oversight

The Housing Authority of the City of El Paso, TX Did Not Follow Recovery Act Obligation Requirements or Procurement Policies

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-04-12.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




    The Housing Authority of the City of El Paso, TX

       American Recovery and Reinvestment Act of
                         2009




2013-FW-1004                                 APRIL 12 , 2013
                                                        Issue Date: April 12, 2013

                                                        Audit Report Number: 2013-FW-1004




TO:            Regina Hawkins, Director, Fort Worth Office of Public Housing, 6APH

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


SUBJECT:       The Housing Authority of the City of El Paso, TX Did Not Follow Recovery Act
               Obligation Requirements or Procurement 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 Housing Authority of the City of El
Paso’s compliance with American Recovery and Reinvestment Act of 2009 formula grant
requirements.

    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
(817) 978-9309.
                                           April 12, 2013

                                           The Housing Authority of the City of El Paso, TX Did
                                           Not Follow Recovery Act Obligation Requirements or
                                           Procurement Policies


Highlights
Audit Report 2013-FW-1004


 What We Audited and Why                    What We Found

We audited the Housing Authority of        The Authority improperly obligated Recovery Act
the City of El Paso because it met our     funds totaling about $2.68 million after the statutory
oversight objectives for the American      obligation deadline. It properly spent the remainder of
Recovery and Reinvestment Act of           the funds, which totaled about $10 million, by the
2009. Additionally, our risk assessment    statutory expenditure deadline. Also, it improperly
testing of Recovery Act funding showed     documented its bid evaluations of and may have
that as of December 31, 2011, the          improperly obtained 11 roofing contracts totaling
Authority had spent almost $11 million,    about $5.87 million. The Authority’s improper actions
or 86 percent, of its formula grant,       occurred due to how and when it planned and
which left more than $1.7 million to be    performed its Recovery Act obligations. The
spent in the 3 months before the           Authority properly reported its Recovery Act results
expenditure deadline. Our audit            accurately and in a timely manner.
objectives were to determine whether
the Authority properly (1) obligated and
spent its formula Recovery Act grant
funds, (2) obtained its formula
Recovery Act contracts, and (3)
reported results in an accurate and
timely manner.

 What We Recommend

We recommend the Director of the Fort
Worth Office of Public Housing require
the Authority to repay about $2.68
million in 2009 Recovery Act funds to
the U. S. Treasury or provide eligible
costs that it obligated and expensed
before the deadlines. In addition, HUD
should require the Authority to provide
support for or repay $5.87 million for
the 11 contracts that it could not show
were properly procured.
                           TABLE OF CONTENTS


Background and Objectives                                                       3

Results of Audit
      Finding 1: The Authority Improperly Obligated Recovery Act Funds          4
      Finding 2: The Authority Improperly Documented Its Bid Evaluations for
                 11 Contracts                                                   9

Scope and Methodology                                                          13

Internal Controls                                                              15

Appendixes
A.    Schedule of Questioned Costs                                             16
B.    Auditee Comments and OIG’s Evaluation                                    17
C.    Schedule of Contract Bid Evaluations                                     28




                                            2
                         BACKGROUND AND OBJECTIVES

The Housing Authority of the City of El Paso was incorporated in 1938. Its mission is to provide
safe, decent, and affordable housing for assisted families at or below 80 percent of area median
income. In 2012, it housed 40,437 individuals in 13,479 housing units. The Authority is
governed by a board of commissioners appointed by the mayor of El Paso. It receives capital
funds annually by formula grant from the U.S. Department of Housing and Urban Development
(HUD) and may use its capital funds for development, financing, modernization, and
management improvements for its housing developments.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of
2009 into law.1 The Recovery Act provided $4 billion for public housing agencies to carry out
capital and management activities, including the modernization and development of housing. It
allocated $3 billion for formula grants and $1 billion for competitive grants. The Recovery Act
required public housing agencies to obligate 100 percent of the funds within 1 year of the date on
which funds became available to the agency for obligation, expend 60 percent within 2 years,
and expend 100 percent within 3 years of such date.

According to its annual contribution contract (ACC) amendment with HUD, the Authority
received a Recovery Act formula grant totaling more than $12.71 million, which was effective
on March 18, 2009. If the Authority failed to comply with the obligation deadline, HUD was
required to recapture those obligations that did not meet the deadline and return the funds to the
U.S. Treasury for the sole purpose of deficit reduction.2 According to the Recovery Act, the
Authority had to obligate all funds by March 17, 2010. The statutory deadline for total
expenditure of the funds was March 17, 2012.

HUD required the Authority to use its Recovery Act formula grant on eligible activities. The
Authority mainly expended the funds on roofing contracts and evaporative cooler replacements
at several complexes, waterline replacement work at two complexes, and window replacements
at two apartment complexes. The Authority included these activities in its HUD-approved
annual statement. The Authority and HUD determined the improvements needed for long-term
physical and social viability to be included in the plans.

Our audit objectives were to determine whether the Authority properly (1) obligated and spent its
formula Recovery Act grant funds, (2) obtained its formula Recovery Act contracts, and (3)
reported results in an accurate and timely manner.




1
    Public Law 111-5
2
    The Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) amended the
    Recovery Act, requiring recaptured funds to be returned to the U.S. Treasury and dedicated for the sole purpose
    of deficit reduction.


                                                        3
                                      RESULTS OF AUDIT


Finding 1: The Authority Improperly Obligated Recovery Act Funds
The Authority improperly obligated Recovery Act funds totaling almost $2.68 million after the
statutory obligation deadline. It properly spent the remainder of the funds, which totaled to
about $10 million, before the expenditure deadline. The Authority’s improper actions occurred
due to how and when it planned and performed its Recovery Act obligations. As a result, the
Authority will need to repay the ineligible obligations totaling almost $2.68 million to HUD
which should return the funds to the U.S. Treasury.


    The Authority Improperly
    Obligated $2.3 Million in
    Contracts After the Deadline

                  The Authority improperly obligated more than $2.3 million in contracts after the
                  Recovery Act deadline.3 HUD’s policy stated that an obligation was a contract
                  execution for contract labor, materials, and services. The policy also stated
                  contract execution meant execution of the contract by both the public housing
                  agency and the contractor. Further, HUD explicitly warned public housing
                  agencies that an extension of the obligation deadline was not permitted under the
                  Recovery Act.4 A review of the Authority’s contracting files and electronic
                  general ledger data showed the Authority awarded nine contracts totaling more
                  than $2.3 million after the statutory obligation date of March 17, 2010, as detailed
                  in figure 1.




3
      HUD Public and Indian Housing (PIH) Notice 2009-12 issued March 18, 2009, and reissued as PIH Notice
      2011-4 on January 21, 2011
4
      See footnote 3



                                                       4
                  Figure 1 Authority contracts obligated after the deadline
                         Schedule of contracts obligated after the Recovery Act deadline
                                                 of March 17, 2010
                                                                              Contract    Amount
                 Contract number        Complex             Service
                                                                                date
                                                          Evaporative
                 ARRA5 10-C-0086        Various                               7/4/2010       $27,438
                                                      coolers and materials
                                                          Evaporative
                 ARRA 10-C-0087         Various                               7/4/2010     1,094,687
                                                      coolers and materials
                                                          Evaporative
                 ARRA 10-C-0088         Various                               7/4/2010          8,106
                                                      coolers and materials
                                                          Evaporative
                 ARRA 10-C-0090         Various                               7/4/2010        63,326
                                                      coolers and materials
                                                          Evaporative
                 ARRA 11-C-0001         Various                               7/20/2010       38,766
                                                      coolers and materials
                 TX 110                  Guillen              Roof            3/2/2011       337,564
                 ARRA 11-C-0050          Cramer               Roof            5/20/2011      102,692
                 ARRA 11-C-0054         Sherman             Waterline         7/18/2011      492,324
                 TX 020                      Tays             Roof            7/19/2011      220,297
                                                    Total                                 $2,385,200


    The Authority’s Contracts Did
    Not Meet the Obligation
    Deadline Due to Planning Issues

                  The Authority’s contracts did not meet the Recovery Act obligation deadline due
                  to how and when the Authority planned and performed its Recovery Act
                  obligations.

                  The Authority’s Delays in Awarding Contracts Caused Contract Errors
                  According to the Authority, El Paso was flooded with Recovery Act funds; and
                  contractors, aware of the funding, provided bids that far exceeded the Authority’s
                  cost estimates. Due to initial bids coming in higher than anticipated, the
                  Authority rebid a majority of its roofing contracts. Less than 2 weeks before the
                  obligation deadline, the Authority awarded 11 roofing contracts and 1 window
                  replacement contract totaling almost $6.41 million. Beginning in November
                  2010, the Authority began to take steps to significantly decrease the roofing
                  contracts for its Salazar and Cramer complexes by a total of $1.13 million. It
                  reduced the contracts because it included steep slope roofs in the complexes’
                  contract budgets, but it did not include them in the awarded contracts. The
                  Authority considered the contract modifications scope reductions that resulted in

5
      American Recovery and Investment Act



                                                      5
                  cost savings. Further, it determined it could award new contracts for Cramer’s
                  steep slope roof in May 2011 and Sherman’s waterline replacement in July 2011.
                  However, the Authority should have deobligated the funds when the contract
                  modifications to decrease the scope occurred as the obligation deadline had
                  occurred at least 6 months earlier; and HUD’s policy prohibited contract
                  executions occurring after the deadline. The Authority disagreed with this
                  conclusion.

                  The Authority Procured New Evaporative Cooler Contracts After the Deadline To
                  Save Costs
                  The Authority’s contract files showed that it started a completely new
                  procurement process for evaporator coolers and materials after the obligation
                  deadline. Its public bid opening date occurred in May 2010, and it did not award
                  the five contracts totaling almost $1.23 million until July 2010. The Authority
                  argued that it had existing contracts and that it executed the new contracts to
                  obtain better prices. However, in doing so, the Authority did not meet the
                  statutory obligation deadline.

                  The Authority Used Recovery Act Funds to Pay For Other Contracts After the
                  Deadline
                  The Authority also improperly used Recovery Act funds to pay for two additional
                  contracts after the obligation deadline. It paid for a regular Public Housing
                  Capital Fund grant roofing contract executed on March 2, 2011 for its Guillen
                  complex totaling $337,564. Additionally, on February 3, 2012, it purchased
                  roofing supplies for its Tays complex totaling $220,297 using an Arizona
                  cooperative agreement, dated July 19, 2011. The Authority admitted the contracts
                  occurred after the deadline and called the Capital Fund contract an outlier.

    The Authority Improperly
    Obligated Force Account Labor
    and Materials

                  The Authority improperly obligated the majority of its force account labor and
                  materials after the Recovery Act obligation deadline. HUD required the start and
                  continuation of physical work by force account labor for an obligation to have
                  occurred.6 The Authority used grant funds to pay force account labor at 22
                  properties. Only two complexes had labor transactions that did or could have
                  started prior to the March 17, 2010 deadline. The remainder started after the
                  deadline as shown in figure 2. The Authority later reallocated a portion of its
                  force account labor and materials to other budget categories. After reducing for
                  the amounts transferred and excluding contracts previously determined ineligible
                  in this finding, the Authority paid $293,498 for force account labor obligated after


6
     See footnote 3



                                                   6
           the deadline. As the Authority could not show that it started the majority of its
           force account labor before the deadline, the charges were ineligible.


           Figure 2 Authority charges for improperly obligated force account labor
                                     First transaction date    Labor charges after
                  Complex           for force account labor       03/17/2010
            Valle Verde                            4/21/2010              $12,700
            Chelsea                                5/19/2010                    88
            Machuca                                5/19/2010               27,043
            Marmolejo                              5/19/2010               15,780
            Sherman                                 6/2/2010               35,777
            Salazar                                 6/2/2010               27,143
            Webber                                  6/2/2010               18,043
            Guillen                                6/16/2010                 6,466
            Roosevelt                              6/16/2010               21,571
            Robinson                               6/16/2010               12,219
            Tays                                   6/30/2010                 4,671
            Truman                                 6/30/2010               22,076
            Johnson                                6/30/2010                 3,056
            Cramer                                 7/14/2010               45,998
            Rio Grande                              9/8/2010               11,024
            Krupp                                   9/8/2010                 1,596
            Kathy White                            9/22/2010                 2,229
            Alvarez                                9/22/2010               18,049
            Morehead                               1/12/2011                 4,330
            Ochoa                                   3/9/2011                 3,639
                                 Total                                   $293,498



The Authority Believed That
Risk Assessments Obligated
Force Account Labor

           The Authority stated that it performed a roof risk assessment in December 2009
           that obligated all of its force account labor. However, HUD’s policy clearly
           stated “Examples of obligations are modernization commitments entered into by
           the PHA [Public Housing Agency], i.e., contract execution for contract labor,
           materials or services; start and continuation of physical work by force account
           labor; and start and continuation of administrative work. For force account work,
           all funds for a group of sequentially-related physical work items are considered
           obligated when the first item is started, such as kitchen cabinet replacement
           followed by kitchen floor replacement, but only where funds continue to be
           expended at a reasonable rate. Where one force account physical work item is
           started and is not sequentially related to other physical work items, such as site




                                             7
                  improvements and kitchen remodeling, then only the funds for the one physical
                  work item started are considered obligated.”7

    The Authority’s Expenditures
    Met Recovery Act
    Requirements

                  Generally, the Authority expended funds before the Recovery Act expenditure
                  deadline; however, it did reclassify some eligible expenditures in its general
                  ledger after the deadline. In addition, testing of a risk-based sample of three
                  vouchers totaling $2.4 million showed that the Authority had documentary
                  support for expenditures. The Authority had payroll records, including time cards
                  and time sheets, to support payroll expenditures recorded in its general ledger.
                  The Authority also had vendor invoices to support payments for materials,
                  supplies, and contracts.

    Conclusion

                  The Authority improperly obligated Recovery Act funds totaling almost $2.68
                  million after the statutory obligation deadline. It properly spent the remainder of
                  the funds by the deadline. The Authority’s improper actions occurred due to how
                  and when it planned and performed its Recovery Act obligations. As a result, the
                  Authority will need to repay the ineligible obligations totaling almost $2.68
                  million to HUD which should return the funds to the U.S. Treasury or provide
                  eligible costs that it obligated and expensed before the deadlines.

    Recommendations

                  We recommend that the Director of the Fort Worth Office of Public Housing require
                  the Authority to

                  1A. Repay $2,678,698 in 2009 Recovery Act funds to HUD, which will return
                      the funds to the U. S. Treasury, or provide eligible costs that it obligated and
                      expensed before the deadlines. HUD should take care to ensure that other
                      expended funds are not improperly shifted to Recovery Act funds, as HUD’s
                      policy stated that public housing agencies must use the funds provided in
                      this grant to supplement expenditures, not to supplant expenditures from
                      other Federal, State or local sources or funds independently generated.8




7
     See footnote 3
8
     See footnote 3



                                                   8
Finding 2: The Authority Improperly Documented Its Bid Evaluations
for 11 Contracts
The Authority improperly documented its bid evaluations for 11 Recovery Act funded roofing
contracts. Its contracting files lacked adequate documentation because it did not follow HUD’s
requirements or its own procurement policy as it was apparently struggling to meet the Recovery
Act statutory obligation deadline. Since the Authority lacked the bid evaluation information, it
could not support that it properly obtained the 11 roofing contracts totaling $5.87 million.


    The Authority Improperly
    Documented Its Evaluation of
    Bids for 11 Roofing Contracts

                  During its expedited rebidding process, the Authority improperly documented its
                  evaluation of bids submitted for 11 roofing contracts, which totaled $5.87 million.
                  It awarded all 11 contracts on the same day, which was less than 2 weeks before
                  the obligation deadline of March 17, 2010, (see figure 3). HUD required that a
                  public housing agency maintain records sufficient to detail the history of a
                  purchase.9 Although the Authority’s procurement policy required procurements
                  to be carefully documented, its procurement files lacked required bid evaluation
                  information, including documenting basic contractor eligibility. Appendix C
                  includes a detailed summary of the identified deficiencies.

                     Figure 3 Listing of 11 roofing contracts evaluated
                        Contract number         Housing complex Contract date                     Amount
                      ARRA 10-C-033             Cramer                  3/5/2010                    $789,096
                      ARRA 10-C-034             Marmolejo               3/5/2010                     362,944
                      ARRA 10-C-036             Rio Grande              3/5/2010                     192,423
                      ARRA 10-C-037             Sherman                 3/5/2010                     778,680
                      ARRA 10-C-038             Truman                  3/5/2010                     296,989
                      ARRA 10-C-039             Webber                  3/5/2010                     365,442
                      ARRA 10-C-040             Chelsea                 3/5/2010                     557,865
                      ARRA 10-C-041             Roosevelt               3/5/2010                     455,994
                      ARRA 10-C-042             Salazar                 3/5/2010                   1,711,377
                      ARRA 10-C-043             Machuca                 3/5/2010                      84,405
                      ARRA 10-C-057             Alvarez                 3/5/2010                     279,202
                               Total                                                              $5,874,417




9
      PIH Notice 2009-12 required that public housing agencies follow 24 CFR (Code of Federal Regulations) Part
      85 for procurements and 24 CFR 85.36(b)(9).



                                                         9
     The Authority Did Not
     Document Bidder Compliance
     With Basic Eligibility
     Requirements

                  In the 11 contracting files reviewed, the Authority improperly documented its
                  determination of compliance with basic eligibility requirements. HUD required
                  the Authority to follow Federal procurement standards, which included a
                  requirement that the Authority make awards only to responsible contractors
                  possessing the ability to perform successfully under the terms and conditions of
                  the proposed procurement. 10 The Authority indicated that it followed its
                  procurement policy and HUD’s Procurement Handbook, which required that
                  contracts shall not be awarded to debarred, suspended, or ineligible contractors.11
                  Further, its instructions to its bid evaluators stated that they should be especially
                  careful to make the evaluations as thorough, objective, and well documented as
                  possible. Although the Authority’s evaluators prepared evaluation worksheets
                  that included a checklist of qualification requirements including proof of
                  insurance, debarment status, financial stability, and references, it did not
                  document some form of basic eligibility in all 11 of the contracting files reviewed
                  (see appendix C).

     The Authority Did Not
     Properly Document Its Bid
     Scoring and Evaluations

                  The Authority improperly documented its scoring and evaluation results in all 11
                  contracting files reviewed. HUD required the Authority to have a method for
                  conducting technical evaluations of the proposals received and for selecting
                  awardees.12 The Authority’s instructions to its bid evaluators required the use of
                  scoring summaries and evaluation worksheets. An evaluation worksheet was
                  required to be prepared by each evaluator for each bidder and included a schedule
                  of evaluation criteria with a set scoring range for each criteria item. Further, each
                  individual worksheet had a total score that equaled the sum of all of the scores for
                  the criteria items. The Authority also prepared an overall scoring matrix for each
                  contract awarded, which summarized and totaled the individual scoring summary
                  results prepared by each evaluator for all of the bidders.




10
      See footnote 3 and 24 CFR 85.36(b)(8)
11
      HUD’s Procurement Handbook for Public Housing Agencies, 7460.8 REV-2, paragraph 10.2 H.2.; and the
      Housing Authority of the City of El Paso Procurement Policy, chapter V. paragraph B.
12
      24 CFR Part 85.36(d)(3)(iii)



                                                      10
             As noted in appendix C, the bid evaluations performed for all 11 of the roofing
             contracts reviewed had scoring discrepancies and deficiencies. For example,
                 In three roof contract files, the Authority did not provide scoring
                    summaries.
                 In five roof contract files, the scores listed by the Authority on the
                    summary did not match scores on worksheets.
                 In seven roof contract files, the Authority did not provide supporting
                    evaluation worksheets.
                 In six roof contract files, the Authority did not provide explanations for
                    changes in scores recorded on the evaluation worksheets.
             As a result, the Authority could not support that it properly obtained the 11
             roofing contracts.

The Authority Struggled To
Meet the Obligation Deadline

             The Authority’s struggle to meet the statutory obligation deadline caused it to
             improperly document its bid evaluation process. The Authority determined that it
             had 14 Recovery Act roofing projects with less than desirable pricing structures
             and canceled them. It issued its second request for proposals for roofs on January
             26, 2010. It accepted proposals until February 10, 2010, only 35 days before the
             statutory deadline. Therefore, it put its three teams consisting of nine staff
             members under extreme time constraints to conduct the evaluations. Due to the
             Recovery Act obligation deadlines, the Authority instructed its staff on February
             10 and 11, 2010, that they had 5-6 days, including the weekend, to perform their
             evaluation of 137 bids. It stressed that the assignment would require after hours
             work. It indicated that interviews and negotiations would occur during February
             16-19, 2010, and that final recommendations by the panel chairperson would
             occur on February 20, 2010, to allow the contract to be placed on the February 24,
             2010, board of commissioners’ agenda. At the board meeting, staff told the board
             they had done a very diligent procurement process, and the board approved the
             recommended contractors. The Authority executed the 11 contracts 9 days later
             on March 5, 2010.

Conclusion

             The Authority improperly documented its bid evaluations for 11 Recovery Act-
             funded roofing contracts. Its contracting files lacked adequate documentation
             because it did not follow HUD’s requirements or its own procurement policy as it
             was apparently struggling to meet the Recovery Act statutory obligation deadline.
             Since the Authority lacked bid evaluation information, it could not support that it
             properly obtained the 11 roofing contracts totaling $5.87 million. As a result, it
             will need to show that it properly awarded the 11 contracts totaling $5.87 million,
             or repay the amount to HUD, which will return the funds to the U. S. Treasury.


                                              11
Recommendations

          We recommend the Director of the Fort Worth Office of Public Housing require
          the Authority to

          2A.     Provide support for the 11 procurements totaling $5,874,417 or repay the
                  amount to HUD, which will return the funds to the U.S. Treasury.




                                          12
                         SCOPE AND METHODOLOGY
We conducted our audit work at the Authority’s administrative offices in El Paso, TX, the Fort
Worth Office of Public Housing, and the HUD Office of Inspector General’s (OIG) offices in
San Antonio and Fort Worth, TX between June 18, 2012, and February 12, 2013. The audit
generally covered March 18, 2009 to June 18, 2012.

To accomplish our objective, we performed the following steps as they related to the Authority’s
Recovery Act Capital Fund formula grant:

   Obtained and reviewed relevant laws, regulations, and HUD guidance.
   Obtained and reviewed the Authority’s Recovery Act grant agreement, annual statement, and
    5-year Action Plan.
   Obtained and reviewed the Authority’s board of commissioners meeting minutes to confirm
    that the Authority had adopted a Recovery Act-compliant procurement policy.
   Obtained and reviewed the Authority’s procurement policy and procurement records.
   Obtained and reviewed the Authority’s reviews and evaluations of all 11 roofing contracts it
    awarded on March 5, 2010, less than 2 weeks before the obligation deadline of March 17,
    2010.
   Tested 100 percent of the Recovery Act grant contracts by performing a review of each file
    to determine whether the Authority obligated them by March 17, 2010.
   Obtained an electronic download of the Authority’s general ledger and reviewed it to identify
    whether the Authority awarded contracts by the obligation deadline and to identify if the
    Authority recorded expenditures after the deadline.
   Tested 100 percent of the force account obligations to determine whether the obligating
    documents included sufficient detail to support the obligation amount.
   Obtained and reviewed the Authority’s summary support for force account labor to determine
    the first transaction date and compared that date to the obligation deadline to determine
    whether the deadline was met.
   Obtained and reviewed the Authority’s audited financial statements for fiscal years ending
    June 30, 2010 and 2011.
   Verified the timeliness of Recovery Act reporting by tracing grant expenditures from the
    Authority’s general ledger to its audited financial statements and to HUD’s Line of Credit
    Control System (LOCCS). We did not test the system controls for LOCCS. We used
    LOCCS data for information purposes only.
   Identified 100 percent of the Authority’s formula grant vouchers in its electronic general
    ledger. However, the Authority could not provide a listing of formula grant expenditures in a
    useable electronic format within the review timeframe. As a result, we used a risk-based
    procedure to select 3 sample vouchers totaling $2.4 million out of a universe of 38 vouchers
    totaling more than $12.7 million. The sample included the largest voucher paid, the first
    voucher with force account labor charges, and the eighth-largest voucher which was dated
    just before the expenditure deadline. For the sample, we verified that grant expenditure
    amounts reported in the Authority’s general ledger system matched supporting disbursement
    documentation.



                                               13
   Assessed the reliability and validity of the data in the Authority’s general ledger information
    system as it related to our audit objectives. Based on our testing, we determined that the
    information was sufficiently reliable to support our audit objectives.

We initially expanded our audit scope to include the Authority’s competitive Recovery Act
grant. Later in coordination with the local HUD Office of Public Housing field office, we
excluded this grant from our audit to prevent us from reviewing the competitive grant at the same
time HUD was reviewing it.

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.




                                                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:

                      Financial controls over program obligations and expenditures, including
                       cost eligibility, authorization, and support;
                      Controls over procurement; and
                      Controls over accurate and timely reporting of program results.

               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 lacked controls to ensure that its obligations met the strict
                       statutory deadlines set by the Recovery Act (finding 1).
                      The Authority did not follow its procurement controls regarding
                       documenting its evaluation of bids and its contractor selections (finding 2).



                                                 15
                                   APPENDIXES

Appendix A

                 SCHEDULE OF QUESTIONED COSTS

                 Recommendation
                                        Ineligible 1/      Unsupported 2/
                     number
                       1A                $2,678,698
                       2A                                    $5,874,417


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




             March 15, 2013
             Mr. Gerald R. Kirkland                                                                                               Via email:
             Regional Inspector General for Audit                                                                                 gkirkland@hudoig.gov
             U.S. Department of Housing and Urban Development                                                                     tcarroll@hudoig.gov
             Office of Inspector General                                                                                          and Federal Express
             819 Taylor Street, Suite 13A09
             Fort Worth, Texas 76102

             Re: Draft audit report
             Dear Mr. Kirkland:
             The Housing Authority of the City of El Paso (HACEP) respectfully disagrees with both the
Comment 1    findings and the recommendations of the draft audit report of the Office of the Inspector General
             regarding HACEP’s contracting and expenditure of its American Recovery and Investment Act
             (ARRA) Capital Fund formula grant funds. HACEP expended its ARRA funds in compliance with
             the ARRA obligation and expenditure requirements, and in furtherance of HACEP's mission to
             provide safe, decent and affordable housing. HACEP used its ARRA formula grant funds for new
             roofs for 14 public housing communities comprising 2,407 housing units. In addition, three
             communities received new water lines, sewer lines, or windows. Furthermore, HACEP used
             ARRA funds to purchase and install 1,922 evaporative air conditioners (AC’s) with its force
             account employees, and force account employees also replaced roofs in other communities. Such
             work had clear benefits for HACEP and its residents.
             As explained in greater detail below, HACEP obligated all of its ARRA funds by March 5, 2010,
Comment 2    and therefore met the ARRA requirement that all funds be obligated by March 17, 2010. While
             HACEP modified some of the contracts for the obligated funds and entered into several new
             contracts with the savings from the modifications, these types of changes are well-accepted within
             the Capital Fund program, and illustrate HACEP's commitment to effective stewardship of public
             resources. Furthermore, all of the projects were completed by the ARRA construction deadline. In
             addition to meeting the economic stimulus goals of the ARRA, the public housing improvements
             materially improved the lives of the families living in these housing units.

             Response to Finding 1: HACEP Properly Obligated Its Recovery Act Funds. The Draft Audit
             Report finds that HACEP improperly obligated Recovery Act funds totaling $2,678,698 after the
Comment 3    statutory obligation deadline (Draft Audit Report, Figures 1 and 2). However, HACEP did in fact
             obligate all of its formula ARRA funds. The questioned $2,678,698 was obligated before the
             deadline using a combination of roofing contracts ($1,152,677) and force account spending
             ($1,525,821).

             As discussed in greater detail below, with respect to the roofing contracts, HACEP executed
             roofing contracts obligating its ARRA funds before the deadline in good faith, and subsequently
             modified the scope of some of these contracts. The contract modifications generated savings that
             were then used to fund replacement contracts after the obligation deadline. However, such
             5300 E. Paisano Dr., El Paso, TX 79905-2931P.O. Box 9895, El Paso, TX 79995-2895Main (915) 849-3742 Voice/TDD (915) 849-3737 www.hacep.org




                                                                          17
            modifications should not be deemed to invalidate HACEP's original good faith obligations that
            satisfied ARRA's obligation deadlines, and HACEP should not be required to repay these amounts.

            With respect to the force account work, as HUD explains in PIH Notice 2009-12, force account
            funds are not obligated by contract; they are obligated by beginning work on sequentially related
            items and continuing work at a reasonable rate. As discussed in greater detail below, all of
            HACEP’s force account expenditures were for sequentially related items begun before the
            obligation deadline, and were part of a project in which funds were expended at reasonable rates.
            As a result, HACEP fully obligated the $2.68 million before the obligation deadline and so should
            not be required to repay these funds.

            The first part of this section explains how HACEP’s roofing contracts met the ARRA obligation
            deadline, and the second part explains how HACEP’s force account spending likewise satisfied the
            ARRA obligation deadline.

                 A. HACEP properly obligated the $1,152,677 million in question before the obligation
            deadline, therefore satisfying ARRA's obligation deadline. Of the $2,385,000 in contracts that
            the OIG views as having been obligated after the deadline, $1,232,323 is actually attributable to
            force account materials, and so more properly belongs in the discussion of force account labor and
            materials in Section B below. As a result, the amount of non-force account obligations under
            discussion should total $1,152,677, rather than the $2,385,000 indicated in Figure 1 of the draft
            audit report.     As the remainder of this section explains, however, HACEP properly executed
Comment 3   contracts for $8.5 million in roofing work before the obligation deadline in good faith, and
            subsequently modified some of these contracts, and then reallocated funds from these contracts to
            other ARRA-eligible contracts. Such modifications should not be deemed to invalidate HACEP's
            original obligations that satisfied ARRA's obligation deadlines. To conclude that HACEP should
            have remained with the original pricing suggests that HACEP should have overpaid on those
            contracts to preserve the original obligation date, a conclusion that seems contrary to HUD's cost
            reasonableness requirements. The first part of HACEP's analysis focuses on the contracts for the
            roofing work, and the second part discusses the modified contracts that HACEP entered into after
            the obligation deadline.

                          1. HACEP properly and in good faith obligated $8.5 million for roofing contracts
            before the obligation deadline, thus satisfying the ARRA obligation requirements.
            HACEP initially received proposals for roofing contracts in December, 2009. After a price
            analysis, these first proposals were rejected because the costs far exceeded El Paso market prices
            for the roofing work. The projects were re-advertised, and new proposals were received in
            February, 2010. Contracts were awarded to the best-qualified contractors on March 5, 2010, thus
            obligating $8.5 million in ARRA funds prior to the 03/17/2010 deadline. (Exhibit 1).

                           2. After obligating $8.5 million in roofing contracts HACEP modified some of these
            contracts after the obligation deadline, and also entered into several new contracts with the savings
            from such modifications. These changes resulted in the $1,152,677 in 'new' contracts noted in


                                                             2




                                                    18
            Figure 1 in the OIG report [less the force account materials amounts improperly recorded in Figure
            1]. Such prudent fiscal management does not change the fact that HACEP met the original
            obligation deadlines following good faith entry into the original contracts described above.

            In order to ensure that it received fair value for the work to be performed, HACEP awarded the
            roofing contracts on a cost-per-square basis. HACEP thus paid only for work actually done by the
            contractors. During the course of managing more than $8.5 million in construction projects, some
Comment 3   roofing contracts were reduced because the actual number of squares was less than estimated. The
            savings were re-allocated to other ARRA-eligible work which is reflected in the post 03/17/2010
            contracts shown in Figure 1 of the draft audit report. This reallocation did not negate the good-faith
            obligation of these funds by valid contracts prior to the 03/17/2010 deadline. The re-allocation
            represents responsible use of the funds for eligible projects within the stimulus time frame that
            provided much-needed jobs in El Paso, tangible improvements to public housing properties, and
            improved the living conditions of the residents. A detailed explanation of the events and process is
            in the memorandum dated 08/31/2012 from HACEP’s Director of Procurement to the OIG auditors.
            (Exhibit 2). HACEP believes this re-allocation was proper and in keeping with the administration
            of HUD capital funds projects. It also accomplished the stimulus purposes of ARRA, as the funds
            were timely expended.

                 3. The Guillen Community. Figure 1 of the draft audit report includes the Guillen roofing
Comment 4   replacement contract as a contract executed after the obligation deadline. This project was
            originally begun as a capital funds project and was later included in the ARRA-funded projects
            using the fungibility concept in accordance with 24 CFR 968.305. HACEP will substitute another
            ARRA-eligible CFP project with a contract dated before the ARRA deadline for the Guillen roofing
            contract. The Guillen contract will be deleted from HACEP’s ARRA-funded contracts.

                     B. HACEP's force account spending in the amount of $1,525,821 was appropriate
            because the projects were sequentially related and the costs were paid at a reasonable rate.
            This reasoning applies to both (a) the $1,232,323 described in Figure 1 of the draft audit
            report which amount was erroneously not attributed to force account spending, as well as to
            (b) the $293,498 described in Figure 2 of the draft audit report. The first part of this
            subsection explains HUD's requirements for force account labor, while the remaining parts
            discuss how HACEP complied with these requirements and fully obligated its $1,525,821 in
            force account labor and materials.
                 1. In accordance with HUD guidance for force account work, all funds for a group of
            sequentially-related physical work items are considered obligated when the first item is started, as
            long as the funds continue to be expended at a reasonable rate. HUD’s guidance indicates that
Comment 5   force account funds are deemed obligated based on when the first item in a sequentially-related
            project is started, and are not deemed obligated based on a contract date.

                HUD NOTICE PIH 2009-12 (HA) [this Notice was reissued as PIH Notice 2011-4 on
            January 21, 2011] encourages the use of force account labor for ARRA grant work:
                         (6) Force Account: To the extent feasible, the PHA should consider
                     employing existing or additional force account laborers on either a permanent or a

                                                              3




                                                    19
                  temporary basis to perform Capital Fund Recovery Act grant work. See 24 CFR
                  968.105 and 968.120. No prior HUD approval is required specifically for force
                  account labor, but such work must be incorporated into the Capital Fund planning,
                  budgeting and reporting documents.

                  VII. Definitions
                  Force Account Labor: . . . The PHA shall use force account labor where it is cost-
                  effective and appropriate to the scope and type of physical improvements and the
                  PHA has the capacity to serve as its own main contractor and to maintain an adequate
                  level of routine maintenance during force account activity.

            PIH 2009-12 also defines the obligation of force account funds:
                  VII. Definitions
                  Obligation: Obligations mean the cumulative amount of modernization commitments
                  entered into by the PHA. Examples of obligations are . . . start and continuation of
                  physical work by force account labor; and start and continuation of administrative
                  work. . . For force account work, all funds for a group of sequentially-related
                  physical work items are considered obligated when the first item is started . . .
                  but only where funds continue to be expended at a reasonable rate.

Comment 5             2. HACEP deems all of the $1,525,821 AC-related work to have been obligated to a
            single force account project that was obligated when HACEP began work in January 2010, and for
            which HACEP expended funds at a reasonable rate. As a result, all $1,525,821 in force account
            labor and materials should be deemed obligated prior the deadline because work began before
            03/17/2010 as shown by Exhibits 5 through 7, the work was done sequentially.

            HACEP determined to use its ARRA formula grant funding for a Modernization project that
            included evaporative air conditioner replacement in public housing communities. In 2009,
            assessments were conducted on HACEP’s 5,839 public housing units to determine which roofs and
            AC’s were most in need of replacement. Ultimately, the ARRA AC replacement project consisted
            of purchase and installation of 1,922 evaporative air conditioners in 22 public housing
Comment 6   communities1. (Exhibit 3). Scheduling this work involved logistical requirements because the
            communities are spread over a very large geographic area, and installation of the AC units could
            not be completed until roofing work had been done. The AC replacement needed to occur after the
            ARRA roofing contracts were completed because the roofing contracts included options for
            replacement of the external ducts (roof jacks) for the new AC units. In accordance with HUD's
            encouragement of PHAs to use force account labor for ARRA work, HACEP elected to use its
Comment 7   force account employees to replace the ACs because HACEP had approximately 30 force account
            employees with the skills necessary for the work. A Fund Certification was completed 02/26/2010
            and the information was reported in the eLOCCS system. (Exhibit 4)
            ___________________________________
              1
                There was one project of 22 communities, not 22 projects: “Modernization project. The improvement of one
              or more existing public housing developments under a unique number designated for that modernization
Comment 6     program. . . .” 24 CFR 968.105

                                                                   4




                                                        20
            Initially, HACEP purchased materials under its previously existing contract for evaporative air
Comment 7   conditioners (Exhibit 8) and used the materials in the ARRA force account project (Exhibit 9).
            HACEP had procured a “requirements” contract dated March 16, 2009 for these items because they
            are needed for normal maintenance of almost 6,000 public housing units. After work on the force
            account air conditioner replacement project began January of 2010, as reflected in Exhibits 5-7,
            HACEP advertised for new bids to see if the large volume of AC purchases would result in a better
            price. It did, and HACEP entered into a new contract for AC’s and related materials in July, 2010.
            The new contract was with the same primary supplier as the existing contract, and HACEP's force
            account employees performed the work associated with such ACs in a manner that was sequentially
            related to the work begun before March 17, 2010 as shown in Exhibit 4.
            While HACEP procured a new contract to purchase evaporative AC’s in July 2010, the broader force
Comment 5   account project to replace the ACs was underway before March 17, 2010. In addition to inspection and
            planning of the air conditioner replacement project, preparation for this force account project included
            hiring an ARRA Construction Specialist to supervise force account labor performing ARRA work as
            well as the roofing contractors. Albert Casteñeda was hired for the position June, 2009. (Exhibit 5).
            Journal entries were made to allocate Mr. Casteñeda’s salary to Force Account No. 512-143000-0007-00-
            230 beginning in January, 2010. (Exhibit 6). In addition, force account employees were paid wages for
            the project beginning in January, 2010, well before the obligation deadline. (Exhibit 7).

            Exhibit 3 shows the continued progress and completion of the force account project. The ARRA
Comment 5   force account project and HACEP’s execution of it met the HUD definition of “a group of
Comment 6   sequentially-related physical work items”. In accordance with the HUD definition, “all funds are
            considered obligated when the first item is started” and the funds “continue to be expended at a
Comment 7   reasonable rate.” HACEP’s ARRA force account project met these requirements.

            Requested Action
            First, the findings regarding obligation of the contracts discussed in Subsection A of this letter
            should be deleted from the final audit report. HACEP obligated all of its ARRA funds to cover
            necessary expenses by 03/05/2010, and therefore met the ARRA requirement that all funds be
Comment 2   obligated by March 17, 2010. While HACEP and its contractors modified some of the contracts for
Comment 3   the obligated funds and entered into several new contracts with the savings from the modifications,
            these types of replacement contracts are well-accepted within the Capital Fund program, and
            illustrate HACEP's commitment to effective stewardship of public resources.

            The funds not actually spent under the roofing contracts were properly re-allocated to ARRA-
            eligible projects, and were then expended by the ARRA deadline.
            Secondly, the findings regarding obligation and expenditure of $1,525,821 for the force account
            project should be deleted from the final audit report. This figure represents the total for evaporative
Comment 5   coolers and materials listed in Figure 1 of the draft audit report, plus the force account labor in
            figure 2. This force account work began before 03/17/2010, the project consisted of sequentially-
            related physical work items, the funds for materials and labor were expended at a reasonable rate,


                                                               5




                                                     21
             and the entire project was timely completed by the ARRA deadline. The force account project met
             all the requirements for obligation and expenditure.

             Response to Finding 2: HACEP conducted a careful and responsible procurement of its ARRA
Comment 8    contracts and each contract file is replete with documentation of the process. The draft audit report
             states on pages 9 and 10 that procurement files lacked documentation of basic contractor eligibility.
             This is a reference to the debarment clearance. Debarment status was checked for each contractor
             in accordance with Section V.A. of HACEP’S Procurement Policy (June 2009). This is done
             online, and a copy of the screen is in each file. HACEP did use an out-dated evaluation form in
             some cases that included blanks for an evaluator to check off debarment as well as liability
             insurance requirements. However, the debarment status and insurance requirements are
             procurement personnel procedures that are performed by Contract Specialists, not by evaluators.
             The lack of an unnecessary check mark on an evaluation form does not render the procurement
             process invalid.

             None of HACEP’s contractors were ineligible for a HUD-funded contract, and all of the contractors
             provided certificates of liability insurance. Evidence of both is in the contract files.

Comment 8    In addition to using an out-dated evaluation form, HACEP has also been unable to locate all of the
             individual evaluation forms. However, the information was transferred to electronic format and
             placed in the file. The evaluation of the fifteen roofing proposals for the project was done by three
             teams of three evaluators. The evaluation teams were present when the electronic format was
             created. The Excel software used for the summaries shows they were created in February, 2010.
             Seven of the nine evaluators have verified that the electronic summary accurately reflects the
             evaluation forms. Two of the evaluators are no longer employed by HACEP and were not
             contacted.

             Prior to the award of the contracts, the evaluation panel provided a detailed explanation of the
             evaluation process. (Exhibit 10). The memorandum includes a description of the evaluation of the
             proposals for each of the public housing communities.

Comment 9    HACEP has previously responded to questions by OIG auditors regarding changes to the scoring of
             the price factor in the evaluations. HACEP evaluated the proposals for roofing contracts with three
             panels of three employees (see Exhibit 10). During the compilation of the evaluations, HACEP’s
             Director of Capital Projects noticed the prices in the proposals had not been treated uniformly by all
             of the evaluators. He devised a simple and logical method to standardize scoring of price in all of
             the proposals. The lowest priced proposal was given the maximum score for price, and each higher
             price was given a uniformly lower score. (Exhibit 12).
             Appendix C of the draft audit report is a compilation of the items reported as missing from the
Comment 10   contract files. With the exception of the missing evaluation forms, all of the information is in fact
             in the contract files. The attached Exhibit 11 shows a check mark on Appendix C for each of the
             items that were verified to be in the file. HACEP’s policies and procedures were used to procure
             contracts that ensured competition so that fair value was received for its ARRA funds. The missing
             evaluation sheets do not invalidate a procurement procedure that met HUD requirements.


                                                               6




                                                     22
             The thoroughness of HACEP’s procurement process is illustrated by the large and complete
             procurement file that is generated for each HACEP contract. HACEP delivered copies of the
             documents questioned in Appendix C of the draft audit report to the Fort Worth Regional Office.
             HACEP also delivered a binder of supporting documents for its procurement process which are
             listed in Exhibit 13. HACEP also physically carried two complete original contract files to the
             HUD Regional Office.

             Requested Action
             As discussed above, HACEP conducted a careful and responsible procurement of its ARRA
             contracts. Each contract file contains documentation of the process.         HACEP documented its
Comment 8    evaluation of bids for roofing contracts, documented bidder compliance with debarment
Comment 9    requirements, materially documented its scoring of evaluations, and met its obligation deadlines.
Comment 10   Given this compliance, HACEP would ask that the recommendation that HACEP repay $5.87
             million be deleted. To ensure clear procurement documentation, HACEP has changed its
             evaluation forms so that strikeouts will not be used to record best and final offers. New forms have
             also been created so that debarment and insurance compliance will not be part of the evaluation
             form. Additional standard operating procedures have also been implemented for the timing of
             verification of debarment status, insurance and other requirements of contract award.

             Thank you very much for the opportunity to respond to the draft audit report. We trust that this
             response adequately addresses the issues raised by the Office of the Inspector General. Please feel
             free to contact me or my staff if you have additional questions, or if you would like to verify any
             matters not included in this response.
             Sincerely,




             Gerald Cichon
             Chief Executive Officer




                                                              7




                                                    23
                      EXHIBITS — RESPONSE TO OIG DRAFT AUDIT REPORT

            1.    List of construction contracts — obligation and re-allocation
Comment 1          Obligation and re-allocation
                   Obligation and expenditure of all HACEP ARRA formula funds
            2.    Memorandum 08/31/2012 from Director of Procurement to OIG auditors
            3.    Chart of AC replacement progress in force account project
            4.    Force Account Fund Certification
            5.    Employment of ARRA Construction Specialist, January 2009
            6.    Allocation of Construction Specialist's salary to ARRA force account
            7.    Sample Time sheets for force account workers' wages, January 2009
            8.    Sample purchase of evaporative AC units & materials for force account project under
                  existing supply contract.
            9.    Sample ARRA Maintenance Work Orders and fixed asset records showing AC
                  replacement
            10.   Memorandum 02/24/2010 from evaluation committee re: evaluation of contract proposals
            11.   Appendix C to draft audit with check mark for verified items
            12.   Memorandum 02/24/2013 regarding evaluation of cost factor.
            13.   List of contract Procurement File documents delivered to Ft. Worth for review by
                  HUD




                                                       8




                                              24
                         OIG Evaluation of Auditee Comments

Comment 1   The Authority disagreed with both the findings and the recommendations. It
            provided voluminous information (more than 330 pages), which is not included in
            this report, but it is available upon request. We reviewed the information
            provided and determined that our original conclusions are valid. A detailed
            review of the Authority’s response is in the following additional comments.

Comment 2   The Authority admitted it modified some contracts and entered into several new
            contracts with savings from the modifications, but it stated these types of changes
            were well-accepted within the Capital Fund program. The Authority is incorrect.
            Funds provided under the Recovery Act had significantly different requirements
            than Capital Fund program funds. The Authority had to sign a separate Recovery
            Act ACC Amendment for each grant to receive the funds. Among the differences
            from a Capital Fund ACC Amendment were the requirement that the Authority
            obligate the funds by the Recovery Act statutory deadline and a statement that
            extensions are not permitted to obligation and expenditure dates.

Comment 3   The Authority indicated it obligated its funds before the deadline in good faith
            and subsequently modified the scope of some of the contracts. It stated that the
            actual number of roofing squares was less than anticipated. It further indicated
            that the contract modifications generated savings that were then used to fund
            replacement contracts after the deadline. We disagree. The Authority’s response
            does not fully detail what happened in its contracting process. The Authority
            made scope reductions of $1.13 million after the deadline, because it made
            contracting errors. It awarded contracts for flat roofs, but the Cramer and Salazar
            complexes had both flat and steep slope roofs. One of the Authority’s ineligible
            late contracts was for the steep slope roofs at the Cramer complex.

            Federal appropriation law is clear; if funds are deobligated after a statutory
            deadline, the funds can be used for existing contract obligations but not for new
            contracts. The Authority had roofing and waterline contract modifications
            totaling $1.5 million on contracts awarded before the deadline, which were
            allowable Recovery Act expenditures. However, the Authority transferred more
            than $1 million of the $2.6 million that it had budgeted, but not obligated, for
            force account work to sewer and roofing contracts. Thus, the Authority did not
            have sufficient contract obligations prior to the statutory deadline to cover the full
            amount of its Recovery Act funding.

Comment 4   The Authority admitted its Guillen roofing replacement contract was after the
            obligation deadline. It stated it would submit another Recovery Act eligible
            Capital Fund Plan project with a contract dated before the obligation deadline.
            We recognize the Authority’s statement that this was not a valid obligation.
            However, substituting another Capital Fund Plan project is not allowed as the
            Recovery Act prohibited Recovery Act funds from being used to supplant
            expenditures from other Federal funds like the Capital Fund program.



                                              25
Comment 5   The Authority stated that its force account projects were sequentially related, and
            the costs were paid at a reasonable rate. At the exit conference, the Authority
            stated that if it started work at one project, it had started all of its force account
            labor projects. Additionally, it stated that installation of air conditioning could
            not be completed until roofing work had been done. It also provided general
            ledger salary information for its Recovery Act construction specialist and three
            employee’s timesheets for a project beginning in January 2010. We disagree.
            Starting force account work at 1 project did not mean that the Authority started
            work at all 22 of its projects. In the report, we make it clear that an obligation
            only occurred at a project where the labor had started prior to the deadline. We
            also noted that five projects did not have roofing work, but evaporative air
            conditioning force account labor was not started until after the deadline. Further,
            the construction specialist’s salary was not charged to force account labor for a
            dwelling structure (account 1460); it was charged to salaries and benefits for
            planning (account 1430). “Planning” is a general description of 1430 activities
            which supports our conclusion that force account labor had not started at the
            projects. Additionally, all the timesheets provided were for the Eisenhower
            complex. We reported that force account labor was obligated before the deadline
            for Eisenhower.

Comment 6   The Authority said this was 1 project of 22 communities not 22 projects. Further,
            it cited the Public Housing Modernization criteria at 24 CFR 968.105. The
            Authority takes the criteria quote in its response out of context. The full quote
            follows, “Modernization project. The improvement of one or more existing
            public housing developments under a unique number designated for that
            modernization program. For each modernization project, HUD and the PHA shall
            enter into an ACC Amendment, requiring low-income use of the housing for not
            less than 20 years from the date of the ACC Amendment (subject to sale of
            homeownership units in accordance with the terms of the ACC). The terms
            ‘‘modernization project number’’ and ‘‘comprehensive grant number’’ are used
            interchangeably.” As a result, the “modernization project number” would be the
            Recovery Act grant number as the Authority signed a separate ACC for the funds
            and all of the Authority’s modernizations not just its force account work are under
            this “project number”. Thus, the criteria did not support the Authority’s statement
            that force account work at its 22 communities was 1 project.

Comment 7   The Authority stated on February 26, 2010 that it had completed a fund
            certification for evaporative air conditioner replacements. Although it admitted it
            obtained a new contract to purchase air conditioners in July 2010, it stated it had a
            prior requirements contract for air conditioners. We disagree that the Authority
            had properly obligated its force account contracts. To be properly obligated, the
            Authority was required to have awarded and executed contracts equal to the
            amount of materials that it planned to purchase and as stated in its budgets. We
            previously reviewed the prior requirements contract and determined it did not
            support the Authority’s obligation assertions. The Authority’s current documents
            indicated it needed $1.4 million in materials for evaporative air conditioners



                                              26
              replacement; and its requirements contract for evaporative air conditioners only
              totaled to $147,351. Further, the evaporative air conditioner contract required a
              written contract modification to increase the estimated contract amount. Instead
              of modifying the contract, the Authority issued a request for proposals and
              entered into five new contracts after the obligation deadline.

Comment 8     The Authority stated it conducted a careful and responsible procurement of its
              Recovery Act contracts. In the case of contractor eligibility concerning
              debarment and insurance, it stated that it used an outdated form and that the lack
              of a check mark on a form did not render the procurement process invalid. It
              further said it was not the evaluator’s responsibility to check insurance and
              debarment status. We disagree. The Authority’s procurement policy was vague
              on who should check for debarment and insurance eligibility and when the
              insurance eligibility check should be performed. However, the Authority’s
              published request for proposals and its written directions to the evaluators were
              not vague. In its evaluation criteria, included both in the request for proposals and
              its written directions, the Authority listed yes/no questions for the evaluator to
              complete concerning debarment and insurance. In many instances, one or both of
              the questions were not filled in or the box had a question mark by it.

Comment 9     The Authority said its evaluation panel provided a detailed explanation of the
              evaluation process, and it had previously provided changes to the scoring of the
              price factor in the evaluations. We had previously reviewed the detailed
              explanation. The Authority did not explain the scoring differences between the
              individual evaluator’s score (where available), the summary sheet of evaluators’
              scores (where available) and the overall summary (where available). We also
              tested the Authority’s statements concerning changes to the scoring of the price
              factor. Instead of resolving the scoring issue, it created an additional set of scores
              that did not match other scores in the files.

Comment 10 The Authority stated that except for missing evaluation forms, all of the
           information was in the contract files. At the exit conference, it asserted that if
           information was in one contract file, it should be considered to be in all contract
           files. Further, it said that missing evaluation sheets do not invalidate a
           procurement procedure that met HUD requirements. We disagree. The Authority
           published requests for proposals for 12 complexes. Further, it created evaluation
           panels for each of the 12 complexes. Thus, we disagree with the statement that if
           an evaluation was in one complexes’ contract file, it was in all the complexes’
           files. Additionally, the evaluators’ sheets formed the base support for the
           procurement decisions. However, the lack of the evaluators’ sheets was only part
           of what negatively impacted the Authority’s roofing procurement process. Our
           inability to recalculate and confirm the Authority’s scoring process was also a
           factor in determining that the Authority could not support its procurement
           process.




                                                27
                                                                                               13
                                                                                                                                                                Liability    Missing   Summary     Missing all
                                                                                                                                                Debarment      insurance    summary    scores do    or some      Unexplained
                                                                                                                       Contract                  clearance        not         score    not match   evaluation     changes in
                                                                                                                                                                                                                                                                      Appendix C



                                                                                                                       number        Property   not verified    verified      sheet      detail    worksheets       scores
                                                                                                                      ARRA-10-
                                                                                                                       C-0033       Cramer           x             x                                   x
                                                                                                                      ARRA-10-C
                                                                                                                        0034        Marmolejo        x             x           x                       x
                                                                                                                      ARRA-10-C     Rio
                                                                                                                        0036        Grande           x             x                      x            x13
                                                                                                                      ARRA-10-C
                                                                                                                        0037        Sherman          x             x                                   x
                                                                                                                      ARRA-10-C
                                                                                                                        0038        Truman           x             x                                   x




28
                                                                                                                      ARRA-10-C
                                                                                                                        0039        Webber           x             x                      x                          x
                                                                                                                      ARRA-10-C
                                                                                                                        0040        Chelsea          x             x                      x                          x




     no supporting evaluation worksheets with scoring details by evaluator.
                                                                                                                      ARRA-10-C
                                                                                                                        0041        Roosevelt        x             x           x                                     x
                                                                                                                      ARRA-10-C
                                                                                                                        0042        Salazar                        x                      x            x             x
                                                                                                                      ARRA-10-C
                                                                                                                        0043        Machuca          x             x                      x            x             x
                                                                                                                      ARRA-10-C
                                                                                                                        0057        Alvarez          x             x           x                                     x
                                                                                                                                                                                                                               SCHEDULE OF CONTRACT BID EVALUATIONS




                                                                                                                       Total exceptions noted       10            11           3          5            7             6




     The Rio Grande contract file contained a spreadsheet that had summary evaluation scores. However, the file had