished with force account labor.
Comment 4 Authority officials acknowledge that their recordkeeping for force account
activities should have been better, but they believe that they conducted standard
repair work that did not require detailed specifications. Nevertheless, as shown in
comment 3 above, the work was extensive and required better documentation.
Comment 5 Authority officials acknowledge that they should have developed better internal
controls and they are ready to begin working with the HUD field office and
implement our recommendations.
Comment 6 Authority officials state that their lack of upfront planning and failure to determine
the cost effectiveness of force account was a weakness back in 2008. Our audit
showed that a lack of upfront planning and a failure to determine the cost
effectiveness of force account were prevalent from 2008 through 2012.
Comment 7 Authority officials state that the Capital Grant Program guidebook (7485.3G) does
not mention the development of bid documents for force account activity. They
further state that HUD’s small purchase threshold ($100,000) under 24 CFR 85.36
(d) does not require bidding and that in some cases the more stringent
Massachusetts law (MGL 30B) applies to purchases under $25,000, requiring only
verbal quotes; thus they cite 4 cases that were below $25,000. Although 24 CFR
85.36 may not require bidding for force account labor, the regulations are
applicable to the building products and supplies acquired for force account. The
Authority paid three companies in excess of $100,000 for building products and
supplies and another five companies in excess of $200,000. In fact, the Authority
paid one of the five companies over $630,000 without solicitation of bids or price
30
quotations. Authority officials could not show the basis for selecting this company
or any of the other building suppliers. HUD also requires that housing authorities
follow applicable State or local laws on procurement if stricter than Federal
standards. 17 Massachusetts requires that the award of procurements in the amount
of $25,000 or more shall conform to the competitive bidding procedures.
Regarding the amounts listed on the appendixes that are below $25,000,
Massachusetts requires quotes from three vendors, orally or in writing. A housing
authority is required to record the names and addresses of all persons contacted for
quotes, names of all persons that submitted quotes, and the date and amount of
each quote. 18 The Authority failed to comply with these requirements.
Comment 8 We acknowledge that the amounts reflected in Appendixes E and F include a series
of small procurements. However, as we explained in Comment 7 regarding
procurements under $25,000, Massachusetts requires quotes from three vendors,
orally or in writing. In addition, Massachusetts requires that a housing authority
record the following: (1) names and addresses of all persons contacted for quotes,
(2) names of all persons that submitted quotes, and (3) the date and amount of each
quote. 24 Code of Regulations (CFR) 85.36 on procurement states that, if small
procurements are used, price or rate quotations will be obtained from an adequate
number of qualified sources. In addition, we emphasize that the Authority’s
practice of purchasing building materials and supplies on an as needed basis did
not ensure that they were obtaining the most economical price. 24 CFR 85.36
states that to foster greater economy and efficiency, grantees and sub grantees are
encouraged to enter into State and local intergovernmental agreements for
procurement or use of common goods and services. Authority officials did not
provide OIG any evidence that they adhered to Massachusetts requirements or
HUD regulations.
Comment 9 Authority officials state that the total purchases in the report represent purchases,
most under the $25,000 level, incurred over a four year period. However, as noted
in comments 7 and 8, Authority officials failed to follow HUD regulations
regarding purchases under $25,000. Also, the Authority’s pattern of purchasing
building materials and supplies from many companies on an as needed basis is
generally not the most economical practice.
Comment 10 We acknowledge Authority officials efforts to address the weaknesses identified
and appreciate their willingness to fulfill the recommendations of the audit report.
17
This is found in HUD Handbook 7460.8 REV 2, Procurement Handbook for Public Housing Agencies, Chapter 1,
Section 1.3
18
This is found in Chapter 30B of the Massachusetts General Laws, Uniform Procurement Act,
31
Appendix C
COST OF LABOR AND MATERIALS FOR FORCE ACCOUNT
CAPITAL FUNDS
# Development Description of work Status Total cost
1 North Common Village Dwelling unit Ongoing $6,593,421
rehabilitation
2 Bishop Markham Village Window replacement Completed $200,575
Development and North
Common Village
Development
3 George Flanagan Building siding Completed $91,368
Development
4 George Flanagan Kitchens and baths Ongoing $357,721
Development
5 Bishop Markham Village Kitchens and baths – Completed $329,661
Development handicap
6 North Common Village Site – walks, drives, Completed $83,510
railing, landscaping
7 Francis Gatehouse Repoint brick Completed $52,968
8 Father Norton Manor Exterior painting Completed $51,985
9 George Flanagan Site – walks, drives, Completed $43,285
Development railing, landscaping
10 Bishop Markham Village Site – walks, drives, Completed $24,640
Development railing, landscaping
11 Francis Gatehouse Kitchens and baths – Completed $19,271
handicap
12 Dewey Archambault Site – walks, drives, Completed $15,694
Towers railing, landscaping
13 Francis Gatehouse Site – walks, drives, Completed $706
railing, landscaping
Less ($1,126,009) 19
Total cost $6,738,796
19
The $1,126,009 amount represents a portion of the unsupported costs reported in finding 2 because the Authority
failed to solicit price quotations and implement contracts with these nine vendors providing building products and
supplies. Therefore, to avoid double-counting, we have reduced the total cost amount of $7,864,805 by $1,126,009,
leaving $6,738,796 as questioned costs in finding 1 based on the Authority’s failure to operate its force account
program in compliance with HUD regulations.
32
Appendix D
COST OF LABOR AND MATERIALS FOR FORCE ACCOUNT
RECOVERY ACT FUNDS
# Development Description of work Status Total cost
1 Bishop Markham Window Completed $1,125,640
Village Development replacement
2 North Common Window Completed $381,795
Village Development replacement
3 George Flanagan Building siding Completed $1,140,310
Development
14 Father Morrissette Painting Completed $93,00020
($213,221)21
Total cost $2,527,524
20
The above activities in this appendix overlap with the activities in Appendix C, except for activity 14. This
activity represents the painting work at Father Morrissette that was paid for exclusively with ARRA funds and
therefore, is not shown on appendix C. Thus, the 13 activities in Appendix C plus activity 14 in Appendix D total
the 14 force account activities as discussed in the finding.
21
The $213,221 amount represents a portion of the unsupported costs reported in finding 2 because Authority
officials failed to solicit price quotations and implement contracts with these nine vendors providing building
products and supplies. Therefore, to avoid double-counting, we have reduced the total cost amount of $2,740,745
by $213,221, leaving $2,527,524 as questioned costs in finding 1 based on Authority official’s failure to operate
its force account program in compliance with HUD regulations.
33
Appendix E
UNSUPPORTED PROCUREMENT COSTS
CAPITAL FUNDS
Number Entity or project Unsupported
costs
Building products and supply vendors
1 Frank McCartin, Inc. $630,796
2 Diamond Vic’s Plumbing $223,314
3 MacDonald Cabinet & Countertop $213,123
4 Harvey Industries $12,368
5 Dracut Appliance Center $202,958
6 West Tewksbury Contractors $174,532
7 F.W. Webb $162,286
8 Marc L’Heureux $153,933
9 Burl Fence Company $68,100
10 Harmon’s Paint $48,049
Subtotal 10 vendors $1,889,459
Architectural design firms
1 Weston and Sampson $47,100
2 Avid Engineers $27,817
3 Nagle Engineering Inc. $10,174
Subtotal three architectural design firms $85,091
Construction change orders
1 Landscape upgrades at North Common Village $29,000
2 Replacement of the emergency generator at the Francis $6,456
Gatehouse Mill Development
3 North Common Village roof repair – phase 3 $1,800
Subtotal three change orders $37,256
(52,212) 22
Total cost $1,959,594
22
An amount of $52,212, representing overage charges for trash removal provided by West Tewksbury Contractors,
is reported separately in finding 1 (recommendation 1h) as unsupported costs. Therefore, to avoid double-counting,
we have reduced the total cost amount of $2,011,806 by $52,212, leaving the remaining $1,959,594 as unsupported
costs reported in finding 2.
34
Appendix F
UNSUPPORTED PROCUREMENT COSTS
RECOVERY ACT FUNDS
Number Entity or project Unsupported
costs
Building products and supply vendors
1 Frank McCartin, Inc. $3,631
2 Harvey Industries $200,751
3 Marc L’Heureux $1,500
4 Harmon’s Paint $7,339
Subtotal four vendors $213,221
Architectural design firms
Jeffrey J. Cook Architects, Inc. $13,800
Construction change orders
Bishop Markham Village roof replacement $35,492
Total cost $262,513
35
The Housing Authority of the City of Lowell, MA, Did Not Always Operate Its Public Housing and Recovery Act Capital Fund Programs in Compliance With HUD Regulations and Its Own Policies
Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-09-04.
Below is a raw (and likely hideous) rendition of the original report. (PDF)