oversight

The City of Eagle Pass TX, Housing Authority Generally Followed Recovery Act Public Housing Capital Funds Requirements

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-08-14.

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

OFFICE OF AUDIT
REGION 6
FORT WORTH, TX




               City of Eagle Pass Housing Authority
                          Eagle Pass, TX

         American Recovery and Reinvestment Act
              Capital Funds Formula Grant




2013-FW-1007                                      August 14, 2013
2013
                                                        Issue Date: August 14, 2013

                                                        Audit Report Number: 2013-FW-1007




TO:            David G. Pohler, Director of the San Antonio Office of Public Housing, 6JPH

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


SUBJECT:       The City of Eagle Pass, TX, Housing Authority Generally Followed Recovery
               Act Public Housing Capital Fund Requirements


    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 City of Eagle Pass Housing
Authority’s, Eagle Pass, TX administration of the Recovery Act Capital Funds 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
817-978-9309.
                                           August 14, 2013
                                           The City of Eagle Pass, TX, Housing Authority Generally
                                           Followed Recovery Act Public Housing Capital Fund
                                           Requirements



Highlights
Audit Report 2013-FW-1007


 What We Audited and Why                    What We Found

We audited the City of Eagle               The Authority generally had adequate policies,
Pass Housing Authority’s                   procedures, and controls to oversee its obligation and
(Authority) American Recovery              expenditure of Recovery Act funds. In addition, it
and Reinvestment Act of 2009               properly obtained its Recovery Act funded contracts in
(Recovery Act) grant activities.           accordance with HUD requirements. However, the
The Authority was selected                 Authority made a minor contracting error as it did not
based on the U.S. Department of            ensure one professional service contract had required
Housing and Urban                          contract term limits. The Authority did not include the
Development’s (HUD), Office                contract term limits because it was unaware of HUD’s
of the Inspector General’s (OIG)           requirements. By not adopting term limits in its
annual plan to conduct oversight           contract, the Authority cannot be sure it is receiving
of the Recovery Act funds                  the best price for goods and services under full and
provided to public housing                 open competition.
agencies and our regional risk
evaluation. Our audit objective
was to determine whether the
Authority (1) properly obligated
and spent its Recovery Act
formula grant funds, and (2)
properly obtained its Recovery
Act contracts.

 What We Recommend

We recommend that HUD’s Director of
the San Antonio Office of Public and
Indian Housing instruct the Authority to
add a term limit to its current
architectural and engineering
professional service contract and any
other open ended contracts currently in
effect, and adopt a procurement
procedure that ensures future contracts
contain the required contract limit
maximums.
                             TABLE OF CONTENTS


Background and Objectives                                                           3

Results of Audit
      Finding:   The Authority Generally Complied with Recovery Act Requirements,   4
                 But It Had a Minor Contracting Exception.



Scope and Methodology                                                               7

Internal Controls                                                                   8

Appendixes
A.    Auditee Comments and OIG’s Evaluation                                         9




                                              2
                      BACKGROUND AND OBJECTIVES

The City of Eagle Pass Housing Authority (Authority) was established on March 26, 1949 by the
City of Eagle Pass City Council who formed the Authority’s board of commissioners. The
Authority currently manages 502 low rent units with a current operating subsidy of more than
$839,000.

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

The Authority received $940,783 in a Recovery Act Capital Fund formula grant to refurbish
projects selected from its 1- and 5-Year Action Plan. The Authority received its grant on March
18, 2009. It had until March 17, 2010 to obligate its funds and until March 17, 2012 to fully
expend its funds. The Authority planned to remodel one multifamily high-rise building;
however, its solicitation failed to find a qualified contractor in a timely manner, which risked the
Authority’s grant. To reduce risk of not meeting the obligation deadline, the Authority added
three projects and subsequently contracted to complete four projects with its Recovery Act funds.

Our audit objectives were to determine whether the Authority (1) properly obligated and spent its
Recovery Act formula grant funds, and (2) properly obtained its Recovery Act contracts.




                                                 3
                                 RESULTS OF AUDIT


Finding 1: The Authority Generally Complied with Recovery Act
Requirements, But It Had a Minor Contracting Exception
The Authority appropriately obligated and expended its Recovery Act funds according to the
requirements. In addition, the Authority had adequate policies, procedures, and controls to
generally oversee its Recovery Act funded procurements. However, the Authority made a minor
contracting error as it did not ensure one professional service contract had required contract term
limits. The Authority did not include a term limit because the Authority was unaware of HUD’s
policy that requires a finite period for contracts including options. By not adopting term limits in
its contract, the Authority cannot be sure it is receiving the best price for goods and services
under full and open competition.


 The Authority Appropriately
 Obligated and Expended Its
 Recovery Act Funds

               The Authority established procedures and controls to ensure that it appropriately
               selected its Recovery Act projects from its 1- and 5-Year Action Plan. The
               Authority’s projects met the Recovery Act’s requirements for use of funds. Both
               the funds expenditures and projects’ completion dates met the Recovery Act
               deadlines. The table below details the cost of the projects and the amount of
               Recovery Act Funds used.

                        Recovery Act projects                   Project            Recovery Act
                                                            contracted cost         funds used
                Multi-family housing remodeling                    $992,000              $628,456
                Air conditioning                                    143,500                143,300
                Playground                                           45,000                 45,000
                Window screens                                       34,027                 34,027
                Architect & engineering contractor                   90,000                 90,000
                Total                                            $1,304,527              $940,783

               The total costs for the Authority’s projects exceeded the available Recovery Act
               grant funds. Therefore, it used its capital funds and other program funds to pay
               the projects’ remaining cost balances.




                                                 4
    The Authority Appropriately
    Procured Services for Its
    Recovery Act Projects

                 The Authority had sufficient policies and controls to effectively manage its
                 procurement process. The Authority explained that its primary Recovery Act
                 project required a second solicitation to find a qualified contractor, which pushed
                 the contract closing date to February 2010. In anticipation of not finding a
                 qualified contractor before the obligation deadline, the Authority added three
                 other ready projects. The Authority signed its final Recovery Act contract in
                 February 2010, and completed all of the projects within the deadlines established
                 by the Recovery Act.

    The Authority’s Service
    Contract Lacked an End Date

                 A review of the Authority’s architectural and engineering professional service
                 contract found that it lacked an end date. The Authority acknowledged that its
                 contract did not have an end date; however, it stated the contract contained a
                 clause allowing it to terminate the contract so long as it gave no less than 7 days
                 written notice. Further, the Authority was unaware of HUD’s policy that required
                 a finite period for contracts including options. HUD views open ended contracts
                 restrictive of competition and requires contract language limiting a contract period
                 to a maximum of 5 years.1

    Conclusion

                 The Authority generally complied with the Recovery Act’s requirements. The
                 Authority appropriately obligated and expended its funds. In addition, the
                 Authority appropriately procured contractors to complete those projects. The
                 Authority had one minor issue concerning the end date or term limit in one
                 contract. This occurred because the Authority was unaware of HUD’s policy that
                 requires a finite period for contracts including options. The Authority needs to
                 take steps to ensure its current and future contracts meet contract term limits. By
                 not adopting term limits in its contract, the Authority cannot be sure it is receiving
                 the best price for goods and services under full and open competition. By
                 adopting procedures that limit contract terms in future contracts, the Authority
                 should have better assurance that the goods and services it receives are at the best
                 price and obtained using full and open competition.




1
     HUD Handbook 7460.8 REV-2, Chapter 10.8.C.2

                                                   5
Recommendations

          We recommend that the Director of San Antonio Office of Public and Indian
          Housing require the Authority to

          1A.     Add a term limit to its current architectural and engineering professional
                  service contract and any other open ended contracts currently in effect.

          1B.     Adopt a procurement procedure to ensure that future contracts contain the
                  required contract limit maximums.




                                            6
                        SCOPE AND METHODOLOGY

We conducted our audit work at the Authority’s administrative offices in Eagle Pass, TX, the
San Antonio, TX Office of Public Housing, and the HUD OIG offices in San Antonio and Fort
Worth, TX, between May 1 and June 14, 2013. The audit generally covered the period from
March 18, 2009, to August 25, 2010.

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

      Reviewed relevant laws, regulations, and HUD guidance.
      Reviewed the Authority’s Recovery Act Capital Fund formula grant agreement, annual
       statement, and 5-Year Action Plan.
      Reviewed the Authority’s procurement records and environmental certification.
      Reviewed the Authority’s board of commissioners meeting minutes to confirm that the
       Authority had approved all the Recovery Act Capital Fund contracts.
      We conducted data validation and reliability testing of the Authority’s Recovery Act
       Capital Fund general ledger transactions, and, based on that testing, we concluded that
       the data was generally reliable for the purposes of our audit objectives.
      Reviewed 100 percent of the Authority’s procurements to determine if its obligations met
       the appropriate deadlines.
      Reviewed 100 percent of the Recovery Act Capital Fund expenditures to confirm that all
       costs were eligible, supported, and paid by the expenditure deadline.
      Interviewed the Authority’s executive director, finance director, and capital funds
       program supervisor.
      Interviewed the Authority’s architect responsible for the Recovery Act Capital Fund
       projects.
      Conducted site visits to inspect all the Authority’s Recovery Act Capital Fund projects.
      Interviewed HUD’s Office of Public Housing staff in San Antonio, TX.

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.




                                               7
                              INTERNAL CONTROLS

Internal control is a process adopted by those charged with governance and management,
designed to provide reasonable assurance about the achievement of the organization’s mission,
goals, and objectives with regard to

      Effectiveness and efficiency of operations,
      Reliability of financial reporting, and
      Compliance with applicable laws and regulations.

Internal controls comprise the plans, policies, methods, and procedures used to meet the
organization’s mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program operations as well as the
systems for measuring, reporting, and monitoring program performance.


 Relevant Internal Controls

               We determined that the following internal controls were relevant to our audit
               objectives:


                     Policies and procedures that management implemented to reasonably ensure
                      that disbursements are timely, eligible, and supported.
                     Policies and procedures that management implemented to reasonably ensure
                      that obligations are timely and procurements are consistent with laws and
                      regulations.

               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.

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




                                                 8
Appendix A

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation                              Auditee Comments

                                                                   Carla Y, Mancha, Executive Director
                                                                   P.O. Box 844
                                                                   Eagle Pass, Texas 78853
                                                                   Tel. (830) 773-3325
                                                                   Fax (830) 773-7625
                                                                   Email: CP_HA@yahoo.com

                                Housing Authority of the City of Eagle Pass
                     August 6, 2013

                     Gerald R. Kirkland
                     819 Taylor Street
                     Suite 13A09
                     Fort Worth, Texas 76102

                     RE: TX019 ARRA Audit Report

                     Dear Mr. Kirkland:

                     The PHA has reviewed all contracts and will place on the next Board of
                     Commissioners regular meeting (August 22, 2013) the following items:
Comment 1            Authorize Executive Director To Request Proposals (RFQ's) For
                     Architect and Engineering Services; and

                     Authorize Executive Director To Request Proposals (RFQ's) For Legal
                     Services.

                     As of to date these are the only two contracts which need the language as
                     per duration of contracts as it read in HUD handbook 7460.8,Rev- 2,
                     paragraph 10.8.C.2.

                     Should you have any questions, please feel free to call me at (830)773-
                     5822.

                     Sincerely,



                     Carla Mancha
                     Executive Director

                Providers of Safe, Decent and Affordable Housing




                                                        9
                           OIG Evaluation of Auditee Comments

Comment 1 We appreciate the Authority taking the necessary proactive steps to locate its
          contracts that did not have a term limit and correct this minor issue. HUD will
          need to follow-up with the Authority to ensure term limits are added to their
          current contracts and contracting procedures are created to ensure future contracts
          contain contract term limits.




                                              10