oversight

The Hoboken Housing Authority, Hoboken, NJ, Generally Administered the Recovery Act Capital Fund Program in Accordance With Regulations

Published by the Department of Housing and Urban Development, Office of Inspector General on 2013-01-04.

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

  [Type text]
 OFFICE OF AUDIT
                               D
 REGION 2AGA
 NEW YORK-NEW JERSEY




                  Hoboken Housing Authority
                        Hoboken, NJ

               Recovery Act Capital Fund Program




2013-NY-1002                                  JANUARY 4, 2013
                                                        Issue Date: January 4, 2013

                                                        Audit Report Number: 2013-NY-1002


TO: Sonia Burgos, Director, Office of Public and Indian Housing, Newark, NJ, 2FPH

     //SIGNED//
FROM: Edgar Moore, Regional Inspector General for Audit, New York-New Jersey,
                                     2AGA

SUBJECT: The Hoboken Housing Authority, Hoboken, NJ, Generally Administered the
         Recovery Act Capital Fund Program in Accordance With Regulations


    Enclosed is the U.S. Department of Housing and Urban Development (HUD), Office of
Inspector General’s (OIG), final results of our review of the Hoboken Housing Authority,
Hoboken, NJ officials’ administration of the Recovery Act Capital Fund Program, the objectives
of which were to determine whether Authority officials administered the Recovery Act Capital
Fund program in accordance with the Recovery and Reinvestment Act of 2009 and HUD
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
212-264-4174.


Attachment
                                           January 4, 2013
                                           The Hoboken Housing Authority, Hoboken, NJ,
                                           Generally Administered the Recovery Act Capital Fund
                                           Program in Accordance With Regulations.



Highlights
Audit Report 2013-NY-1002


 What We Audited and Why                     What We Found

We audited the Hoboken, NJ, Housing         Authority officials generally administered the
Authority’s administration of its           Recovery Act Capital Fund program in accordance
Recovery Act Capital Fund program.          with regulations. Specifically, they established and
We selected the Authority based on a        implemented adequate controls to ensure that their
risk assessment, which considered the       funds awarded under the Recovery Act were obligated
Authority’s funding, the U.S.               and expended as required. However, there was
Department of Housing and Urban             inadequate support that $8,903 was obligated in a
Development’s (HUD) risk analysis,          timely manner and $9,000 was expended for an
and prior OIG audits. HUD’s risk            eligible cost, and $83,642 of costs were misclassified.
assessment rated the Authority as high
risk, and the Authority was rated
substandard physical by HUD’s Public
Housing Assessment System. The audit
objectives were to determine whether
Authority officials obligated and
expended the capital funds in
accordance with the Recovery Act and
HUD regulations and complied with
Recovery Act reporting requirements.

 What We Recommend

We recommend that HUD instruct
Authority officials to provide
supporting documentation for the
obligation of $8,903 in Recovery Act
capital funds or take appropriate action
to recapture the funds in accordance
with the Recovery Act, and ensure that
their revised Actual Modernization Cost
Certificate and LOCCS reconcile with
the corrective action taken for the
misclassification of $83,642 in costs.
                            TABLE OF CONTENTS

Background and Objectives                                                      3

Results of Audit
      Finding 1: Authority Officials Generally Administered the Recovery Act
                 Capital Fund Program in Accordance With Regulations           4

Scope and Methodology                                                          7

Internal Controls                                                              8

Appendixes
A.    Schedule of Questioned Costs and Funds To Be Put to Better Use           10
B.    Auditee Comments and OIG’s Evaluation                                    11




                                            2
                     BACKGROUND AND OBJECTIVES

The Hoboken Housing Authority is a nonprofit corporation created in 1949 under Federal and
State housing laws as defined by State statute for the purpose of engaging in the development,
acquisition, and administrative activities of the low-income housing program and other programs
with similar objectives for low- and moderate-income families residing in Hoboken, NJ. The
Authority is governed by a seven-member board of commissioners, of which one is appointed by
the mayor, five by the city council, and one by the New Jersey Department of Community
Affairs as delegated by the governor. The Authority’s board of commissioners appoints the
executive director, who manages the day-to-day operations of the Authority.

On February 17, 2009, the President signed the American Recovery and Reinvestment Act of
2009 (Public Law 111-5). The Recovery Act provided $4 billion ($3 billion for formula grants
and $1 billion for competitive grants) for public housing agencies to carry out capital and
management activities, including the modernization and development of public housing. The
Recovery Act required that funds be obligated within 1 year of the date on which funds became
available to an authority for obligation, 60 percent of the funds be expended within 2 years, and
100 percent be expended within 3 years of such date. The Authority had obligated 100 percent
of the $2,780,883 in Recovery Act funds awarded prior to the March 17, 2010 deadline, and had
expended more than $1.9 million (71 percent) of the funds by August 2010, and 100 percent by
June 30, 2011, which was ahead of the expenditure deadline of March 17, 2012.

In addition to the $2,780,883 in Recovery Act formula capital funds the Authority received in
2009, it also received approximately $2.2 million and $1.9 million in annual formula capital
funds in 2010 and 2011, respectively. The Authority also administered the HUD-funded Low
Rent Housing program, for which it operated 1,357 units located in 5 developments, and the
Housing Choice Voucher program, for which it administered 326 vouchers.

The objectives of the audit were to determine whether Authority officials obligated and
expended their capital funds in accordance with the Recovery Act and HUD regulations, and
complied with Recovery Act reporting requirements.




                                                3
                                       RESULTS OF AUDIT


Finding: Authority Officials Generally Administered the Recovery Act
          Capital Fund Program in Accordance With Regulations
Authority officials generally administered the Recovery Act Capital Fund program in accordance
with regulations. Specifically, they established and implemented adequate controls to ensure that
their Recovery Act capital funds were obligated and expended as required. However, we
observed there was inadequate support that $8,903 was obligated in a timely manner, $9,000 was
expended for an eligible cost, and $83,642 in costs was misclassified. As a result, Authority
officials lacked assurance that the questioned amounts were disbursed for eligible costs.


    Unsupported Obligation
    Amount

                  Authority officials reported in HUD’s Line of Credit Control System (LOCCS) 1
                  that they had obligated the more than $2.7 million in Recovery Act capital funds
                  awarded to the Authority by March 8, 2010, prior to the Recovery Act deadline of
                  March 17, 2010. However, support was lacking that $8,903 had been obligated as
                  required. Section 1201 of the Recovery Act required public housing authorities to
                  obligate 100 percent of funds awarded within 1 year of the date on which the
                  funds became available to the authority for obligation, and Office of Public and
                  Indian Housing Notice PIH-2009-12 required that authorities obligate 100 percent
                  of the grant within 1 year of the effective date of the annual contributions contract
                  amendment that awarded the funds. Authority records listed 21 contracts totaling
                  more than $2.7 million to support the reported obligation. However, Authority
                  officials acknowledged that a $9,800 contract listed was used to obligate fiscal
                  year 2008 capital funds, and the contract(s) to obligate the questioned $8,903 2
                  could not be located. This condition occurred because of a weakness in the
                  Authority’s tracking for obligation of Recovery Act funds. Consequently,
                  Authority officials lacked assurance that they complied with the Recovery Act
                  obligation requirement.


    Unsupported Expense

                  Authority officials drewdown $9,000 for painting expenses, for which there was
                  no contract. In addition, without a contract with a detailed scope of work a

1
  LOCCS is HUD’s disbursement system, which public housing authorities use to drawdown approved funds and
through which HUD monitors authorities’ obligations and expenditures.
2
  While the ineligible contract was for $9,800, there were valid obligations for $2,771,981, thereby leaving $8,903
($2,780,883 awarded less $2,771,980) unobligated.

                                                          4
                 determination cannot be made as to whether the cost was properly classified as
                 routine maintenance or a capital expense. Regulations at 24 CFR 968.112 provide
                 that routine maintenance or replacement costs are ineligible Capital Fund Program
                 expenses. Further, services should be procured via an executed contract so that it
                 is clear what service is expected and HUD Handbook 7485.1 paragraph 10-8(a),
                 states that a valid contract requires execution both by the contractor and the public
                 housing agency. Consequently, the Authority lacked assurance that the $9,000
                 was expended for eligible and reasonable expenses. This condition occurred
                 because of an error in maintaining adequate documentation.

    Costs Were Misclassified

                 Authority officials erroneously charged $74,642 in architect and engineering costs
                 (budget line item 1430), referred to as soft costs, to dwelling structures (budget
                 line item 1460), referred to as hard costs. Regulations at 24 CFR (Code of
                 Federal Regulations) 968.105 define soft costs as nonphysical improvement and
                 hard costs as physical improvement costs classified in development accounts 1450
                 through 1475. As a result of the error, $74,642 was unavailable to be expended
                 for dwelling and structure costs. This condition occurred, according to Authority
                 officials, because they mistakenly interpreted these costs to be construction
                 services and, thus, charged them to dwelling structures, which were related to a
                 contract for an energy audit of water, electricity, and gas consumption.

                 In addition, Authority officials incorrectly completed and submitted to HUD their
                 Actual Modernization Cost Certificate (form HUD-53001) 3. Authority officials
                 reported costs based upon budgeted amounts as opposed to actual costs incurred.
                 As a result, disbursements for fees and costs (budget line item 1430) were
                 understated by $83,642, and disbursements for dwelling structures (budget line
                 item 1460) were overstated by the same amount.

                 Authority officials acknowledged the erroneous submission and on September 18,
                 2012, filed an amended Actual Modernization Cost Certificate and final Annual
                 Statement/Performance and Evaluation Report (form HUD-50075.1). On
                 September 26, 2012, HUD Newark field office officials agreed to amend the
                 budget line items in LOCCS to reflect the actual expenses and required Authority
                 officials to include the approved cost certificate in the Authority’s next fiscal year
                 audit, the report for which is required to be submitted within 9 months after the
                 beginning of next fiscal year cycle. Upon review of the report, HUD officials will
                 provide a final closeout package containing a copy of the HUD-approved
                 executed cost certificate and closeout letter.


3
 Regulations at 24 CFR 968.125 require that authority officials undertake modernization activities as approved by
HUD in the budget, annual statement, or 5-year plan, and Regulations at 24 CFR 968.145(A) and (B) require that
upon completion of the activities funded in a modernization program, the officials submit to HUD a form HUD-
53001 to initiate the fiscal closeout of any modernization grants.

                                                        5
Conclusion

             Authority officials generally obligated and expended Recovery Act capital funds
             in accordance with regulations. However, errors in documentation lessened
             HUD’s assurance that $8,903 was obligated in a timely manner, $9,000 was
             expended for eligible activities, and costs of $83,642 were properly reported.
             Authority officials had begun to take action to address these issues.

Recommendations

             We recommend that the Director of the HUD Newark Office of Public Housing
             instruct Authority officials to

             1A. Provide documentation to support that the $8,903 was properly obligated, and
                 if proper documentation is not provided, take action to recapture the funds in
                 accordance with the provisions of the Recovery Act.

             1B. Provide documentation to support that the $9,000 disbursement for painting
                 costs was eligible as a capital fund expense. If documentation cannot be
                 provided, the cost should be repaid from non-Federal funds.

             1C. Ensure that the Authority’s revised Actual Modernization Cost Certificate
                 and LOCCS reconcile with the corrective action taken for misclassification
                 and reporting of $83,642 in costs.




                                              6
                        SCOPE AND METHODOLOGY

The review focused on whether Authority officials administered the Recovery Act Capital Fund
program in accordance with applicable regulations. To accomplish this objective, we

   x   Reviewed Recovery Act Capital Fund program regulations and requirements contained in
       the Recovery Act and HUD regulations, notices, and guidance.

   x   Obtained an understanding of the Authority’s financial and administrative controls.

   x   Interviewed HUD field office and Authority staff and the Authority’s fee accountant.

   x   Reviewed the Authority’s financial and management data in the Federal Audit Clearing
       House and HUD’s Public and Indian Housing Information Center system and LOCCS.

   x   Reviewed the Authority’s HUD-approved annual plans for fiscal years 2009, 2010, and
       2011 and the Authority’s Recovery Act Capital Fund budget, Actual Modernization Cost
       Certificates, financial data schedules, contract files, and general ledger.

   x   Reviewed HUD monitoring and independent public accountant audit reports.

   x   Selected a nonstatistical sample of 10 of the 21 contracts Authority officials reported as
       being used to obligate Recovery Act capital funds totaling $1.6 million, or 57 percent, of
       the more than $2.7 million in funds obligated to test whether the funds were obligated in
       a timely manner. The first eight contracts were selected based upon multiple contracts
       awarded to a contractor, and the ninth and tenth was selected as the lowest priced
       contract.

   x   Using a random number generator, selected a nonstatistical sample of $811,521 in
       Recovery Act capital fund drawdowns, representing 29 percent of the more than $2.7
       million reported as expended, to test whether funds were properly drawn down for
       eligible costs in accordance with procurement regulations.

The review generally covered the period March 1, 2009, through April 1, 2012, and was
extended as needed to accomplish our objectives. We performed our fieldwork from July through
September 2012 at the Authority’s administrative offices at 400 Harrison Street, Hoboken, NJ,
and at 220 Adams Street, Hoboken, NJ.

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 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

   x   Effectiveness and efficiency of operations,
   x   Reliability of financial reporting, and
   x   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:

               x   Program operations – Policies and procedures that management has
                   implemented to reasonably ensure that a program meets its objectives.

               x   Compliance with laws and regulations – Policies and procedures that
                   management has implemented to reasonably ensure that resource use is
                   consistent with laws and regulations.

               x   Safeguarding of resources – Policies and procedures that management has
                   implemented to reasonably ensure that resources are safeguarded against waste,
                   loss, and misuse.

               x   Reliability and validity of data – Policies and procedures that management has
                   implemented to reasonably ensure that valid and reliable data are obtained,
                   maintained, and fairly disclosed in the reports.

               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.

                                                 8
Significant Deficiencies

             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 Hoboken Housing Authority’s internal control as a
             whole.




                                              9
                                    APPENDIXES

Appendix A

               SCHEDULE OF QUESTIONED COSTS
              AND FUNDS TO BE PUT TO BETTER USE

                   Recommendation        Unsupported       Funds to be put
                       number                1/            to better use 2/

                          1A                $8,903
                          1B                $9,000
                          1C               _______            $83,642
                         Total             $17,903            $83,642


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.

2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest, costs not incurred by implementing recommended improvements,
     avoidance of unnecessary expenditures noted in preaward reviews, and any other savings
     that are specifically identified. In this case, Authority officials obtained HUD approval to
     amend the Authority’s Capital Fund budget line items to ensure that costs erroneously
     classified were properly classified without exceeding budgetary limits, thus ensuring that
     these funds would be put to better use.




                                              10
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION

Ref to OIG Evaluation                            Auditee Comments



                                                   Housing Authority
                                                Of The City of Hoboken
                                        400 Harrison Street, Hoboken, NJ. 07030
                                                    (201) 798-0370
                                                  FAX (201) 798-0164

                December 17, 2012

                Mr. Edgar Moore
                Regional Inspector General for Audit
                U.S. Department of Housing and Urban Development
                Office of Inspector General
                26 Federal Plaza Room 3430
                New York, NY 10278-0068

                Dear Mr. Moore,

                The Hoboken Housing Authority (the Authority) strives to be at the forefront of public
                housing. The current administration has come a long way in creating the organization
                that it is today. Currently we are recovering and rebuilding from Super Storm Sandy.We
                have reformed, reengineered and restructured our agency to produce the best
                operationalresults for HUD and our residents. We have implemented many internal
                controls to administer our grants throughout the years and recently received from HUD
                a fiscal management compliance satisfaction letter with regards to an independent
                assessment that was conducted on the Authority·last year. With the ARRA funding of
                $2,780,883, the Authority improved and enhanced the life styles of existing and new
Comment 1       tenants. Long standing vacancies were eliminated, elevators were made more efficient
                and modernized, outdated bathrooms and kitchens were updated.Roofs were replaced
                as well as laundry and community rooms were renovated. We were able to take units
                that were offline for three and four years and renovate them so they can be leased to
                new families and generate a greater revenue stream for the Authority. Our allocation
                and obligation was based on the five year plan that was inherited and my
                administration carried out these capital improvements proficiently.




                                                       11
Ref to OIG Evaluation                                    Auditee Comments


                    The Authority has had turnover in its administration with retirement and resignation.
                    The ARRA funding once allocated and obligated for the improvements we needed I
                    delegated the administering primarily to our Modernization Coordinator and Controller
                    whom worked together with our fee accountant. The contracting was handled by the
                    Modernization Coordinator and bookkeeping was maintained by the Controller.
                    Approvals were obtained from the Executive Director.At the time when the OIG came in
                    for its audit fieldwork, both of the individuals who administered had left the Authority.


                    In response to the unsupported obligation amount, the Authority acknowledges that
Comment 2           support was unable to be produced for a $9,000 modernization contract.As for the
                    obligation of the $8,903 for capital improvements we sustain that it was also properly
                    obligated.However, this is not to say that proof did not exist. The Authority places the
                    utmost importance on following the proper procedures to obligate funds, including
                    creating valid purchase orders and contracts. Once created, all necessary approvals are
                    obtained to ensure that funds are being spent on appropriate expenditures.It believes
                    that in the transition of the employees who handled the procurement and record keeping
                    function, this document was misplaced.These are aged records that we relied on those
                    custodians of the record to maintain.However, we have been challenged with locating the
                    contract due to these persons no longer being with us. Also, Ihave reached out to the contractor
                    to ask for his help in locating their copy, but to no avail yet as he informed me they were in
                    storage somewhere since they're old files.


                    In regards to the unsupported expense, as stated above the documentation supporting the $9,000 for
Comment 3           painting of units is deemed to have been misplaced during the transition of employees. As these costs
                    were incurred as part of the renovation of units, the Authority elected to capitalize these costs as
                    opposed to expense as part of routine maintenance.

                    The determination of the classification of costs was made by the Controller and reviewed by the Fee
                    Accountant. When the Authority became aware of the misclassificationof costs related to the
Comment 4           completed Energy Audit,the Authority filed an amended Actual Modernization Cost Certificate with
                    closeout budget document. As part of the upcoming fiscalyear audit, the Authority will have the cost
                    certificate audited in order to close out the program.

                    Presently we have been relocated from our offices due to flooding and contamination caused by Super
                    Storm Sandy. Our administrative staff has been split up into two offices. Records have been destroyed
                    due to water damage. All of our files have been boxed up and sent to different storage areas. This has
                    brought on additionalchallenges in retrieving documentation as these files could be destroyed or damaged.
                    We will not be able to know until we move back into our office.

                                                            Sincerely,

                                                            //SIGNED//

                                                            Carmelo G. Garcia, MSIS, IM, SPHM, SHRM

              CC:         John Harrison
                          Diego Ramos
                          Eloisa Villalobos
                          Emil Kotherithara

                                                             12
                         OIG Evaluation of Auditee Comments

Comment 1   The report acknowledged that the Authority officials generally established and
            implemented adequate controls to ensure that the funds were obligated and
            expended for eligible activity in accordance with HUD regulations.

Comment 2   Authority officials acknowledged that documentation was lacking to support the
            $9,000 contract; they stated that the $8,903 was obligated in a timely manner and
            note that locating these documents has been challenging because two responsible
            individuals no longer work at the Authority and the damage caused by Super
            Storm Sandy. Nevertheless, this issue will be addressed during the audit
            resolution process with HUD officials.

Comment 3   Authority officials acknowledged that support could not be located for the $9,000
            modernization contract. Without a contract, scope of work or detailed invoice for
            the services rendered, we cannot determine the nature of the expenses and
            conclude as to whether the cost was properly classified. Therefore, this issue will
            be addressed during the audit resolution process with HUD officials.

Comment 4   Authority officials’ comments are responsive to our recommendation.




                                            13